Cashing In on a Second Home in Mexico

Mexico real estate is booming: What went right? ($19.95)

The following is an excerpt from “Cashing In on a Second Home in Mexico: How to Buy, Sell and Profit from Property South of the Border” written by Tom Kelly and Mitch Creekmore.

The growth and popularity of Mexico's real estate industry has absolutely exploded compared to a decade ago when it appeared to be on a fast track to implosion. What went right? Did the enormous group of U.S. baby boomers simply return to their old spring-break haunts and begin buying beachfront memories? When did it turn the corner? Was it with the turnaround of the peso in 1996?

Does it still make sense to consider buying a getaway in a laid-back, it-can-wait-until mañana setting? Values in some Mexican markets have tripled in five years-far exceeding the rates of return in much of the U.S.-but will those numbers continue to rise?

Some attempts by nonnationals to own Mexican property created national disaster stories that have been well publicized. In recent years, headlines from The Los Angeles Times, San Diego Tribune, Arizona Republic, CNN, and The Wall Street Journal chronicled stories about Americans losing their properties in Mexico. Sensational articles headlined “Paradise Lost” (L.A. Times, September 1995) and “Rocky Point, a Ramshackle Beach Town” (Arizona Republic, January 1996), chronicling the plight of unsuspecting American buyers who had been misled, misinformed and ultimately “cheated” out of the homes and investments they had made. Unfortunately, it was true. A U.S. and Canadian buying public was not yet educated to the beneficial and protective changes in Mexico's foreign investment law and local development criteria, nor was there an abundance of accessible information about the nuances of transacting real estate in this country. Unscrupulous sales people simply wanted the old times to continue. Moreover, U.S. title insurance companies were just beginning to develop after Mexico's peso devaluation in 1994. Instead, prospective buyers went to their favorite Mexican destination and had to rely on sellers, developers and agents in the local market who told them, “Trust us; that's the way we do business here.”

It's simply not that way anymore. The business section of the Houston Chronicle featured a front-page article on December 28, 2004, entitled, “American Invasion, U.S.-Style Real Estate.” The article stated, “Mexican beach resorts are so popular with retired Americans, baby boomers nearing retirement age and even middle-aged couples wanting vacation homes that condominium and housing developments are often sold out before construction is complete.”

So why the dramatic change from “Paradise Lost” to the “American Invasion”? Quite simply, Mexico's real estate markets have changed, real estate agents have adopted a mindset favoring security and disclosure for purchasers, and American buyers have become much better informed and educated. We also have seen the emergence of a U.S. transactional process utilizing extended title searches, issuance of commitments for title insurance, third-party escrow and closing services, and ultimately title insurance policies guaranteeing one's rights of ownership, whether fee simple in Mexico's interior regions or entitlement via the bank trust (fideicomiso, FEE-DAY-CO-ME-SO) or a Mexican corporation for foreign purchasers in the restricted zone. In all markets, what is equally important are the changes made by developers, sellers, real estate agents, and local and state governments in each locale. Significant strides have been made for the enhancement and protection of foreign real property investment. What is truly amazing is that these changes have occurred in the last three years. Here are a few reasons why.

• Mexico is deeply dependent on tourism and the investment of foreign capital into its real estate market. Americans have realized that rates of return and appreciation on acquired properties with our neighbor to the south exceed those in the United States. It's a simple case of supply and demand.

• FONATUR, the tourism agency of Mexico, has increased its efforts to promote and enhance the investment of real estate acquisitions by foreigners in the Republic of Mexico.

The creation of the Mexican Association of Real Estate Professionals (AMPI) and MultiListAssociations in the markets of Cabo, Peñasco, Vallarta, Nayarit, La Paz, San Miguel and the Riveria Maya is helping to promote higher levels of professionalism and service in Mexican real estate markets.
The creation of a Real Estate Task Force ad-hoc committee comprising real estate professionals on both sides of the border who are appointed by the respective governors in the states of Arizona and Sonora is shining an even brighter light on real estate practices in the Sonora market.
The State of Sonora passed the first ever real estate agent registry law that also contains a continuing education requirement for those engaged in the sale of real properties in Sonora.
The introduction of third-party escrow services and title insurance policies.
• With the continued emergence of U.S. lending companies that originate mortgages on Mexican residential properties, the market has become energized with pent-up demand for secured real estate lending. Mexican trust banks have been more willing to provide trust services to U.S. lenders at competitive rates.
The growing amount of information offered through the Internet on developments, agents, listings and markets as well as educational information. Interested buyers are now armed with a wealth of knowledge about the Mexican real estate experience before they visit.
Many agents in any given market are aware that the dynamics of transacting real property has changed. Some are still slow to come around and give up their “old school” ways, but many have realized that a sophisticated and better-educated buying public will demand greater transactional security and title certainty.
Title insurance companies with established offices have come to the local markets with the concept of “title assurance” and coordinated title services similar to what a buyer would receive in the United States from a title insurance company. The markets have finally realized and embraced the fact that for Americans, the title insurance cost is the cheapest part of the transactional process when compared to other costs of closing. Most important, dealing with a U.S.-based title company in Mexico gives U.S. buyers a sense of confidence, reliability and security.

More big changes continue with Mexico's highway system. When the North American Free Trade Agreement (NAFTA) treaty was initiated in 1994, one of the stipulations was that all three parties (Mexico, United States and Canada) must comply with “international standards” to fulfill its objectives, including “geographical, technological or infrastructural factors.” In a capsule, on all levels involving trade, Mexico has begun to improve its roads up to international standards.

Mexico truly has it all. There are simply too many cool hideaways and gorgeous towns to chronicle, but make a point to explore some of the most intriguing locations of a wonderfully diverse country. Some of these destinations already have been discovered yet others are just appearing on the radar screen.