4 things every buyer needs to know
By Carol S. Billups
The real estate options in Los Cabos are absolutely stunning and well worth the investment. Of course, before you jump right in, it’s important to remember the whole picture. Asking questions is a good thing. The answers you get may be critical to determining what—and where and how—you’ll be buying. While there are many things you should learn up front, here are four critical issues to consider before starting your search.
It’s All About Trust
Per Article 27 of México’s constitution, non-Mexicans who purchase property within 50 kilometers of the ocean (approximately 30 miles) must hold that property in trust with a Mexican bank. The trust grants you all the rights, privileges, and benefits of a Mexican citizen as pertain to the property but also restricts you from seeking any legal action from your home country. In other words, you cannot ask the United States or Canada to intercede if you have a dispute in México. Instead, you must settle things through México’s court system. This trust, called a fideicomiso, also offers some estate planning benefits. Of course, it is not without cost; that includes annual fees. If no trust currently exists for the property in question, your attorney will obtain permission from Congress to set one up. In some circumstances, an existing trust can be assumed by the buyer. Your real estate agent can explain the trust to you in detail.
Deal or No Deal
Here in Los Cabos, it is customary for the buyer to pay the costs involved in conveying title (closing costs). Depending on what you are purchasing, these costs can be significant and they must be paid in two parts: one half upon acceptance of your offer and the balance at closing. In Mexico, there is a 2 percent federal tax on the acquisition of real property. Additionally, there are fees to local government and to the bank holding the trust. The transaction will be presided over by a state-appointed attorney who is charged with verifying the transaction and collecting taxes (although this attorney’s title is notario público, it should never be confused with a notary public in the United States or Canada). With closing costs on a moderate purchase totaling as much as 5 to 7 percent of the purchase price, it is important that you make these costs part of the budget. Before starting your search, it is a good idea to get a rough estimate of the closing costs from your real estate agent. In many cases where the budget is tight, my clients have had to adjust their estimated price range to be sure they are able to cover these closing costs without issue.
The Long Game
One can imagine that setting up a trust and completing the requisite paperwork might take some time. Closings in Los Cabos take longer than in your home country and in some cases quite a bit longer. A simple closing may take two months to accomplish, but depending on the parties involved it could be much longer. The trust departments of Mexican banks have always had the reputation of being hard to work with but in recent days they have achieved a level of difficulty that boggles the rational mind. And as a party to the transaction their participation is essential to the transaction but in some cases that will seriously impact the time it will take to transfer title into your name properly. At press time one institution, HSBC Bank, was refusing to participate in any transfer, thus forcing sellers to move their existing trust to another bank in order to sell their property. In essence, sellers with existing trusts there have two transactions to complete with closing dates as far as one year from acceptance of the offer. Importantly, if you are buying a property with an existing trust, it is vital to find out which bank currently holds the trust. If a transfer is necessary, consider having your real estate agent stipulate in the offer that the seller will pay the costs for this intermediate transaction.
Once you own the property you hope to enjoy it for years to come. Responsible ownership means there will be associated costs. What those costs will be largely depends on how you plan to use the property, so it’s best to discuss this with your agent prior to purchase. For example: If you are planning to use the property as a vacation rental, you will most certainly need a concierge or property manager who will handle at minimum meet-and-greet service, maid service, and checkout. But if you plan to use this as a personal property for vacation use or long-term owner occupancy, you might look at communities where all outdoor maintenance is performed by the home owner’s association, which makes a single-family home as carefree as a condo. Paying utility bills online may mean you need no additional management services at all, but most owners find having someone local to check the property periodically, pay bills, and have the property ready for occupancy helpful. Other recurring costs include an annual fee to your trustee bank and annual property taxes. Trust fees are set at the time of closing and remain the same each year. Property taxes in Los Cabos are a fraction of those in the United States or Canada, often just a few hundred dollars per year with discounts for early payment in first quarter of the year.
Having a frank discussion of your plans with your agent can help target your search to appropriate properties. Learning some of the basics from the start can assure that your purchase is as pleasant and trouble free as a day in your dream Los Cabos home.
Carol Billups is broker-owner of Cabo Realty Pros, a full-service real estate firm in Los Cabos. Billups has been helping clients find their perfect Los Cabos real estate solution for more than 19 years. Her website is www.caborealtypros.com. She can also be reached at carolbillups@hotmail .com or by phone at 044-624-147-7541.