I had been living in Puerto Vallarta for several years and thought I was doing a pretty good job understanding the culture, when a casual statement made me realize I still had a lot to learn. A well-traveled lady looking at real estate that afternoon mentioned that when residents of Mexico go to the US, they can get a case of “tourista” or upset stomach.
Well, that makes perfect sense when you think about it. The microbes in the air, food, water are different and not having adjusted to this biological problem previously, means you can get sick. The truism of a traveling salesman being more resistant to “tourista” comes from his being in different environments so that his body hosts a variety of bacteria to help digest food and to be comfortable with the air and water.
This may seem like a strange example to open an article about real estate, but I still remember when the “light bulb” came on upon hearing this lady’s remark. We don’t have unique experiences being in Mexico. Foreigners in all countries have similar issues.
When you purchase property, the main hurdles are the same:
1. Currency Issues
We realize when traveling that fluctuating currency exchange rates affect the cost of the trip. A more expensive item like real property magnifies the impact of the currency markets. Buyers from abroad can spend significantly less or more, for no other reason than the natural movement of the exchange rate.
In our market of the Bay of Banderas, the sales price of real estate can be in US dollars or pesos, depending on what the buyer and seller desire. Closing costs through the notary are in pesos, whether it is capital gains for the seller or acquisition tax and fideicomiso trust cost for the buyer. Canadian dollars, Euros all are converted into US dollars and/or Mexican pesos.
Tied to currency issues is the transfer of the money. How can funds be transferred and when does the rate change occur? Can the exchange rate be negotiated in advance?
2. Financing Issues
Obtaining a mortgage on Mexican property can be done through a Mexican or a US lender. Previously, to save on the higher cost of these mortgages, over half of the foreign buyers paid cash. We will start to see more mortgages as their costs go down and cash is rare.
3. Tax Issues
The tax status of a foreign buyer can significantly affect the realized gain on a residential property and the net income on a rental or commercial property. In the US, as well as Mexico, taxes can be collected from the sales proceeds by the closing agent. An immigrant’s tax situation is largely determined by his status as a resident or nonresident.
4. Form of Ownership – Direct or Corporate
Direct ownership by an individual may be the simplest and most effective solution in many cases. If the property is large and an investment to be developed and resold, then forming a corporate identity may be best.
5. Tax Considerations
Anyone, whether foreign born or native, should examine the tax considerations before initiating a real estate transaction.
6. Tax ID Numbers
Expert advice from a professional should be sought. It is interesting to note that US property transactions to foreign entities require a US tax ID number. Mexico is also requiring this.
Ask the Right Questions
Taking proactive steps with our clients and asking the right questions makes it easier to clear the common hurdles for closing a transaction with a foreign buyer anywhere in the world.
This article is based upon Flex MLS reporting, legal opinions, current practices and my personal experiences in the Puerto Vallarta-Bahia de Banderas areas. I recommend that each potential buyer or seller of Mexican real estate conduct his own due diligence and review. If you have any other questions, contact me through my website.Harriet Murray