When considering a vacation or retirement home in Los Cabos, you’re bound to have lots of questions for your real estate agent; understanding the answers is a vitally important part of your role as a buyer. Here are some of the questions we’re asked most frequently; perhaps you’ve been wondering about the same things, too.
Question: Do I really own the property?
Answer: Article 27 of the Mexican Constitution guarantees foreigners purchasing residential property all the rights, privileges, and benefits of a native-born citizen with respect to the ownership of their property. However, certain conditions apply depending on where that property is located. If it is within 50 kilometers (roughly 30 miles) of the ocean, the foreigner must establish a trust with a Mexican banking institution and use that trust to hold title. As a condition of setting up the trust, you must swear to abide by Mexican law as it pertains to the property and not seek intervention from your home country. This type of ownership is safe, secure, and has the added benefit that, when you die, the property passes directly to your heirs without the need for probate. In the strictest sense, the trust owns the property and you own the trust. Otherwise, it’s no different from the fee-simple title you’re used to in the United States or Canada: You have the right to occupy, improve on, mortgage, rent out, or sell the property without any restrictions other than those imposed by Mexican law on everyone regardless of country of origin. In other words, the government cannot take your property away from you. Period. In the eyes of the law, you are a Mexican and cannot be singled out for preferential treatment. This is the only legal, safe way for a foreigner to own a residence in the coastal areas of México.
Q: Is it true I have to pay cash for my property?
A: Although the majority of homes in Los Cabos are still “self financed,” there are mortgages available through third-party lenders. These are U.S. based despite the fact that your bank in the United States likely cannot do business in México. Accordingly, a few lenders began specializing in financing Mexican property for American and Canadian buyers. Although the lender is U.S. based, the collateral on the loan is the Mexican property. Last spring, the rates dropped unexpectedly, making third-party financing even more attractive. At press time, the rate for an adjustable-rate mortgage for borrowers with excellent FICO scores was as low as 5.75 percent with a substantial down payment. Rates vary with the type of mortgage desired, length of the loan, amount of the down payment, and, of course, the applicant’s credit score. The good news is that, according to Tina Rebello, ConfiCasa Mortgage regional director, there is no rate-fixing in México. So if you rates lower and you are preapproved or even have a loan in process, you automatically get the lower rate. That U.S. lenders will finance property in Los Cabos speaks very highly of the stability of our market; such loans are typically made at more favorable terms than those offered by local developers.
Another tried-and-true method of financing your dream home in Baja California Sur is to ask for seller financing. Prior to the availability of third-party loans, seller carry-back was a common way to finance a purchase here; in some cases it still works to everyone’s benefit. Seller financing often carries a slightly higher rate than commercial products, but the ease of application and slightly lower closing costs can make it an attractive option.
If you want to finance your purchase, be sure that your real estate agent knows this from the beginning. If you will be using a third-party lender, it is always best to get a preapproved before making an offer. With preapproval, your offer is considered the same as cash and you will be able to drive a much harder bargain than in the case of an offer contingent on obtaining credit. As most of the lenders do not charge for pre-approval, you have nothing to lose and everything to gain.
Q: Is there somewhere affordable I can live and not have a car?
A: Yes. Los Cabos is one of the best places to live car free. There are vibrant downtowns in Cabo San Lucas and San José del Cabo and efficient (albeit quaint) public transportation. As of press time, there were a number of options available, including a studio condo right on the Cabo San Lucas Marina for only $85,000 U.S. and a single-family home on a large lot with a pool and hot tub in Pedregal for $499,000 U.S. (the Fountain Valley section of Pedregal is only a short stroll from the center of town). Working with your AMPI-member real estate agent you can find a variety of properties that are within walking distance to a variety of shops, restaurants and other services. (AMPI stands for the Mexican Association of Real Estate Professionals.) One important consideration to keep in mind is that parking is at a premium in most areas of Los Cabos. If you purchase a condo in the downtown area that includes a garage, you may be able to rent it out separately for additional income.
Q: What are the benefits of building versus buying a home in Los Cabos?
A: The benefit of building your own home versus buying is the same everywhere in the world: You get precisely what you want. That said, you have to think about the amount of time this will take. If you are not a patient person by nature, you may not be suited to building in México, and particularly in Los Cabos. Although things have improved greatly in recent years, we are still at the end of a very long and arduous supply chain. That coupled with the reliance on mostly hand labor and time-intensive building techniques means that you will have to wait about a year from the time the first shovel hits the dirt until your builder hands over the keys to your new home. If your home is large, located in a community that restricts work hours, or if you have specified a lot of imported components, time to completion could even be double that. During that period, any number of things could happen to change your costs—from the fluctuation of the peso to an increase in the cost of concrete. The longer your home is under construction, the greater the chance of experiencing a cost overrun.
If you will be financing your purchase, it is generally much easier to obtain a mortgage on an existing home. Although construction loans are available, the selection of lenders is very small and, because of that, the lenders are able to dictate their terms.
In these economic times, it is sometimes more cost effective to purchase a finished home. Although we do not have short sales and foreclosures that exist in the United States, some sellers’ financial situations in the United States are leading them to take significant losses on the sale of their vacation homes. If you are lucky enough to identify one of those opportunities it could be to your financial benefit to purchase the finished home and make any modifications you wish with the money you save.
A: Is a fractional the same thing as a time-share, or do I own property?
Q: This is one of the biggest misunderstandings about real estate in Los Cabos and for good reason. The term “fractional” is used by both the real estate and time-share industries, but the difference between the products they use it to describe is profound. The time-share version of a fractional is a very high-end time-share. However there are some developments—notably Villa La Estancia, Esperanza, and the super-elegant Capella Pedregal—that are true deeded real estate sold in a fractional manner. Under these programs the buyer receives title to the property along with several other individuals. They have all the same rights, privileges, and benefits as those applying to full-ownership properties, including appreciation in value, but they do have partners in the home. In some sense this is one of the oldest forms of ownership in Los Cabos; for decades, groups of friends or family have pooled their resources to buy a vacation home here. The benefit of the properties specifically being marketed as deeded fractionals is that the rules of ownership and use are clearly defined by the developer when they are sold. Too often, like many of my colleagues, I’m called to a listing appointment because hard feelings about one party taking more than its share has dissolved the friendship and forced the sale of the home. Deeded fractional ownership avoids this problem. If you are still working and unable to come to Los Cabos for months at a time, a deeded fractional makes a great deal of sense. With deeded fractionals, you purchase only as much time as you can use and generally receive a luxurious property with more included services than would be possible with full ownership.
Have any question about whether what you’re being offered is real estate? Simply ask whether title insurance is available through Stewart Title, First American, or Fidelity. Unless the answer is an enthusiastic “Yes!” you are probably dealing with a time-share product.
Q: What are real estate agents buying these days?
A: Right now, savvy real estate agents—and their special investors—are looking at distressed vacation rental properties. While it is true that mortgages are the exception rather than the rule in Los Cabos and that in addition our low carrying costs have kept most prices stable, there are a few exceptions. These properties are often homes that were purchased strictly to be used as short-term vacation rental properties. The owners of those properties were expecting them to “cash flow,” or pay for themselves and even provide a profit. In some cases, 2011 rentals actually exceeded expectations; however some of the more luxurious properties rentals have not met the investors’ needs. In very rare cases, they are willing to unload those properties at prices well below the highs of 2007 and 2008.
As a category, building lots have shown the highest depreciation in value. These also can be an excellent opportunity for the wise investor; because the cost to carry them is so low, they can be a favorable investment if the buyer is willing to hold the lot for a few years.
Of course not every property on the multiple-listing service (MLS) is a quality investment bargain. How will you identify which ones are? Ah, that is the trick. Most Los Cabos agents have a short list of favored clients who can respond quickly to a hot deal; between agents buying their own properties and those chosen clients, it’s tough for a newcomer to snag the really smoking-hot deals. To cash in, you’ll need to forge an ongoing relationship with your realtor and be ready to act quickly.
Q: What are the advantages of a condominium over a single-family home?
A: Some clients, especially first-time Los Cabos buyers, are not sure whether to buy a condo or a private home. Unlike some other resort communities, the differences between the two may be very small here. In fact, some of our single-family homes are just as easy to maintain as condos. In recent years, developers have reacted to the need for a hassle-free ownership experience by building complete care into the product offering for both condominiums and single-family homes. For example, at Ventanas Residencial on the Tourist Corridor near Cabo San Lucas, owners may choose their own landscaping but upkeep is handled by a crew of gardeners whose wages are included in the monthly dues. Maid service and minor home repairs can also be arranged, and, if needed, the concierge can arrange to prestock the kitchen and pantry prior to the owners’ arrival. And, if the owners don’t feel like cooking they can call for delivery from the on-site restaurant. If they will be renting their unit out while not using it themselves, the homeowners’ association can handle that chore, too. In San José del Cabo, owners of condominiums at Tortuga Bay enjoy all these amenities as well. So as one can see, there really is very little difference in the services offered even though one development is made up of single-family homes and the other is a true condominium project. There are similarly maintenance-free homes and condominiums throughout the area, the important choice you will have to make, and communicate to your real estate agent, is the amount of hands-on supervision of labor you are willing to undertake. Although there are “every service you could ever imagine” developments in most price ranges, starting at approximately $200,000 U.S., the difference between these service-oriented developments and their more conventional counterparts will be the homeowners’ dues. After all, there truly is no free lunch. Working with your agent, you might compare the difference in dues versus buying a home or condo with fewer on-site services and hiring a property manager to take over the additional duties. A good property manager can make a single-family home just as carefree as any condominium. So your choice of vacation home can be dictated by view, location, and price. The details are someone else’s problem, and isn’t that the whole point?
These are only a few of the questions you’ll have when you start searching for the perfect vacation or retirement home. It is also very important to also learn about closing costs, which can be a significant expense. One of the joys of real estate in Los Cabos is that we have so many wonderful options to present to our clients: The variety of options is astounding and there is certain to be a perfect property for every taste and budget. Working with your agent you will find the one that is, unquestionably, exactly right for you.
Carol S. Billups is broker-owner of REALTY EXECUTIVES Los Cabos, a full-service brokerage based in Cabo San Lucas. She has also covered the real estate market for Los Cabos Magazine as well as other publications. You may search every listing on the MLS on her website, www.reloscabos.com. Her blog about real estate and living in Los Cabos can be found at www.caborealtor.wordpress.com. Billups is chairperson of the AMPI Los Cabos Board of Realtors and urges readers to work with AMPI-member real estate agents who are bound by a code of ethics to be sure their investment is safe and the trust recorded properly. Billups can be reached at firstname.lastname@example.org or by phone at 044-624-147-7541.