Mexico Real Estate Horror Stories
Nearly every week, we see another article in the press about expatriates buying real estate in Mexico. When we first wrote this article, we had seen one from the Kansas City Star, reprinted from the Wall Street Journal. It was about retired and soon-to-be-retired baby boomers buying real estate in the Yucatan and on the Mayan Riviera.
Here are some excerpts:
A big cadre of American baby boomers looking to retire someplace sunny and cheap is fueling a land rush in the Riviera Maya, an idyllic slice of Mexico’s Yucatan Peninsula... But many land-seekers are encountering obstacles, including skyrocketing real estate prices, confusing laws and con artists... The land rush is occurring at the beginning of a demographic tidal wave. With more than 70 million American baby boomers expected to retire in the next two decades, many without adequate pensions or health plans, some experts predict a vast migration to warmer — and cheaper — climates. Often such buyers purchase a property 10 to 15 years before retirement, use it as a vacation home, and then eventually move there for most of the year. Developers increasingly are taking advantage of the trend, building gated communities, condominiums and golf courses...
Mexico, already thought to be home to as many as 1 million American citizens, or roughly a quarter of all U.S. expatriates, is set to get the lion’s share of new arrivals...
No place has boomed in recent years like the state of Quintana Roo in Mexico’s far southeast corner. Anchored by the high-rise resort destination of Cancun at one end and cosmopolitan Playa del Carmen an hour to the south, Quintana Roo is the country’s fastest-growing state, with over a million residents. An estimated 1,500 to 3,000 American citizens live there more than six months out of the year...
If you read the article in its entirety, you'll see a lot of references to "unscrupulous" deals, "problems", "obstacles", "confusing laws" and "con artists". There's the developer in Baja California who sold condos built on ejido land and afterwards all the tenants were evicted. There's a couple near Puerto Vallarta who lost their ocean view when local Mexican developers built a resort between their beach house and the water. There's a woman near Tulum who put a down payment on ejido land but then disappeared for three years and the seller assumed she was dead, so he reoccupied it. But she wanted it back. Then a dead body showed up on the property.
Lions and tigers and bears, oh my!
Not Kansas, Kanasin...
It's true that we are not in Kansas anymore, but like "The Wizard of Oz", all of the news stories we read seem to reuse the same actors in a rather familiar plot. Act I: Gringos are moving to Mexico in record numbers. Act II: Mexico is a lawless land where it is "not uncommon" for Gringos to be duped, or worse (insert the same two or three examples from above). Act III: Let these cautionary tales serve as a warning. Act IV: Here's what you need to know to avoid being "victimized" (i.e. "there's no place like home").
It never fails to amuse us how the Press relies on fear to sell papers, in this case portraying Mexico as such a dangerous, lawless and corrupt country. We have purchased five properties in Mexico. Four are here in the Yucatan Peninsula and one is in the state of Michoacan. We have many clients who are real estate agents, and through them we are personally aware of scores of real estate transactions among the hundreds conducted here each year. In over ten years of living here now, we have only heard of two or three "unscrupulous" deals out of a thousand.
Frustrating Process
That's not to say we haven't met several expatriates who were frustrated by the process of buying property in Mexico. Many of these are head-strong, impatient types who bring their own ideas of what the rules should be and don't take no for an answer, even though that is one word we share with Spanish. Mexico is a different culture that speaks a different language and has different laws arising from a different history. There is much to learn and we always recommend you don't go it alone. Even after living here for as long as we have, knowing the people we know and having our experience, we would never consider buying or selling a property in Mexico without the two most important ingredients: a Mexican accountant and a Mexican lawyer. And for most of the time, we would throw in that third almost-essential ingredient, a knowledgeable Mexico-based real estate agent.
Por Ejemplo...
For example, ejido land causes "problems" for those who don't understand it. The majority of Mexico's population is Native American or "indigenous". They were not killed or herded off to reservations like in the United States. During the Mexican Revolution, the government took land away from large haciendas that had acquired it illegally and placed it in trust to the indigenous inhabitants who had lost it. This land is technically owned by the Mexican Government but used by local indigenous communities. In recent years, laws have been enacted that allow the heirs of the original families to whom the land was entrusted to privatize and sell it, but the process can take years as each interested party is tracked down for their signature. If you deal directly with a member of an ejido, he or she has the right to take a down payment in return for a promesa, or agreement to sell you his share after it is privatized. He or she will undoubtedly offer you a great price. You may be tempted. But it is a highly speculative deal because the ejido may never be privatized, at least not in your lifetime. We suggest you do not even consider this kind of deal. But if the Mexican citizen in question has lived through the division of the ejido and has a clear title, then go for it. Some of the best property we know of has been purchased that way.
Obtain the Basics
We have heard of several cases where expatriates without a clue try to deal directly and end up stymied or frustrated. In general, they are over-confident and trying to find a "better" deal and avoid paying a commission. For most of us, this is not a good idea. Find a good real estate agent who has references. He or she will hook you up with a good Mexican lawyer (called a notario), and if you need one, an accountant (called a contador). They will help you learn what to expect and how to follow the rules. Then, follow the rules. In many places in Yucatan (and throughout Mexico), you will have to purchase your land through a bank trust (called a fideicomiso). We suggest you might consider a fideicomiso even if you are in the zone where you don't have to. It will ensure you a clear title and it offers some tax advantages, too. Within 50 kilometers of the coast, it is required by law. There are some rumblings in Mexico City that they may be doing away with the fideicomiso requirement, but as of late 2015, that has not happened.
Booming From Coast to Coast
What the Kansas City Star says about the real estate boom in Playa del Carmen, Tulum and Cancun is definitely being seen here in Merida as well. You cannot drive down a street in Merida for more than three blocks in the centro historico of Merida without seeing at least one major colonial renovation going on. And of course, most of the people paying for those renovations are coming from the United States, Canada or elsewhere, because most local Yucatecos with money wouldn't dream of living in el centro. Just like in the United States 30 years ago, they are moving out to the suburbs, either in gringo-like, ranch-style homes or in gated communities like La Ceiba, the Yucatan Golf Club or Xcanatun residential communities, or even those high-rise Yucatan Country Towers in the Alta Brisa neighborhood.
Meridanos are selling the homes of their tias (aunts) and abuelas (grandmothers) to the incoming expatriates, who are salivating at the beauty and potential of these old colonial homes. In the USA of course, you can't find these stone-walled, tile-floored homes with high, beamed ceilings and arch-lined corridors for love or money, let alone for the price of a down payment on a tract home in California.
Despite the somewhat negative tone of most news articles, they often do tell a "rare" success story. The Kansas City Star story talks about the abandoned mansion of the famous and now deceased drug lord Pablo Escobar, that was turned into the Amansala Hotel and EcoResort by a resourceful gringa. That was a few years ago now, and that was just the beginning. The beach in Tulum is now rimmed with a plethora of successful small hotels with restaurants, sushi bars and yoga studios, Playa del Carmen and other beach communities are still growing like crazy and even Merida is becoming hip and popular (see link below).
So hundreds of Americans, Canadians and people from around the world, maybe thousands, are buying homes annually in Merida or on the nearby beaches of the Yucatan Gulf Coast for retirement, vacation rental income and investment. And more and more of those are moving down here every year. We have heard recently that over 7,000 expatriates live in Merida, a surprising number if you believe the 1,500-3,000 on the Mayan Riviera. Frankly, we did not think those numbers were accurate when that article was written (too low) and they have risen steadily since then.
We Working Gringos are just the visible tip of the Yucatecan expatriate iceberg, so to speak. An iceberg that has grown exponentially since this article was written and shows no signs of melting, even in this tropical heat!
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Looking to buy real estate in Merida or Yucatan? Try our Real Estate in Yucatan section or the For Sale in Yucatan pages.
Looking to rent? Try our Vacation Rental Listings!
Want to know what it is like to LIVE in Yucatan? Try our Yucatan Survivor section!
Helpful Links & Resources
Comments
CasiYucateco 16 years ago
If I understand Atlante's comment correctly that information is wrong.
First off, the price at purchase is the price agreed to by the buyer and seller.
Next, the Catastro (local property taxing authority) sets the tax value of the house. This value often bears little relationship to the actual sale price, much as "Taxed Value" (for property tax) of a home in the USA often bears little relationship to the actual sales price (depending on your state and local appraisal practices).
The Catastro sets your tax value each year. And you pay property taxes based on that value every year. You do not receive a bill, but you are expected to pay during or before January. It can even be done by Internet: http://www.merida.gob.mx/catastro/
Homeowners who have utilities in their name (water, electricity, telephone) and can show that they've lived in the house for two full years are not subject to the huge Capital Gains taxes that Atlante mentions. Good record-keeping is important.
House flippers could be subject to the capital gains taxes, and rightly so. When it isn't your residence for personal use, but just a business activity to buy, fix (or not) and sell houses, why shouldn't you pay a fair tax on the profits you have earned?
That, simply put, to paraphrase Oliver Wendall Holmes, is the price we pay for civilization.
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atlane! Atlante! 16 years ago
Many people are still purchasing property using the 'valor catastral' or appraised price which is considerably lower than the actual purchase price. By doing so you are most likely going to eat a large sum of capital gains tax if you ever intend to sell. Ive also read that while common and to this point Im not sure if penalized, but it is indeed illegal. I was curious if most gringos were purchasing in this manner, and if they were truly aware of why they were paying one price, but showing a much lower price to reduce transaction costs.....but absorbing huge capital gains tax liabilities.
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Ms.Aliceggary027 16 years ago
We are in the process of buying a new house in Merida. It takes a long time. Your article was helpful in reassuring us that we are doing it correctly. A) good agent, B) good lawyer, C) plenty of patience, D) Cash! We hope to close in 30-45 days (seems to be the magic number...every step is 30-45 days.) We have the house, the power of attorney, down payment, and are just waiting on the trust to be drawn up.
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Lance 16 years ago
Teri
My wife and I have purchased 3 properties on the coast near Progreso and have had experience in transfering money - yes you can transfer more than 10,000 US with no penalty at all. We have used a local wetern union type of mexican bank which is located near the Gran Plaza in Merida. We have used Fanny at Casa de Intercam. You can e-mail me at tiki@sympatico.ca and I will try to help as best I can. We will be back in Mexico Sept 10 - 30. Lance
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CasiYucateco 16 years ago
Tone: Simply look at different websites for similar houses and compare:
1) Location
2) Size of house - especially # bedrooms & bathrooms
3) Degree of remodeling already done
If you compare similar houses as far as location, size and condition (modern or ancient power and water systems, for example), you'll see about the right price range for a house. They wouldn't be listed at those prices, if they weren't selling at about those prices. There isn't a huge "rip off the gringo" industry in Merida.
Finally, what is the "right price" for you? If your budget is $100,000 and you find the perfect place that needs no remodeling and they'll let it go (after negotiation) for $110,000, is that an OK price? If you find one that the seller will let go for $60,000, but you've got to spend an $20,000 to $30,000 on remodeling, are you comfortable with that? What is your tolerance level? Those are all questions that you have to answer for yourself.
If you are too terrified of "diving in," maybe it just isn't the right time for you. Keep up with websites and newspaper advertisements, visit around the country and buy a place when you feel comfortable. Don't do what makes you uneasy -- it's just not worth it.
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Working Gringos 16 years ago
In our experience, most of the real estate agents in this town are honest, if a little overworked and not particularly organized. If there is a difference in price, it isn't the fault of the real estate agents and we seriously doubt it is with the purpose of cheating you. If that real estate agent who you felt was cheating you actually did get you to buy for the higher price, we're sure she would take the commission (5 to 6% just like in the States) and give the owner the rest. There is a closing, you know. With a lawyer/notario in the room. These things are not easily hidden and we don't know any local agent that would do such a thing... and we know most of them.
You can and should negotiate in this market like you would in any other. There is no 30% markup. Prices are rising here because more and more baby boomers are buying retirement homes here... plain and simple.
And if you find out you overpaid? Well, that means you must be in the Yucatan! Everyone here competes to show how little they paid for something, and if you haven't heard someone tell you "Oh, you paid too much!", then you aren't in the Yucatan. Get used to it.
Good luck.
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Tone 16 years ago
I recently returned from Merida and I am very excited to have found an old colonial that I would like to purchase. My concern is with the comments made by Mandy Ruiz regarding ex-pats/realtors/investors artificially driving prices up. When I see a listing price, should I discount my offer price by the 30% mark-up? How do I negotiate in this market? I do want to warn those searching to check all real estate listings because one of the relocated U.S. real estate agents who showed me around Merida intentionally did not tell me that the owner had dropped his asking price by $26,000. That agent encouraged me to make an offer matching the unreduced price so she could pocket the difference. Needless to say I found a very honest Mexican-born agent with whom I'm comfortable working but I still don't want to overpay. I found a different house that I would like to purchase. The listing is not my new agent's so neither she nor I know the extent of the mark up for the agent's commission. What do you advise?
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Working Gringos 16 years ago
Hola, Jennifer...
We suggest you talk with Anny at Casa Blanca Realtors or with Joel at Merida Homes. They are both accustomed to dealing with less expensive homes (they deal with MORE expensive ones, too...but you get the idea). You cannot get a fideicomiso until you have a home to put it in, so don't worry about that. Also, you might want to take a look at our list here:
http://www.yucatanliving.com/yl-service-listing.pdf
We have listed lawyers, accountants, etc. who all speak English (unless otherwise noted) and who we know to be trustworthy.
Buena suerte!
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Jennifer 16 years ago
I visited Progresso last year and fell in love with the town and its close proximity to a large city Merida. My husband and myself have been loking at other locations Costa Rica etc but I knew within an hour of arrival that this was the right place for us. We are coming back Augst 1st -4 on a fact finding mission and was looking for some advice on what we should do next. Should we get our fideicomisa first or plan to look at houses and make offers first? I want to go with a reputable real estate service but have heard that if you get one in Merida that they would not be so accomodating if you are not spending big bucks. I am just looking for a small house under 50,000 usd I saw several in January. I am looking for one I can remodel and maybe rent out some. If anyone can give me any advice i would so appreciate it. Also if I could hook up with someone while i am down there that would be even better maybe a consultant etc? Thanks email jcagara@charter.net
Jennifer
Find a good real estate agent who has references. He or she will hook you up with a good Mexican lawyer (called a notaria), and if you need one, an accountant (called a contador). They will help you learn what to expect and how to follow the rules. Then, follow the rules. We also suggest buying through a bank trust (called a fideicomiso). It will ensure you a clear title and it offers some tax advantages, too. Within 50 kilometers of the coast, it is required by law.
Reply
teri 16 years ago
Hola todo
I have been given very confusing and conflicting information on Banks accounts in Mexico. How can I transfer money to Mexico. I have been told if I transfer over 10000UUSD then I would be slapped with a 26 to 28% tax. Surely this cant be true. I really cant afford to pay that, especially when you have to pay 15% tax on it here. I've also been told if I try to bring in more than 10,000usd cash, that it all would be confiscated.
My bank here in spain, requires you to be in branch to sign the tranfer of money advise, I really do not want to travel to Mexico, open an account, travel back,justt o sign a piece of paper!!!,, surely there is another way... Can any one advise
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Mexico Real Estate Investment 17 years ago
[...] Much is made about the minor inconvenience of buying Mexico real estate within 50 km (about 27 miles) of a Mexican beach or within 100 km (about 62 miles) of a Mexican border, even though the fideicomiso, with the bank holding the physical title, is one of the safest ways to own and manage property. However, any inconvenience of owning property through a fideicomiso is totally insignificant when compared to the risk of unknowingly purchasing ejido land. It is these cases that often make international headlines and fuel rumors that someone’s home was “confiscated” by the Mexican government. Sadly, such situations are ultimately found to be the “fault” of the purchaser and could have easily been avoided by conducting a simple title search through a reputable title company. A full discussion of this situation - and how to avoid it - can be found in Yucatan Living. [...]
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