1. Guide to Mexico Real Estate
Playa Del Carmen and Tulum
Direct From Developer LLC

2. Why Mexico? Low Cost of Real Estate
Property prices are comparatively low
Cheap property taxes
Low-cost property related expenses (e.g., utilities)
Low Cost of Living
Resort living at a fraction of the price
Reasonably priced health care
Lower costs for food and incidentals expenses
Quality of Life
Beachfront lifestyle
Escape the stress
Adventure
Why Mexico?

3. Profile of buyer Foreign Nationals
US/Canadian residents seeking a second/vacation home
Retirees seeking a beautiful/reasonably priced retirement destination
Real estate investors searching for new investment opportunities
Young professionals with jobs that permit them to work remotely
Profile of buyer

4. Summary of Key Points Financials The Law Taxes Rental Yields
Property Prices
Financing/Loans
Closing Costs
The Law
Foreign Ownership
Immigration
Ownership Vehicle
Due Diligence
Closing
Red Flags?
Taxes
Taxes Summary
Income Tax
Capital Gains Tax
Summary of Key Points

5. Financials

6. Rental Yields Yields on rentals are difficult to determine
No MLS equivalent
Strong short-term rental market driven by tourists from American and Canadian (amongst others)
Rental Yields

7. Property Prices Real Estate Appreciation
Mexico´s house prices rose 9.92% YoY (Q2 2018) according to Sociedad Hipotecaria Federal
Prices in Playa Del Carmen rose 15% - 20% in the last 2 years (August 2018) according to The Mexican Association of the Real Estate Industry
Growth driven by demand from American/Canadian buyers seeking
Second/vacation homes and investment property
To take advantage of a strong dollar and a weakened peso
Property Prices

8. Financing/loans Financing/Loans All cash buyers are the norm
Local rules restrict loans to foreigners
Specialty lenders will finance loans for Mexico property, with a charge against borrower’s property outside of Mexico
Financing/loans

9. Closing costs typically run approximately 5% - 7% of the purchase price
Transfer tax (deed stamps) approximately 2% to 3% of sale price or market value
Notary fee approximately 3% of appraised value (occasionally a flat fee)
Fee to set up a bank trust or corporation (approx. $1,000 to $1,500)
Nominal deed registration fee ($250)
Title insurance and lawyer fees separate
Closing costs

10. The LAW

11. Foreign national (“FN”) can own real estate in Mexico
2 key restrictions: FNs cannot directly own property:
Within 31 miles of a coastline; or
Within 62 miles of an international border
FNs can nonetheless indirectly buy in Playa Del Carmen and Tulum 2 ways:
50 year renewable bank trust; or
Domestic corporation
In each case, FN retains exclusive beneficial ownership and right to rent, use and sell the property
Foreign Ownership

12. Tourist visa. U.S./Canadian nationals get a tourist visa on arrival permitting 6 months stay
Long-Term, Non-Immigrant Visa. FNs seeking to retire in Mexico can apply for this visa
Renewable annually
FM2 Immigrant Visa. FNs seeking Mexican Permanent Residency Status
This visa is more difficult to secure and is subject to various and conditions and requirements
immigration

13. Ownership vehicle FNs buy either via:
Bank trust or “fideicomiso” with 50 year term and renewable
Preferred for primary residence, second/vacation home (pass-through for tax purposes)
Mexican (domestic) corporation
Potentially better for investment property and avoids personal liability
100% foreign shareholding is permitted
The MX corp. is taxed (not the shareholders) and the MX corporation files tax returns and pays taxes
Potential regulatory risk of holding residential property in a domestic corporation, so consult an attorney
MX corporation is more expensive/time-consuming to maintain (e.g., accounting and filing fees)
Ownership vehicle

14. Research the developer and the project to ensure the developer has all permits for the project and construction, and construction status
Attorney should review the contract to check for irregularities
Investigate title to confirm ownership and seller’s right to sell, and check for liens/restrictions
Consult an independent lawyer – and not one referred to you by the Seller!
Some buyers have bought property with clouds on title
Do not rely on the notary!
Title insurance is increasingly popular and many provide escrow services
Due Diligence

15. Closing Notary’s Role:
Manages the closing
Reviews documentation, including certificate of no liens and confirms no outstanding amounts due water company or for public works
Registers the title deed with the public registry
Withholds taxes and fees
Notary does not investigate the title for the property
FNs can grant power of attorney to a local party to act on their behalf
Local title companies do provide escrow services
Closing

16. Red Flags? Title Risk? Currency Risk? Expropriation Risk?
Currency Controls?
Political Risk?
Judicial Risk?
Regulatory Risk?
Supply/Demand Risk?
Red Flags?

17. TAXES

18. Tax Summary Transfer Tax 2% to 3% of sale price Low Property Tax
Low .4% to 1% of assessed value (annually)
No Estate/Inheritance Tax
Value Added Tax (VAT)
Assessed on broker services (seller pays if applicable) at 16% rate
Assessed on rental income on short term rentals
Income and Capital Gains Tax
See subsequent slides
Tax Summary

19. Income taxes US/Mexico Tax Treaty:
US nationals can elect to be taxed on their net rental income at graduated rates between 3% and 30%
Deductions include taxes, maintenance and depreciation with tax invoices
25% withholding tax on gross rental income of FNs from non-treaty countries
Mexico corporations pay flat rate of 30% on net rental income
Income taxes

20. Capital gains tax Sale of Real Estate
FNs pay capital gains at a rate of either:
25% on gross sale proceeds; or elect to pay
Up to 37% on inflation adjusted net gain on sale (sale price/value – basis)
Basis includes selling expenses and qualifying capital improvements with tax invoices
Exemption for Primary Residence
Domestic corporations pay taxes on net gain from sale (sale price/value – basis) at rate of 30%
Capital gains tax

21. The information and opinions in this presentation are for informational purposes only and not for the purpose of providing legal, tax or brokerage advice.
You should contact your own attorney, tax advisor or real estate broker to obtain advice with respect to any issues or questions.
Disclaimer

22. Omar Sawaf is an attorney with more than 12 years of experience in the areas of real estate, corporate and international law.
He graduated from George Washington University Law School (Washington, D.C.) and has worked with Legal 500 law firms in Washington, D.C., Dubai, UAE and Hong Kong, SAR.
He is also a licensed real estate broker and the founder of Direct From Developer LLC. He primarily acts as a buyer’s broker, representing international investors on cross-border real estate transactions.
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