Buyer’s guide to homes in Los Cabos, Mexico
The Los Cabos, Mexico real estate scene is a treasure trove of fantastic finds for property buyers looking for a slice of paradise to call their own. If you are buying a second home to serve as your luxurious tropical escape, this collection of home buying tips is the ideal resource for you.
Important matters to consider before buying your Los Cabos luxury home
- Know what you want
Make the most out of your investment by making sure that your Los Cabos luxury residence is the right match for your personality and lifestyle.
Do you plan to go yachting or fishing regularly? Choose a property that offers convenient access to the water that will allow you to fully enjoy these activities. View some of your options here.
Are you looking for a luxurious retreat for your golden years where you can enjoy exquisite views and utmost serenity? Look for a quiet neighborhood that offers privacy and adequate distance from popular beach destinations.
- Consider your long-term objectives
Los Cabos real estate offers some of the most idyllic living experiences money can buy. But these coveted properties hold plenty of earning potential link to Month 3 article – Why buying Baja California real estate is a good investment, as well.
Before you dive deep into the Los Cabos luxury real estate market, weigh your options and consider your long-term objectives. This will help you in your search for the ideal property in which to put your money.
- Understand how the Mexican real estate market works for foreign buyers
Mexico allows foreign citizens or corporate entities to purchase coastal properties but only through a “fideicomiso,” or a trust agreement made with a Mexican bank. The “fideicomiso” gives foreign property owners all the rights and privileges of a citizen, including the ability to hold multiple properties, own them in perpetuity, and transfer ownership to heirs. The trust may also be transferred to another foreign buyer through a sale.
Securing a “fideicomiso” involves partnering with Federal and State notaries. This process can take from 60 to 90 days, so work with a dedicated Los Cabos real estate expert like Andrew Lemke who will help you keep tabs on every step. The initial “fideicomiso” term lasts 50 years and can be renewed for additional 50-year periods.
To learn more about the nuances of Los Cabos luxury real estate, read these frequently asked questions.
Request a copy of the latest Los Cabos luxury real estate market report here.
The right real estate agent
Real estate customers always gain a distinct advantage when they partner with the right real estate professional. With a knowledgeable and experienced agent providing important and timely advice, the home buying process moves with greater ease.
When it comes to buying luxury properties in Los Cabos, Andrew Lemke is the name to remember. Andrew is a seasoned expert in luxury residential and development properties in the Baja California Peninsula. He is also a trusted advisor when it comes to new construction and project consulting in the area.
Learn more about Andrew Lemke through the links below:
Searching for your ideal home
The home of your dreams is just a click away.
Discover the most exceptional luxury properties in Los Cabos through these designated search pages:
The absolute best Los Cabos luxury properties that are sure to satisfy every desire of even the most sophisticated buyers
Narrow down on your specific targets with this versatile search tool
If you want to shop for your dream vacation property by area, click through to the following listings pages:
- Cabo del Sol
- Cabo Real
- Cerro Colorado
- Chileno Bay
- Club Campestre
- Costa Palmas
- Diamante Cabo San Lucas
- East Cape
- El Encanto de la Laguna
- El Dorado
- Espiritu del Mar
- Hacienda Beach Club & Residences
- Las Ventanas al Paraiso
- Puerto Los Cabos
- Punta Ballena
- Rancho San Lucas
- San Jose del Cabo Beachside
- Todos Santos
Making a strong offer and entering negotiations
Once you’ve shortlisted your Los Cabos luxury home search to your Top 3 candidates, prepare a compelling offer. In addition to the price you’d like to pay for the property, include a personal letter to the home seller. Explain your reasons for choosing their home and how you intend to make the most out of it as the property’s new owner.
Be prepared to receive a counter-offer. Use your agent’s negotiation skills to maintain a reasonable yet firm stance to arrive at a mutually agreeable final price. If negotiations reach a stalemate – or if your offer is rejected outright – be open to moving on to your other top choices as soon as possible.
Sealing the deal
Do your due diligence before finalizing a deal with the seller. Get property inspections done and look into the necessary title review and insurance processes to ensure that no hidden structural or legal issues will arise and ruin your living experience after you move into your new home.
Be sure to look into insurance measures that especially protect waterfront properties, as well.
In Mexico, the transfer of title and the delivery of the property are separate procedures that may take place on different dates. This means you there may be a gap between the date of closing and when you can actually move into your new home.
Read more: Related topics on buying Los Cabos real estate
Find other relevant and interesting reads about buying Los Cabos real estate here:
- Andrew Lemke’s Los Cabos real estate news and updates hub
- 8 things to take note of when buying real estate in Mexico
- How to stage a home for selling
Discover the finest Los Cabos houses for sale with Andrew Lemke
Find the best luxury properties to match your ideal lifestyle with trusted Los Cabos real estate professional Andrew Lemke. Call 1.310.922.1818 or email today.
Understanding the importance of fully understanding the process of purchasing real estate in in Los Cabos is what has driven Engel & Völkers Snell Real Estate to successfully guide Mexican-real estate purchasers for more than 15 years. Today, E&V Snell Real Estate is the recognized real estate leader in Los Cabos. In fact, we pioneered the use of Title policies and Third Party Escrow in Mexico in an effort to make your investment as safe as possible.
Each real estate transaction is guided by a full-time, bi-lingual closing officer who ensures the integrity of all of our closings – from start to finish. We understand the local regulations regarding ownership of real estate in Mexico by foreign investors and we put this knowledge to work for you – making sure your investment is protected and secure.
Below you will find some helpful information regarding purchasing in Mexico and also building yoru dream home in Mexico. If at any point you have any questions, please contact me at 310-922-1818 or click here.
BUYING IN MEXICO
- Can non-Mexicans own real estate in Mexico?
- What is the history of the Mexican property trust/fideicomiso?
- What is the function of the trustee bank?
- What rights to I hold as a purchaser of Mexican real estate?
- How long does it take to establish a trust?
- When do I pay for my property?
- Is Title Insurance a necessity?
- How do I ensure ownership of the land that I am going to purchase?
MANIFESTING YOUR CONSTRUCTION
- What is manifesting?
- Why do I need to manifest my construction?
- What is a cost plus contract?
- What is a fixed bid contract?
- How do I pull a building permit?
- What is a letter of termination of works and why is it necessary?
- Social Security
- Manifesting your construction, for good.
Q. Can non-Mexicans own real estate in Mexico?
A. Yes! Ownership of real estate in Mexico is via a Mexican land trust called a fideicomiso (fee-day-coe-me-so). The trust has a term of 50 years and can be renewed in perpetuity to allow for long-term control of the asset or to will the land from generation to generation. For this purpose, we offer secure U.S. financing and Title Insurance on properties purchased in Mexico.
Q. What is the history of the Mexican property trust/fideicomiso?
A. With the advent of the North American Free Trade Agreement (NAFTA), the Mexican government recognized that it was crucial to make foreign investment in Mexico safer and easier for non-Mexicans. Because the Mexican Constitution prohibits non-Mexicans from purchasing or owning real estate within 60 miles of the U.S. international border, or within 30 miles of the Mexican coast, an innovative and secure method of holding title was created. This method allows non-Mexicans ownership through a Mexican property trust called a Fideicomiso. This is a trust agreement, much like an estate trust in the U.S., which gives the Purchaser all of the rights of ownership.
In order to gain the rights of ownership, the Department of Foreign Affairs in Mexico City issues a permit to the Mexican bank of the Purchaser’s choice, allowing the bank to act as Purchaser of the property. Essentially, the bank acts as the “Trustee” for the trust and the Purchaser is the “Beneficiary” of the trust. The trust is not an asset of the bank; the banks simply act as the Trustee to hold the trust.
Q. What is the function of the trustee bank?
A. Much like living wills or estate trusts in the U.S., the Mexican bank, or Trustee, takes instruction only from the Beneficiary of the trust (the Purchaser). The Beneficiary has the right to use, occupy, lease and possess the property, including the right to build on it or otherwise improve it. The Beneficiary may also sell the property by instructing the Trustee to transfer the rights to another qualified Purchaser, or bequeath the property to an Inheritor. The initial term of the trust is 50 years, however the trust can be renewed for additional periods of 50 years indefinitely, providing for long-term control of the asset.
Q. What rights do I hold as a purchaser of Mexican real estate?
A. The Purchaser holds the same rights as a property owner in the U.S. or Canada, including the right to enjoy, sell, rent, improve the property, etc. This is not to be confused with a land lease. The property purchased is placed in a trust with the Purchaser named as the Beneficiary of the trust — the Purchaser is not a lessee. If the property purchased is already held in a trust, the Purchaser has the option of assuming that trust, or having the property vested in a new trust.
Q. How long does it take to establish a trust?
A. At E&V Snell Real Estate, we partner with Federal and State notaries for all of our closings in order to secure your trust. A Notario Publico in Mexico is much different than a Notary Public in the U.S. In Mexico, Notarios are specialized attorneys who act on behalf of the state and federal government in relation to any transaction; they are comparable to a U.S. Clerk of Courts.
On average, E&V Snell Real Estate can obtain your trust within 60-90 days. In some cases title has been transferred in as little as two to three weeks. We oversee the entire process and make certain you understand each and every step involved. For your benefit, we can even provide you with a sample trust in English for your review.
Many real estate purchases in Mexico have only a simple buy/ sell agreement between the Purchaser and the Seller as evidence of ownership. This is not a safe method of ownership and is not recommended by E&V Snell Real Estate or our Third Party Escrow provider.
Q. When do I pay for my property?
A. The Purchaser should only release funds when the Purchaser holds clear title. By utilizing our Third Party Escrow service, your money is held in an individually numbered escrow account until your trust is complete and the property rights have been transferred to you, the Purchaser.
Q. Is Title Insurance a necessity?
A. Whether you purchase real estate in the U.S. or Mexico, E&V Snell Real Estate recommends Title Insurance for every property your purchase. We insure our cars, homes and our health — it is just as important to insure one of your largest investments: your property.
Title Insurance is available for properties in Mexico purchased by U.S. and Mexican citizens.
Fact: Just because you have a trust does not ensure you have free and clear title. Title insurance is a necessity.
Fact: In an E&V Snell Real Estate property search, the property’s title is searched all the way back to the Mexican Revolution. Most trust-securing title searches only go back to one or two owners of record.
Q. How do I ensure ownership of the land that I am going to purchase?
A. In the trust document the Purchaser must name the Beneficiary or foreign Owner of the property. The purchaser can be an individual, multiple partners, a foreign corporation, an estate trust, a living will, or another entity. The Trustee of the trust (the Mexican bank) will take direction from whomever you name as the Beneficiary. Note: You can name a U.S. corporation as the Beneficiary of the trust. This is perfectly legal.
• If you sell the shares in the U.S. corporation, you have created a real estate transaction in Mexico and all Mexican capital gains taxes apply.*
• You can own a property in a Mexican corporation and take title fee simple only if the property is for development or\ investment purposes.
• You cannot own property through Mexican corporation to bypass the trust process.
• It is against the law for a foreigner to own property in a Mexican corporation for residential purposes.
MANIFESTING YOUR CONSTRUCTION
Protect your investment. Record the cost of your new construction. Receipts alone won’t cut it.
The following is an overview regarding the manifestation regulations currently in place for individuals. Please note that the information is intended for individuals, not corporations. Over time these regulations may change, therefore it is important to make sure that the process outlined here is still in effect by contacting a certified accountant or Mexican Notario.
Q. What is manifesting?
A. Manifesting is simply recording the amount of money spent on a home’s construction or remodel, in order to add it to the Owners’ cost basis. Adding to your cost basis is the key to reducing your capital gains tax. Proper documentation and manifesting your construction are vital to building your new home.
Q. Why do I need to manifest my construction?
A. When you sell your home, the manifested cost plus the cost of your lot stated in your trust (title), will be used to determine the basis for capital gains tax. If you have not manifested your construction, Mexican tax law will not recognize your construction costs and you will not be able to use them as a deductible expense. All of your receipts, cancelled checks and bank statements will not help unless you have completed your manifestation. Before you begin construction, decide how to structure your financial arrangements with your contractor. The two main choices are Cost Plus and a Fixed Bid.
Q. What is a cost plus contract?
A. With a Cost Plus contract, the Owner pays the contractor for the cost of materials, plus a fee of 12 to 20 percent. Using this method, it is necessary to keep excellent records in order to prove all expenses. Each time you pay the contractor, he must provide you with a legal Mexican invoice called a “factura.” Each factura must be in the name of the Beneficiary named in the trust and will include an 11 percent sales tax called IVA. Without facturas, nothing you spend is deductible as an expense in Mexico. Also, with Cost Plus, you (not the contractor) are responsible for paying the Social Security tax for each person working on your home.
Q. What is a fixed bid contract?
A. With a Fixed Bid contract, the contractor quotes you a flat fee to build your home. A fixed bid includes all labor, materials, Social Security, etc. It is all-inclusive. When using the Fixed Bid process, the burden of record keeping is on the contractor, and you do not have to pay the 16 percent IVA sales tax each time you make a payment. It is, however, still necessary to receive a factura (Mexican invoice) from the contractor for each payment. The factura should reflect the amount of the payment due sans the 16 percent IVA sales tax. Mexican tax law states there is no IVA for the construction of a personal residence provided the contractor is providing an all-inclusive bid. Again, the Fixed Bid process is much less labor-intensive for you and puts the majority of the record keeping burden on the contractor.
Q. How do I pull a building permit?
A. The building permit is the first step to manifesting your property correctly. You will need the permit both to start construction and finish construction. The permit is pulled from the “Departamento de Obras Publicas,” the government Public Works office. Normally, the contractor will pull this permit. Be advised that there are two things you need to watch for:
1. Make sure the building permit is pulled in the same name as the Beneficiary named in your trust.
2. Make sure the building permit represents the approximate amount of the construction the contractor has quoted.
The fee for the building permit is based on the estimated value of your construction. In an effort to reduce this fee, some contractors will report a lower construction amount when pulling the permit. This is a huge mistake. You want your construction costs recorded accurately so that your cost basis will be accurate for capital gains.
Hint: When using Fixed Bid, make certain the contractor is in agreement to provide you with a factura with no 16 percent sales tax added for each payment. Remember to have this in writing in your construction contract.
Hint: Never report a lower construction value to save some money on the permit fee — it will cost you much more in the long run.
Q. What is a letter of termination of works and why is it necessary? LETTER OF TERMINATION OF WORKS
A. When construction is finished and you are ready to manifest your construction, you will need to take your building permit to the Departamento de Obras Publicas (Public Works) with a letter stating the total amount you spent on your construction and confirmation that construction is finished. You or your contractor can write the letter. With this letter, you will request an official statement of completion called an “aviso de terminación de obra,” which is a “Letter of Termination of Works.” This letter will state the amount you spent on your construction, which should be in accordance with the amount stated on the building permit.
The Letter of Termination of Works is the document that actually establishes your construction cost basis for the tax office.
Social Security is a very serious issue in Mexico. Your home can actually be liened or sold to force payment if taxes are not paid. Beware, this can happen even years after you finish your construction. If the amount of Social Security taxes paid corresponds to the amount of your construction, you will receive a letter from Social Security called “Carta de Razonabilidad de Pago,” which means “Letter of Reasonability of Payment.” This letter is very important, as it is your protection to prevent any future claims for non-payment of Social Security taxes. Before you can receive your Letter of Termination of Works, you will be required to have this letter from Social Security
MANIFESTING YOUR CONSTRUCTION, FOR GOOD.
Once you have your Letter of Termination of Works and your letter from Social Security, you simply take them to the tax office (Oficina de Catastro). There, the value will be recorded and added to the cost reflected on your trust document. Once completed, you have successfully manifested your construction and established an accurate tax basis for your property.
Fact: If you do not have a trust, you should not begin construction. Without the trust document you cannot pull a building permit in your name and you run the risk of not being allowed to deduct your land cost or construction cost when you sell.
Fact: Annual property taxes are relatively low in Mexico, but capital gains taxes are not. Registering an inaccurately low number will cost you much more in the long run. E&V Snell Real Estate will work with you to make certain that all your documents are in order and that your actual costs are recorded properly. Just as there are no shortcuts or legal ways around taxes in the U.S. or Canada, there are no shortcuts around taxes in Mexico. Your home is a costly investment and following proper legal steps will ensure a safe and enjoyable experience in Mexico. If someone says, “This is Mexico, and that’s the way we do it here,” then beware. Seek another agent or broker.
• Always get your trust.
• Always record the real value of your purchase.
• Always purchase U.S. Title Insurance.
• Always manifest your construction.
If you are considering a real estate purchase in Baja, make certain everything is done correctly. Allow me to put his knowledge and experience to work for you. As an independent advisor, my only interest is representing you in a safe, solid, and secure real estate transaction.
Avoid the common pitfalls of buying property in Mexico. Find everything you need to know about finding and buying luxury properties in Cabo, from assembling a team of real estate professionals to navigating the MLS and gathering documents needed to complete the sale.
This guide emphasizes the nuances of the buying process, particularly the manner in which language, laws, culture, practices, and politics play a role on real estate transactions in Mexico, and how an experienced advisor can help you become more receptive to these nuances.
You will also learn about property classifications in Cabo. The guide provides an overview of properties that fall under civil law status and agrarian protected status, as well as the course of action to be taken when purchasing either property types in Mexico.
The requirements for relocating to this beautiful resort town will also be discussed.