Is buying property in Mexico a good investment?
If you have thought about living in Mexico, you probably have also thought about buying a property. It is another country that has different regulations and government, and that might make some people pause. You might wonder is buying a property in Mexico is a good investment. In general, the hundreds of thousands of foreigners have done well with home purchases in Mexico. But not everyone’s experience is the same, so we are going to point out some pitfalls so that our readers can make good investments and decisions.
What makes Mexico very different than many other countries for real estate
In most countries, the real estate market is subject to the ups and downs of the market and swayed by economic forces. You hear terms like bubble, downturn, buyers’ market, sellers’ market and everything in between. We hardly ever hear these terms when looking at the Mexico real estate market, why?
It is a cash market in Mexico
One of the biggest differences in Mexico compared to other locations is the payment of real estate. most foreigners that buy in Mexico do so with cash. Why is this? One of the biggest reasons is the ability to get loans in Mexico. For 95% of people looking to invest in Mexico, getting a loan in Mexico is not a good option. Interest rates for property purchases is very high, usually around 11-14%. So, if you are looking for an investment property, this negates the return on investment. However, if you are looking for a home purchase, a loan or other financial options are available, but limited, and more costly. This is why most people buy with cash in Mexico.
Even Mexicans have limited access to credit to buy properties in Mexico. This has resulted in a real estate market that is heavily paid for and no looming mortgages or crisis on the horizon. By limiting easy credit, it has built a real estate market that is pretty stable. This keeps prices stable, and we don’t have the major upswings and downswings of other places.
A good example of this is during the pandemic when tourism slowed. Many owners just waited it out until the rental market came back. No one rushed to sell because they could not pay the mortgage. Mexicans get a credit with work that allows them to build some credit. Mexico also offers entry level apartments and houses that can be a good way for Mexicans to work their way up the property ladder. This all helps with the market being heavily paid for and stability in real estate prices.
Yes, there are fees and restrictions but also low property taxes
Since most foreigners are looking to buy in the coastal areas of Mexico, a bank trust needs to be set up. This is called a fidecomisco. There are fees to set this up and annual payments. The good news is that these payments are offset by very low property taxes. We will not go into details here about this, but this is another thing that makes the process different in Mexico for buying real estate.
There is an alternative to the fidecomisco, it is forming a corporation. This is really only a good idea if you are buying multiple properties. Again, the costs of setting up a corporation is offset by low property taxes. This is another thing that makes the real estate market different in Mexico.
Is it profitable to invest in real estate in Mexico?
Profitable has different definitions and categories to different people. To most, they think about ROI (return on investment). How much can I make on renting my property when I am not there? Will I make a profit upon selling it? These are probably the two most common thoughts when thinking about buying real estate in Mexico. However, there are other aspects of buying in Mexico that should be considered as well.
Prices don’t go down but size does
Real estate generally prices don’t go down in Mexico. There are only several instances that we see a reduction in prices. One is when a specific home is for sale that has no comparisons. It can be a unique property that is hard to evaluate. The owners might have started high, only to see if there is no interest at that price point, and they probably priced it too high. This happens to Mexicans that design a house for sale, but it is not the quality or design that people want or is a foreigner that overpaid along the way (by paying too much for land, plans and construction) and now wants to recoup the investment. The second is when a person buys on in a shoulder neighborhood. These are areas that are not directly in the center of the action or near attraction, but more on the border between a developing area and developed area. Or it could be an area that is seeing a decline in popularity, especially as cities build new areas that attract more attention because of the newness of the area and features.
In general, investors make more on rentals than on the property appreciating in value. See our article about investing and how property values are affected in Mexico.
Many people look at prices over the years and they might seem similar to years past. This is true, but often features and sizes of condos have changed a lot in Mexico. Often newer condos use space more efficiently, but older condos offer more space and lower price per square meter/foot.
What can you make for ROI on real estate?
What the return on an investment will be depends on where you buy and what is going on in the market at the time. In the Riviera Maya this has changed a lot as our markets have changed and world events have affected tourism to the Riviera Maya. In general people make between 4%-8% return on investment properties. This will depend on many different factors. See our article on how people make money off real state in the Riviera Maya and the factors that attribute to different returns.
What about those bad stories you hear?
You might read online some stories or even news articles that “foreigners lost their property in Mexico” “are tied up in legal battle” or something similar. What is going on here? Well, it starts with people seeking advice from bad real estate agents or people that say they are agents. The past 10 years has really changed the real estate market and how things are done in Mexico. What was once described as the wild west has now become a pretty regulated sector.
Second, the land division in Mexico is different than most places. There are large portions of Mexico that are not with titled land and are not available for purchase. Sometimes people try to sell these lands or try to convert them without doing the correct process. This is where problems happen. This really only happens when people try to buy off the internet or from a real estate company that does not have a solid reputation. This happens less and less as things are more regulated and people are self-educated about the real estate market in Mexico. One of the most common issues is with ejido land. We will talk about this next.
Ejido land and why some run into issues in Mexico
What is ejido land? Ejido land is usually rural areas that are divided into an ejido (or communal land). Each of the some 53,000 ejidos in Mexico are governed by community elders that approve land use and approve usage to locals. The land is not titled and basically is land approved for use if you are part of the community. Some of the land is for living and others are dedicated to agricultural use. The purpose of this is to give people use of the land and create more equality among people living in Mexico. In most countries land is divided into plots of land with set divisions and the person that pays the highest price gets it. This often pushes the poorer people to less desirable and more rural areas.
In Mexico, if you are part of and ejido, you can use the land, but it is not yours to sell. Ejido land represents about 42% of Mexico. It is highlighted by the map below. In the ejido structure, there are processes to change the land to titled land, and there are other levels of use and potential use which is described by about 10 different categories which we won’t get into because it could fill a book with all the technicalities and options. In brief, foreigners should not consider trying to buy, lease, or try to set up a convoluted contract for ejido land to try to get something that is desirable and think you can get it just because someone tells you it is possible.
Can this happen in the Riviera Maya?
When ejido land is beachfront or close to a popular destination, there have been unscrupulous developers and even politicians that try to legally or illegally change the status and try to sell it to people. This has happened in the Riviera Maya. Places like Tulum are surrounded by ejido land and as growth takes place, you start to see pressure to convert ejido land into sellable plots for people. In one small community between Playa Del Carmen and Tulum many foreigners bought houses, only to be caught in a legal mess when the process was not completed. Leaving people in limbo and not able to sell their properties because they did not legally have the title. This is just a word of caution to those looking to invest in Mexico. It is always good to work with a qualified realtor that can steer you clear of properties that are not legal or the paperwork is not in order.
Tip: If you see a property listed on Facebook or online that seems to be too good of a price, and it is outside of the city or town, it often is ejido land. People can be trying to sell it, even though there are a lot of restrictions or possible impossible to get a title. There are usually no extremely good deals in Mexico on property because people know how much it is worth and will wait for the best price.
Investing in Mexico with confidence
If you are looking to invest in real estate in Mexico as an investor or as an individual looking for a home, here are some tips and things to keep in mind.
- Decide if you want a long term or short-term investment. Ready to move into condos let you start renting right away, but land can be a good investment for the longer term.
- Use recommended real estate agents that will show you only properties that have everything in order and save you time. You can also use their experience to help you make decisions.
- Remember that investing is also investing in your quality of life. Living in Mexico or owning something can lead to a happy existence of beaches, sun, culture, and being immersed another country that is pretty open to foreigners and is relatively very safe.
- Learn about the regulations and things that make investing in Mexico different.
If you ask 100 foreigners that have investing in Mexico if they think it was a good move and probably about 95% will say yes. Mexico has a relatively stable government, locations in the country that are very desirable to live and visit, lower cost of living than many other countries, and a very welcoming people. We hope this article has helped you with some information about Mexico and what it is like to invest in the real estate market here. For more information, we have dozens of articles in our real estate section of this website.