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REAL ESTATE IN LOS CABOS
Purchasing Your Dream Home in Mexico
by: Joseph C. Parkhurst
| "Los Cabos has become an exciting and very desirable place to live for those who are retiring, for those who are working from home on a computer link with their company, for those who are looking for a vacation home or an outstanding investment above all for those who dream of a better quality of life!"
The procedures for searching titles and transferring ownership of real property are similar to those of the United States and Canada, so the buyer of a house, condominium or lot, must ask the same questions and should receive answers that are similar to those received when buying real property elsewhere. Cabo San Lucas is a boom town. For the achiever, it offers the promise of a great future...for the peace seeker, dreamy afternoons on the beach. People love Los Cabos and it shows; tourism has increased with travelers arriving from as far away as the east coasts of Canada and the U.S., Europe and the Far East. Sooner or later, most visitors start thinking about owning a piece of this paradise. When considering the purchase of something so important as a home, it is necessary to have the right person representing the buyer and his interests. There are a number of real estate organizations and land-use professionals in both Cabo San Lucas and San José del Cabo, several of which advertise in this issue of Los Cabos Guide. Through NAFTA agreements, the Association of Mexican Real Estate Professionals (AMPI) is now affiliated with the U.S. National Association of Realtors (NAR), the Canadian Real Estate Association (CREA), and the International Real Estate Association (FIABCI). These important national organizations are working to achieve standardization of real estate practices and procedures throughout the world. Though there are major real estate organizations in Los Cabos that do not belong to AMPI, the company you select should be a member. A new Multiple Listing Service of Los Cabos has been created, and many in the real estate profession here are working diligently to bring everyone together under one umbrella of service, sales and monitoring activities. Selecting the area best suited to you depends upon the amount of money you have to invest, and what appeals to you personally. There are those who would prefer the rustic and semi-primitive conditions on the East Cape, to those willing and able to invest hundreds of thousands of dollars for a lot near the ocean and building their own home...and just about everything in between. The choice is yours; by searching the listings of Real Estate Companies who handle properties that suit your budget, chances are you'll find the right place at the right price. As for what's the best buy, the rule of thumb is proximity to the water, much the same as anywhere else in the world. Property values also depend upon location, view, and amenities such as swimming pools, tennis courts, etc. In the condominium market, studio and one bedroom units start at $68,000, and a two/three bedroom home in a gated community with an ocean view can run between $225,000 and the million dollar range. Currently there is a surge of interest in buyers building their own homes using qualified architects and contractors. By liberalizing the economy, the economic climate in Mexico has attracted billions of dollars in foreign investment. A country at one time devoid of self-belief has changed into one that has tken its place among the confident nations of the modern world. Growth in Los Cabos has been better managed than any other resort in Mexico. Recent legislation could prohibit new developments from overbuilding, particularly intense multi-level construction. Though there has been a lot of development, there will never be as much as there could be. Once you have selected the right area or potential property, check out the area. Is it new? Is it old? What will it look like in ten years? Are there homeowner fees for maintenance of common areas? What building restrictions are there? Are there covenants and conditions registered for use of the land? Are there a master plan and building codes? Closing Costs: The higher the price of the property, the lower the percentage of total costs. This is because certain expenses for permits and certificates are fixed, regardless of the properties value. Costs of transfer include title search, transfer taxes, bank fees, government permits and notary fees. The average closing costs will run from 5% to 8%, but can be much larger. Be sure to obtain a written estimate. Check the Title: Does your seller have a registered title to the property? Ask for a copy of your seller's title document and reserve the right to examine them prior to release of any part of your payment. If they are in Spanish, have them translated. If the seller has never acquired title to the property, this can often be remedied. The buyer should be aware of this condition, and be certain that the person accepting the offer is truly the title holder. As mentioned earlier, the conditions surrounding a clear title are much the same as in the U.S. and Canada. The Mexican Bank Trust, or Fideicomiso: In order to have valid ownership rights in the property you are buying, its is necessary to have the title recorded, much the same as anywhere else in the world. If you are not a Mexican citizen, the title will transfer to a Mexican bank which acts as trustee of your interests. This is because the entire Baja peninsula lies within a "Restricted Zone", wherein the Mexican government prohibits direct ownership of real property by foreigners. The Fideicomiso was established to protect your beneficial rights to the property under guidelines provided by the Mexican government. In practical terms the beneficiary (buyer) has full control of the property. They may erect a building, tear one down or modify it in compliance only with local zoning and planning ordinances...or, if applicable, the homeowner's association rules, regulations and restrictions. The sole concern of the bank is to manage the property for the benefit of the owner of the trust. Trusts are established for initial 50 year periods. The beneficiary may transfer or assign their beneficial interests to any person and keep the profits from sale of the property, subject to applicable tax laws and expenses. Property held under a trust may be passed on to future generations, and the person to whom the bequest is made is not burdened with an inheritance tax. Fideicomisos are an easy and safe way for you to own property in Mexico. They are government sanctioned and offer protection. Investors should contact a qualified real estate office or firms such as The Settlement Company, on exactly how trusts can be structured for specific investments. Financing: Financing has recently become available for the acquisition of property in Los Cabos. Currently there are three companies prepared to assist you with financing. Previously, negotiations on Mexican properties have been on a full cash-out basis, paid when the property changed hands. There is a great deal of anticipation over what the prospects of institutional financing will do to encourage more interest in the Los Cabos real estate market. Official Appraisal: The appraisal must be made by an appraiser who is usually an architect and is recognized as a Perito Valuador or Official Appraiser. This is required prior to completing any title transfer. If an institutional lender is involved, a commercial appraisal may also be required. Foreign Relations Permit: If the property you seek is already in a trust (fideicomiso), you may either request an assignment of rights to you, or request a new trust for 50 years. In both cases a permit from the Secretary of Foreign Relations is required and the deed registered in the National Foreign Investment Registry. Notary Fees: In Mexico a Notary Public (Notario Publico) is an attorney appointed by the Governor of the state. His duties and obligations include drafting of the deed, calculation of the seller's capital gains taxes and the buyer's acquisition taxes, and to "give faith" to the validity of the signatures. Fees are substantially higher here than in the U.S. because the responsibility and potential liability are higher. Bank Administrative Fees: If title to your property is in a bank trust there will be annual administrative fees. Rates vary, so it pays to shop around if a new trust is required. Title Search and Insurance: A title search is almost always a worthwhile investment. An investigation will generally indicate the registered owner, chain of title, and show if any liens exist. Title insurance is issued when the new deed is registered and guarantees the marketability of the property. It is a requirement of most institutional lenders when financing is involved. Property Taxes: Current property tax rate is 6.5% per $1,000 for personal residences, and 1.3% per $1,000 per annum for rental units. Vacant lots are rated at 26% per $1,000, with an increase of 2.6% per annum each year no construction has been declared. This may change since assessed valuations are currently under review. Acquisition Taxes: Also called a transfer tax, this is generally paid by the buyer, currently it is 2% of the declared value of the property. Capital Gains Tax: This is a seller's tax and title cannot transfer to the buyer until paid. The preceding may sound complex, in reality it is no more so than buying property almost anywhere else in the world, and is handled much like an escrow service does in the U.S. by either real estate firms or firms like The Settlement Company. An example of closing costs for a typical purchase of $100,000 lists the following: Transfer of beneficial rights with associated expenses such as telephone and courier, $1,500; Bank trust fees; New trust initiation, $550; Annual fee, $550; Foreign affairs permit for existing trust, $595 (new trust $850); Foreign investment registry, $200; Appraisal, $230; No lien certificate, $38; Appropriate transfer tax, $2,600; Notary fee, $1,000; Public registry fee, $230. Total estimated closing costs; $6,853, or about 7%. Los Cabos is basking in its second year of a real estate boom, this has narrowed the availability of property, which means added appreciation. The most often asked question; Is it difficult to buy a lot and build a home? Not at all, since only a building permit for around $1,000 is required. Building materials of local origin are not as expensive as specialty items. Most of what you will need to build can be found here. Ask your Realtor for a list of architects and builders who can provide an estimate of construction on your building site. Another often heard question is; Who will take care of your property in your absence? Ask your realtor for the names of property management firms in Los Cabos. It is worth noting that requests for rental property in Los Cabos are also increasing, and renting your home could help offset the cost of ownership. And, finally...what's it like living in Los Cabos. Here I quote Lulu Jacobsen, a prominent local realtor: "Here, there is time. Time to be quiet. Time to work without pressure. Time to think. Time to watch birds and sea creatures. Time to look at the stars, and even time to simply study a sea shell. Imagine a place with very little crime, no dirty air, and no vagrants. Add to that outstanding weather, natural beauty, and warm, friendly people. Top this off with nothing being politically correct...and you have Shangri-La." To gather information and details contained here, I consulted with a number of professionals involved in the real estate business in Los Cabos. One most important source was Linda Neil, founder and CEO of The Settlement Company, the first escrow company in Mexico. Ms. Neil is a real estate broker licensed in California who has spent more than 25 years in Mexico, involved in real estate and related activities. The Settlement Company handles transfers of properties located throughout Mexico, makes annual property tax and bank payments and provides title search and title insurance on properties in the Los Cabos area. Ms. Neil also host regular seminars. She can be reached at 011 52 (624) 142-2006, or by FAX at 011 52 (624) 142-2016. I was also guided by Lulu Jacobsen, owner and operator of one of Los Cabos' long established and successful real estate agencies. Lulu and her staff can handle any and all real estate transactions, from sales to title transfers and closing. Lulu contributed considerably to this article by providing straight forward details on making property purchases in Los Cabos that make it sound as easy as it actually is. Contact Lulu or one of her competent staff at 011 52 (624)14 3-4041, or by FAX at 011 52 (624) 143-2573, in the center of Cabo San Lucas. (Note: Lulu Jacobsen is actually out of business.) |
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Copyright © 2001 - Joseph A. Tyson - All Rights Reserved
Los Cabos Magazine - Los Cabos Visitor's Guide - Tyson Promotions - Promociones Tyson, S. A. de C. V.