TAKING THE MEXICO REAL ESTATE PLUNGE? READ THIS FIRST

by | May 30, 2021 | Growing Your Money, Real Estate, Wealth Management

So you’re ready to take the plunge. You’ve watched enough HGTV. We’re all slowly poking our heads back out after a worldwide pandemic that shut down the global tourism industry. Mexico has always been a popular destination for Canadians. Maybe buying real estate in Mexico is starting to make more sense. Los Cabos and Puerto Vallarta are the hot areas with investors now. Canadians see more overall stability in real estate investment, and diversifying your property portfolio with a nice piece of sandy vacation property has a lot of benefits attached to it. It’s sexy.

Related: Investing in Mexico can pay big dividends if you know how and where to look

As I have written on these pages in the past, I have done this before. A few times, actually. Once I got burned. I had a real estate agent who we knew well and trusted who partied away a downpayment I had given that person that was supposed to go to a condo developer to lock down a unit (We sued and got it all back, plus legal costs.).

The second time I took the Mexico real estate plunge I emerged with a nice win under my belt. Buying real estate in Mexico is not for the squeamish. (A strong marriage helps a lot.) Those pictures of silky sand beaches and turquoise waves look like a true dreamscape, and it’s beautiful, soulful living to be sure. But there are also potholes at every turn. In many ways it is the Wild West down there. If you aren’t both smart and cautious, you’ll get burned. And we’re not talking sun burned.

It’s for the tough and savvy, those unafraid of risk. And with the right direction, you’ll be more than impressed with your ROI if you decide to rent the home when you’re not there, or run it over Airbnb or VRBO. Look at the stats of potential renters. In 2019, 3.67 million Canadian travellers went to Mexico. By far, Cancun has been the most popular Mexico destination. The majority of Mexico tourists are American. But Canada is No. 2. More than 86 per cent of international tourists visit six locations – Cancún, Mexico City, Playa del Carmen, Los Cabos, Nuevo Vallarta and Puerto Vallarta.

First, second and third steps in Mexico real estate: Hire a reputable lawyer, and be prepared to pay a premium for that

First thing you need to do is get a quality lawyer. I went with these guys. They were expensive, but in Mexico it’s well worth paying a premium when it comes to legal and immigration issues, insurance and taxes in Mexico. We won’t get into it in detail, but you don’t own property in Mexico the way we do in Canada. The most popular way foreigners own property in Mexico is via a mechanism called a fideicomiso. That’s a trust, held by a bank, in your name. Builders and developers and brokers down there will tell you it’s “essentially” the same as owning it yourself but it isn’t the same as owning property in Canada or the U.S.

Bottom line is it’s a completely different world down there. So get a good lawyer and listen to him or her. Get them to background check builders and developers. You will save yourself months of time and stress and thousands of dollars in grief.

Next step is to find a reputable real estate brokerage, someone who knows the market. You need to go with licensed professionals who speak Spanish and understand the realities of doing business down there. They need to have years of experience, knowing where the potholes are.

Jim Botaish, an American guy with Remax based on Isla Mujeres, an island just off of Cancun, has been down there over 20 years, and sold my island house for a nice profit. I would start with him, if you’re buying in the Riviera Maya. Or try Ivan Ebergenyi from Costa Realty, located in Cancun. Ivan is born and raised in Mexico (Ivan also owns a home in Brampton, just outside of Toronto.).

There are also several really good Facebook groups where you can connect to people who have bought property down there, or are listing homes. Connect with expatriates and ask questions. I actually posted my home in a Facebook group first, got a serious nibble, then passed it over to Jim, who then ran it over the goal line.

All that said, I would still recommend it if you are willing to really commit to it, and want to expand your real estate portfolio. Here are three reasons to go forward:

 

With historically low interest rates, use home equity to finance a Mexico vacation property

I just interviewed a VP from Royal Bank Financial Group who leads a team of sales financial professionals to help Canadians buy property anywhere in the United States. With these people you can use cash on hand or equity you have built up in your home here in Canada, maybe get a low interest line of credit, get creative in buying property in sunbelt places like Florida and California. You can make the required 20 per cent downpayment on a vacation home then work with RBC to get a U.S. mortgage to finance the rest.

In Mexico it’s still next to impossible for foreigners to get mortgages to finance a Mexico real estate deal. The current mortgage rate in Mexico is 9%. So you’ll have to finance it here. Despite reports saying that interest rates are on their way up, they’re still at historically low levels. So the timing is good to talk to your financial manager.

A tourism tsunami is coming

Everyone is prepping for a big tourism wave that’s coming. U.S. travellers are already out of the gates this holiday weekend. Mexico remains one of more popular Airbnb destinations in the world. Check out the chart: Mexico ranked ninth on a list of countries that have seen the greatest economic impact from Airbnb ($2.7b) since the company’s inception in 2008.

Remember, it’s a job. One of the challenges is finding people you trust down there to manage your vacation property while you’re not there. I knew one home owner who discovered their property manager was using their home for family weekend getaways. When they fired that person, they were taken to court in Mexico, and had to settle with the guy – in part because they didn’t understand the Mexico legal system, and didn’t want to learn.

But the revenue potential is real, especially if you market the property well. As well as getting great photography done for postings on Airbnb and VRBO, get a complete website done, like my friend did here (She’s from Texas, and has really done well with this business.). The demand is going to be there, very soon.

Working remotely/lifestyle change

This is a big one, especially now. What Covid-19 did in part was show all of us how effective we can be working remotely. If you run your own business, and are disciplined with your work ethic and time, just dream for one second getting up early on a weekday morning, banging out emails and calls, getting any or all work done. Then you take the remainder of the day to hit the beach and enjoy a sun and sand fantasyland. If you’re living on an island or in a remote area, invest in a WiFi booster.

That’s especially appealing for Canadians taking the Mexico real estate plunge, getting on a call with co-workers back home sitting through another February snow storm, facing a long commute back to their homes.

Also, a helpful tip, if you think you are going to be working outside on a beach for weeks or months, think again. That salty sea air will seep into your computer and wreak havoc. Do your work inside your home. Then go outside and sit on the beach with a margarita, enjoying all that’s great about Mexico lifestyle.

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