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Retiring in Mexico: Still an Option?

February 5, 2013

For Americans looking to retire to a pleasant climate with a much lower cost of living, Mexico has been a destination of choice for many years. American expat communities have existed in some cities since before WWII, and on the West Coast, 50+ retirement communities have sprung up to target incoming Americans.

The recession in the United States has prevented many would-be retirees from purchasing in Mexico. Many Americans retired in Mexico by using the equity in their primary residence to purchase a second home, later making a permanent move. That source of funds has become scarce. Other potential buyers are scared off due to the media’s depiction of violence in Mexico.

Mexico can still be a great place for some to retire, with a wonderful climate, excellent affordable healthcare, and a casual lifestyle. What should you know if you’re considering Mexico, or have interested clients?

American expatriates in Mexico

A retiree from the States will find lots of Americans to keep company with in Mexico. There don’t seem to be firm numbers on how many live there, but some estimates are roughly one million. In 2010, the International Community Foundation estimated there were 200,000 to 300,000 U.S. expats in West Coast communities catering to 50+ Americans alone. Large groups of Americans can be found in San Miguel de Allende, Lake Chapala, La Paz and Los Cabos on the Baja Peninsula and the Puerto Vallarta region on Mexico’s Pacific coast.

Fear, rather than violence, has taken a toll

Linda Neil, ABR, PIC is an American expat who’s now a Mexican citizen. She’s been a real estate professional in Mexico for over 30 years, founded Mexico’s first escrow provider, The Settlement Company®, co-authored NAR’s course “Doing Business in Mexico,” and is NAR’s President’s Liaison to Mexico. She feels that the threat of violence against Americans in most places is overestimated and is to some extent media hype.

“I live and do business in Michoacan, supposedly a drug trafficking area. Violence is something we sometimes hear about but almost never see. Tourists are left alone. Occasionally, a tourist gets caught up in it, but it often turns out they had cartel involvement.” With that said, Neil also acknowledges that fear of violence has dramatically impacted the number of American buyers.

Canadians are still buying in Mexico, in large part because the Canadian housing market didn’t experience the declines seen in the U.S., nor did Canadian banks allow homeowners to become highly leveraged. Due to this, Canadians still have the ability to borrow against their main residences to buy a second home in Mexico.

Land ownership in Mexico

Mexico’s Constitution prohibits direct ownership by foreign nationals in areas within 100 kilometers of the country’s borders, and within 50 kilometers of the coast, an area known as the “Restricted Zone.” However, Restricted Zone residential properties can be purchased through a Mexico bank trust, known as a ´fideicomiso´ and business properties can be acquired by foreigners through a Mexican corporation, in which all stockholders are foreigners.

There is also ejidal land, owned by the government but reserved for use by a group or extended family of Mexican peasants. Formerly, ejidal land was not available for private purchase, but in 1992 the government began privatizing some ejidal property. It is important to know if land you are considering was ejidal, and if so, if it has been privatized. If not, it may be offered at a lower price but cannot be sold.

Purchasing wisely

Real estate sales are loosely regulated at the state level in Mexico. Neil says a property investment in Mexico can be as safe as one made in the U.S. or Canada if done wisely and if these guidelines are followed:

  • Select a member of AMPI, the Mexican National Real Estate Association, and vet them through references.
  • Insist that the agent only represent you, the buyer, and not also the seller.
  • Only consider buying private property, and make sure you and your agent are dealing with the owner of record. Ask for a copy of the deed.
  • Buy title insurance and have a thorough title search performed.
  • Place funds in escrow until the deed is signed by the seller and, if in the Restricted Zone, the bank trustee.
  • Insist on receiving a registered title document and be sure the value declared in the title document shows the full purchase price. Otherwise you may eventually end up paying the seller’s capital gain tax.