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When you decide to purchase your dream home or ideal investment property in Mexico, there are several prerequisites that need to be arranged and fully understood. Know why and how will help make your buying experience more pleasurable. This simple but informative brief outlines several knowledgeable points to review. That way, buyers will cover everything during the purhcasing process. In this particular case, we’re focusing on funding and the Mexican bank trust.
Avoiding problems with funds
Having your finances in order beforehand is a must. Purchasing property in Mexico requires cash-only transactions in most cases. In some instances, there are owner financing options. However, this is only advised if it is for a family member or close friend. Make sure you have your funds readily available before making an offer. When making an offer on a property, you will need to back it up with earnest money.
Here are a few ideas to help you when asked for money down and/or secured funds with your offer:
- Have your funds in an account that can be easily accessible and under your control, whether it’s in Mexico and/or your specific location.
- Prearrange any special wiring procedures and/or instructions along with any chargeable fees.
- Work with a professional banker who has experience in foreign trust/escrow exchange and transfers.
The above bullets focus only on a few of many things you should be aware of when setting up a transfer that will be extracted from your bank account.
Mexico’s bank trust (or fideicomiso)
The word fideicomiso refers to an escrow or trust. The trust is comprised of one or more persons associated with a financial institution that is certified and/or commissioned within its residing state or country. Buyers can set up one of two types of trusts when purchasing property in Mexico: a bank trust or a Mexican corporation.
Mexican law defines the restricted zones as any property that lies within 50 kilometers (or 31 miles) from any Mexican shoreline or within 100 kilometers (62 miles) from any bordering country. So any property in Playa del Carmen, for example, would be in the restricted zone. When working with a qualified realter, they will be able to tell you if you need a trust or not. It is always a good idea to double-check the facts when water or borders are in proximity of the property you are purchasing.
Setting up a trust
First off, a bank trust is not a lease. The bank only takes its instructions from the beneficiary, or the property’s legal owner/purchaser. In no way is your property an asset to the bank and they are there only to help you manage it. The owner has full rights to occupy, lease, alter, and/or build on the property. The owner also has the right to instruct the trustee to transfer title to a new owner or heir. The Mexican Constitution will always protect your property.
As a new owner, you will need to find a bank trust or financial institution to hold the trust. You will draw up an agreement and discuss the benefits you will receive as being the first beneficiary. At this time, you will also assign a second beneficiary – an inheritor in case of death, physical illness or mental disorder. There is an initial fee to set up the trust, which varies depending on property and institution. On average, however, it costs $700 USD. Annual fees also vary depending on the institution. Trustees can set up the bank trust for a period of 50 years; upon reaching the final years, they can extend or renew the trust for a further 50 years.
If you plan to use your property for business and/or plan to purchase a business, setting up a Mexican corporation is the right thing to do. The costs to these are different than those of a bank trust and you can learn about them here.
In summary
Owning a property in Mexico is very obtainable. Thousands of North Americans have acquired first and second homes, as well as investment properties south of the border. One things all property owners have in common is that they have purchased through a reputable real estate company. Make sure your agent and their company have plenty of experience working with foreign buyers. You should also hire a qualified lawyer to assist you through the whole procedure from start to finish. The lawyer can also offer advice on finding the right bank for holding your trust. Make sure to ask for references from all parties involved.
And remember, at Top Mexico Real Estate…we make it happen!
About Thomas Lloyd
Hi, I am Thomas Lloyd, founder and CEO of Top Mexico Real Estate. Our mission is to help foreigners buy their dream home in Mexico and to offer an enjoyable and safe experience as they invest in Mexico. Read more
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Reader Interactions
I'm quite familiar with the intricacies of real estate, especially when it involves purchasing property in Mexico. The setup of a Mexican Bank Trust, or "fideicomiso," is an essential part of the buying process due to Mexico's regulations restricting foreign ownership in specific zones. Let's delve into the concepts mentioned in the article:
Funding and Financial Preparation
- Cash Transactions: In Mexico, property purchases are predominantly cash-based, although there might be some owner financing options available under certain circ*mstances.
- Importance of Ready Funds: Having readily accessible funds or pre-arranged financing is crucial before making an offer on a property to secure it with earnest money.
- Professional Banking Assistance: Collaborating with a banker experienced in foreign trust/escrow exchanges and transfers is advisable to navigate the complexities of international transactions.
Mexican Bank Trust (Fideicomiso)
- Purpose: The fideicomiso refers to an escrow or trust established with one or more individuals associated with a certified financial institution.
- Types of Trusts: When purchasing property in Mexico, buyers typically set up either a bank trust or a Mexican corporation, especially in restricted zones near shorelines or borders.
- Trustee's Role: The trustee, usually a bank or financial institution, holds the trust but operates solely based on instructions from the beneficiary (the property's legal owner).
- Property Rights: Despite the trust, the property owner retains full rights to occupy, lease, build, or transfer the property's title.
Setting Up a Trust
- Bank Trust Details: Contrary to a lease, the bank's role is purely administrative, and the property remains solely the owner's asset.
- Beneficiaries: Establishing the trust involves appointing a primary beneficiary (the property purchaser) and a secondary beneficiary for inheritance purposes.
- Fees and Duration: Initial fees for setting up the trust vary but average around $700 USD, with annual fees contingent on the institution. Trusts can typically last 50 years and can be renewed thereafter.
Additional Considerations
- Corporate Setup: For business purposes or buying a business, setting up a Mexican corporation might be more appropriate than a bank trust, with differing costs and procedures.
- Professional Assistance: Engaging reputable real estate agents experienced in handling foreign buyers and seeking legal counsel's guidance is highly recommended throughout the buying process.
Thomas Lloyd, the founder of Top Mexico Real Estate, emphasizes the significance of working with experienced professionals and a reliable real estate company when acquiring property in Mexico. He stresses the importance of due diligence, including finding the right bank or financial institution to hold the trust, and advises potential buyers to ask for references from all involved parties.
