Investing in Manzanillo

evening in ManzanilloDo you think that Manzanillo may be the perfect place to retire? Thinking of buying a vacation home for you and your family? If you do much of your business by computer, wouldn't you like to spend your winters in a warm, agreeable place like our friendly port? Are you looking for a secure investment? Are you simply dreaming about a better quality of life?

Owning a home...the phrase represents security and comfort. Unfortunately, the word home, when used in conjunction with the purchase of a property in Mexico creates stress, worry, and at times, is associated with financial loss.

None of it needs to happen. Purchasing a home in Manzanillo is very similar to buying a home in the states of Canada. If you ask the same questions, you should get answers. While it is not difficult to find apartments for rent, home ownership offers more security.

Foreigners may own property in Mexico, but it is through the use of a bank trust, naming the foreigner as a beneficiary. A beneficiary has all the rights of an owner, in that he can develop and improve the property, and can sell at any time.

The Mexican Constitution prohibits direct ownership of real property by foreigners in the "restricted zone," the area of land along the coast about 30 miles wide. This is the reason the Mexican government created the "Fideicomiso," or real estate trust. It follows the guidelines of Mexican law while protecting foreign investment. In essence, a Mexican bank will hold title to the property, and the foreign owner is named the beneficiary.

There is another way to purchase real estate in Mexico. A Mexican Corporation can be set up with foreign investment capital. The corporation then names the foreigner as administrator of the corporation. The administrator can then apply to the Ministry of Foreign Affairs to secure a permit under his own name. The Ministry then has 15 days to act, following the filing of the petition. If the maximum period passes and the Ministry takes no action, the trust permit and/or registration are automatically authorized.

You've fallen in love with Manzanillo. Now, how do you begin to make the right purchasing decision? Everyone wants a home on the beach or with a view, and undoubtedly, Manzanillo's beaches and views are spectacular. However, don't let your eyes replace your common sense. Check out the neighborhoods. Approximate age? Scheduled improvements? What will it look like in ten years? Talk to the residents. Stop in at the area's local restaurants. Where are the schools? Shopping districts? Are the homeowner's association dues or maintenance fees paid and up to date? If the utilities are shut off, what was the final bill? You'll have to pay it if your realtor doesn't state otherwise in the contract. This includes, phone, electricity and water. Does the building and property have a clear title? Are there any liens against it? What building restrictions are there? Ask questions of everyone you meet!

The seller must have a registered title to the property. Then your purchase of the property must be recorded, and it must be recorded correctly. Make sure you get a copy of the entire seller's documents before any money exchanges hands. There have been cases of sellers never acquiring a legitimate title to the property they are selling. Fortunately, in Manzanillo, there have been so many new foreign buyers purchasing property here that our notaries--most of them anyway--know just what to do to complete a transaction.

Don't let your love of Mexico, and the smooth talk of the seller cloud your common sense. To find a competent notary, talk to foreigners who have already purchased a home here. Ask for recommendations. Don't trust too much, and take some time to do research on your own.

Pay a little extra money to get all your legal documents translated into English. If in doubt, consult a third party and check their accuracy.

A word about Mexican notaries: Notaries here have a much more important status than American notaries do. Their responsibilities in a real estate transaction include: drafting the deed, calculation of the seller's capital gains taxes and buyer's acquisition taxes, and affirm the validity of the signatures. Because responsibility and actions of a Mexican notary are considerably higher than those of notaries in the U.S. and Canada, the fees will be substantially higher. These fees are based on a rate schedule by the College of Notaries Public, and are tied to the amount declared in the property transfer.

A federal tax (IVA) of 16% is charged on all services. These taxes must be paid on notary services, appraiser services, and other professionals. The will also be annual bank administration fees for the bank trust. The banks don't usually send statements when this payment is due, so you must request one in writing approximately 3 months prior to the trust anniversary. Now, some banks simply debit your credit card.

A title search is a good idea. Similar to the process in the U.S. and Canada, this search confirms the actual owner, the chain of title, and will indicate liens, if any, against the property. Title insurance is issued when the new deed is registered, and guarantees the marketability of the property. In the Manzanillo area, the notary usually takes care of this.

Property taxes must be brought current prior to transfer of title, based on the assessed valuation. There is also an acquisition, or transfer tax, generally paid by the buyer. It is currently 2% of the declared value of the property. A foreigner who sells property in Mexico is liable for capital gains. It can be from 25-35%, depending on length of time property is held, the improvements made, commissions paid, and other allowable expenses by law. The formula is complicated, and is usually confirmed by a notary who handles the transaction. there are also variances on this law, so once again, check with the Notary.

As you can see, there is much to consider when making a purchase. Spend some time in Manzanillo, and get to know the area and its people. As with anything else, if a deal sounds too good to be true, it probably is. With property values increasing in Manzanillo by up to 30%/year, depending on the area, now is a good time to get in on the ground floor.

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