Many investment experts, including CNBC’s "Mad Money" host, Jim Cramer, have been advising people to buy real estate in Mexico as an excellent form of diversification and make an investment with potential for double-digit return. However, because of some differences in legalities of property ownership, and business culture, there are some common mistakes which buyers make, and you as an investor will want to avoid. The following are the areas where those mistakes are made, and tips on how to avoid them.
- Payment schedule based on fixed calendar dates
- Paying the complete value before legal possession is taken
- Some buyers have ended up paying the complete value of the property, taking physical possession, but are still waiting for documentation to be completed for the legal possession.
2. Legal Status of Property, Rights or Payments
- Ejido property – Although prices are very low, this property is not privately owned. Individuals can own the rights to ejido property, but do not own the property itself. The owner of the rights can go through a complicated process of transferring the rights to create a titled, private property, making that individual the complete, legal owner as with any private property. The risks come from the many extra steps that need to be carried out by the individual who holds the rights. An individual who hold the rights to ejido property can sell his rights legally (only the rights and not the property itself), and by doing so passes on these risks and these extra time consuming steps. All is legal, but sometimes new buyers do not understand of the extra risks and steps needed to legally register the property in their name.
- Different owner – Are you making a deal with someone who is not the legal owner of the property? Have a legal expert review the documentation of a property. Ensure that the person you are dealing with is the legal owner, or that person’s legal representative with all correct documentation.
- Pay very close attention to all documentation.
- The final contract must be notarized and filed in the public registry.
- escrow account
- buyer’s agent account
- seller’s agent account
- seller’s account
3. Capital Gains Tax
- If the operation value is below the market value or appraised value by more than 10%, a capital gains tax will be levied onto the buyer
- This tax is paid by the buyer
- Do not assume beachfront, or the highest demand property is the best option
- Do not assume the cheapest will rise in price (if you have good indications that it will, go for it!)
- Take your time for your decision
- Find all information possible, from various sources
- Do not let yourself be pressured, or told you will loose a "once in a lifetime opportunity"
- Laws protecting clients are not as well developed in Mexico
- It is up to you to do your homework and check qualifications and references for any professional
- Hire qualified, reliable professionals for all aspects of your transaction; a buyer’s agent, lawyer and notary public are central to the transaction.