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Mexican Trust – Fideicomiso

By far the most asked question during the process of purchasing real estate in Mexico. Don’t let legal terms confuse you. You rightfully and legally own your property. It is very simple actually, and no, it is not a 99-year lease. The concepts and processes are pretty straight forward. As a foreigner, two ways you can own real estate in Mexico are:

FIRST OPTION: MEXICAN CORPORATION

A Mexican corporation is incorporated and owned in a fee simple title to property, regardless of size, location, value, or purposes of it. This is generally recommended for investors that are looking to develop and/or acquire more than one real estate transaction.

Mexican corporations work in a similar way to American corporations, and there is no limit as to the number, citizenship, or nature of the shareholders. Check with your legal representation as there are multiple corporate structures and some of which are more beneficial to foreigners.

Also, for tax purposes, developing and/or commercial expenses are better deducted through a corporation than through a Trust.

SECOND OPTION: MEXICAN TRUST OR “FIDEICOMISO

This method is the most utilized for a private investor or a residential piece of property, without commercial purposes.

Mexican law provides that foreign individuals and/or entities (including foreign trusts) may own fee simple title to land in all of Mexico, except in the so-called “Restricted Zone”, which is the strip of land that goes along the shores (50 kms. inland) and the borderlines (100 kms. inland). Therefore, when land is purchased directly or indirectly by foreigners through foreign entities or trusts, it is typically bought through a Mexican trust or “fideicomiso”.

The following three persons are listed in the fideicomiso:

The Mexican owner of land that originally conveys the property into the trust

The Mexican financial institution that holds title to the property

The individual(s) or entity(ies), national or foreign, of the Trust: that has the authority to instruct the Trustee in connection with the property

The purchase of property through a trust works in a very similar fashion as a regular purchase and sale transaction: the seller (‘Trustor’ or ‘Settlor’) shall execute a trust agreement, whereby a trust is created and title is conveyed to a Mexican bank (‘Trustee’) for a purchase price, and the Mexican bank accepts such conveyance, in the understanding that (i) the purchase price is paid by a third party (normally a foreigner), who is appointed Beneficiary of such Trust, (ii) the bank acquires title, acting on behalf of such third party and, therefore, (iii) the bank is not allowed to take any act or decision regarding the property unless it is instructed in such sense by the Beneficiary, who has all decision rights.

Then, in practice, although the bank has the nominal title to the property, they do not get involved at all in the maintenance or management of the property. The Beneficiary of the Trust is the person deciding about the development, lease, sale, mortgage or whatsoever regarding said property.

Typically, the bank has no activity, except in case of litigation, when the Trustee shall grant the Beneficiary’s attorneys a special Power of Attorney to appear in court on behalf of the Trustee, nominal owner of the property.

In addition, the property held in trust is kept in a “Fiduciary Division”, so it is never considered an asset of the bank, so no creditor of the bank may go after the property, ever.

When the property to be purchased is already in a trust, the buyer may elect on whether to continue on said trust (by assuming the existing trust rights of the selling beneficiary) or to terminate the existing trust and have the property conveyed into a new trust.

These trusts have a 50-year life, with the option of an immediate renewal for another 50-year period; thereafter, the property should be sold to a person with capacity to acquire title (however, the trend is to liberalize the ownership, so most likely, such requirement will be eliminated in some years).

A specific permit from the Foreign Relations Secretary is required to set up a trust and the relevant Trust Agreement needs to be contained in a Deed, signed by the parties thereof in front of a Mexican Notary Public, and should be recorded at the Cadaster Offices, at the Public Registry of the Property and at the Foreign Investment Registry. Your closing attorney will help with this process as they are regular activities for 60% of real estate that is closed in Los Cabos.

Thereafter, no further permit or notice is required, unless one or more of the parties thereof vary, or the properties subject to the Trust are modified, either by purchase of additional land, merger, subdivision, etc.

On average trustee bank charges an annual fee of around $550.00 US dollars.

This article was written by RODRIGO GOMEZ, for informational purposes only and are not legal advice or a substitute for legal counsel. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. You should not rely or act upon this information without seeking professional counsel.

Explore exclusive villas in Cabo San Lucas, including the scenic Palmilla area, the prestigious Pedregal district, and the serene ambiance of Puerto Los Cabos.

Taking time out of a busy schedule to visit Los Cabos is a good idea any time of year. When travelers are looking to vacation in style, Los Cabos has the scenery, upscale fun, activities, and attractions that make for an unforgettable stay. With all of the activity, many owners find themselves asking, “Is now a good time to sell in Cabo.”

While a visit here is always a thrill no matter what your interests may be, those who are looking to make a more permanent investment will find that in 2023, the Cabo real estate market is primed for potential. Sellers in particular will be happy to discover that now is an ideal time to upgrade their current Cabo residence for something that elevates their year-round living and/or makes for a breathtaking vacation home.

Luxury Buyers Propel the Market to New Heights

While the global health crisis of 2020 stalled the real estate market just about everywhere for a period of time, in Los Cabos, tourism is back and stronger than ever in 2023. By the end of 2022, Forbes was highlighting Los Cabos, Mexico as one of the biggest second home markets in all of North America. This trend has seen many vacationers transition to buyers as they look for their piece of paradise to enjoy on a more permanent basis. For sellers looking to profit in Cabo, this world-class destination is offering up a strong and exciting market to be a part of as interested buyer numbers continue to grow. The team at CBRE Hotels put together a report looking specifically at Los Cabo’s market growth over the last five years and found the area is experiencing an annual growth rate of nearly 6% overall. For sellers, this is even better news.

The luxury real estate in Los Cabos provides an even more exciting prospect for those looking to sell as the most exclusive inventory remains relatively low. This provides sellers with a greater amount of control over their selling price and how they choose to accept property offers. Overall, sellers are seeing increased interest in luxury properties from American and Canadian buyers. With new direct flights between Los Cabos and Europe, the expectation is that sellers will be seeing an influx of European buyer interest in the near future as well.

Market Factors to Consider in 2023

In Los Cabos, those looking to sell are still seeing the high-end market range as listing above $1 million. At the end of 2022, resale was accounting for around 90% of property sales in Los Cabos with 30% to 40% of all residential sales falling within the high-end market category. From the U.S., there are a high number of buyers hailing from California and Texas, while market interest is also being noted as primarily coming from Chicago, New York, and Mexico City.

According to the Cabo Real Estate Services 2023 first-quarter market report, the market continues to flourish for sellers. In quarter one, the Los Cabos real estate market saw over $500 million in sales as opposed to quarter four in 2022. This puts sales volumes up by 48% and a total of 545 houses and condos sold within the first quarter timeframe. The most lucrative price point for sellers is holding steady between $2 million and $5 million listings. Quarter one inventory remained steady as well and real estate agents were seeing existing properties moving briskly. Overall market direction is noted as strong in Los Cabos in 2023, particularly for existing properties as opposed to new construction.

When You’re Ready to Sell, Partner with Cabo Platinum

Those who own homes in Los Cabos know just how appealing this sunny and one-of-a-kind destination can be year-round. That said, there’s no reason not to upgrade when you’re looking for something new in Los Cabos. Whether you’re looking forward to a new view, are hoping to swap neighborhoods, or just want to be closer to places you love to spend time, the team at Cabo Platinum is always here to help.

Our Cabo real estate services are world-class, and we know the Los Cabos real estate market fluently. We help homeowners looking to sell market and price their homes competitively so their new journey can get started faster than ever. Our guidance and assistance with financial planning can make all the difference when it comes to creating a real estate transaction that’s smooth and streamlined. We know how to navigate market fluctuations and help place your home in front of the eyes of buyers who are looking to close quickly. We’re also ready and waiting to help you find your new home once your current residence is ready to hit the market.

Luxury real estate is our passion and our area of expertise. When you’re looking to learn more about how we can help you sell your home and find the next residence of your dreams, simply reach out to Cabo Platinum. Our team of expert real estate advisors can’t wait to hear from you!