La Paz is an Investor’s Dream - Four Reasons Fueling the Real Estate Boom
Demographic experts anticipate that southern Baja will experience explosive growth for the next eighteen years, and that La Paz will become increasingly desirable for those who are looking for an affordable and healthy alternative to the high cost of living in the US and the Los Cabos area.
1. SECURITY: Changes in the Mexican Constitution allow ownership of property in the protected beach zones through a simple and secure real estate trust called a “Fideicomiso”. Additionally, US Title Insurance is available, making your investment both safe and secure.
2. AFFORDABILITY: Lower cost beach front property as compared to alternatives in the United States or abroad, as well as minimal property tax liability and a low cost of living make Baja very attractive for foreign investment.
3. CONNECTIVITY: Advances in telecommunications such as the internet, cell phones, and satellite television make it possible for foreigners to maintain a high level of communication with friends, family, or work, as well as entertainment services.
4. FAVORABLE DEMOGRAPHICS: “Baby Boomers” born in the early 1940’s through the 1950’s have high discretionary income and have positively impacted every economic market since birth. Record numbers are heading for retirement, creating a great opportunity for those who provide goods and services to this group. Baby Boomers are extremely active in their pursuit of purchasing real estate investments in second homes or retirement properties today for rental income, as well as for future use.
The Fideicomiso (Bank Trust)
A Fideicomiso is a Bank Trust formed by contract between the purchaser (Beneficiary) and the Bank (Trustee) to provide the Beneficiary with full use and enjoyment of the real estate purchased for a term of 50 years. The Trust may have multiple beneficiaries and can be renewed for additional 50-year terms. The Beneficiary may lease, sell or transfer the real estate at any time.
The Bank “Trustee” holds title to the real estate on behalf of the “Beneficiary” and obtains the required permits from the Mexican Government. The Trustee administers the Fideicomiso and is responsible for carrying out the terms of the agreement. In Mexico, only authorized Mexican financial institutions can act as Trustees. The Trustee cannot encumber or transfer the real estate without the instruction and approval of the Beneficiary. For foreigners accustomed to having direct title to real estate this arrangement may seem complicated, but the Fideicomiso is actually relatively easy to use and the only legal process available for owning residential land in Mexico.
Notary Public (Notario Publico)
In Mexico, notary publics are attorneys who have special commissions from the government to authenticate and register public deeds and other important documents. Notaries are the only Mexican entities authorized to process your right to purchase. While most are professional and detailed in their preparation of public deeds, it is helpful to have someone who can compare the English version of the purchase contract with the Spanish version of the public deed to make sure the deed accurately reflects the agreed upon terms.
Experienced legal counsel can help minimize some of the difficulties with purchasing real estate in Mexico. When your attorney, a neutral third party, opens your purchase, you will enter into an Escrow Agreement, whereby you’ll deposit funds into an escrow account with Stewart Title Company. The escrow agreement should stipulate that your money is to be placed in an interest-bearing account, with the interest going to whomever the Buyer and Seller have agreed to in the escrow instruction. These funds are not released to the Seller until you have your title and all other conditions stipulated have been satisfied. Once the deed for the real estate is formalized and filed in the Registry by the Notary, the purchase is complete.
Steps to Purchase Mexican Property
Other than the fact that the buyer is purchasing through a Fideicomiso, the purchase transaction is essentially the same as any other real estate transaction in the United States. To secure your purchase, the following steps for verification will be taken by your attorney representing you as the Buyer:
1) confirm the terms of the sale are evidenced by a written purchase contract;
2) confirm the seller holds valid, unencumbered title to the real estate;
3) obtain an appraisal of the property;
4) confirm the property tax payments are current;
5) provide a certificate the property is free of liens or encumbrances;
6) confirm the Fideicomiso agreement correctly describes the terms negotiated
with the Trustee and the Beneficiary;
7) provide a written “Letter of Instruction” to the Trustee stating that the Seller will
sign over his/her property rights to the Beneficiary;
8) confirm the Foreign Relations Department issues a permit for the Fideicomiso;
9) if desired, assist the Buyer to obtain title insurance;
10) confirm the “escritura” (deed) is registered in the Public Registry
Once this verification is completed, the funds can be released to the Seller and the Buyer officially becomes the owner of the property.
For more information, we suggest you contact an experienced Mexican attorney and Notary Public licensed to practice in the State of Baja California Sur. These professionals can walk you through the process, explain the Fideicomiso and notary fees and act as your Power of Attorney to sign papers in the event you cannot be present in person at the appropriate times in the process.