Here are a few things you will need to know to make sure your offer goes smoothly.
You’ve been browsing listings on the La Paz MLS. Maybe you’ve already visited La Paz, rented a home here for a time, and decided that this is a place you’d like to call home, for at least part of the year, if not full-time. Now, you’re ready to start looking for that perfect La Paz property, and are planning a trip here with the hopes of finding it. Before you do, here are a few things you can do to prepare for your trip.
Get Your Documents in Order
Do you have current passports? Make sure they are not due to expire in the next 6 months. If they are, be sure to renew your passports before your trip. Not only do you need current passports to enter and exit Mexico as a visitor, you will need current passports and identification in order to make an offer should you find the property you desire. Whether you are flying or driving to La Paz, if you are not already a temporary or permanent resident, make sure you get your FMM (tourist card) at the border. If you’re flying, you will most likely be handed the form to fill out on the plane. If driving, you must stop at the border and get your FMM stamped. Keep it somewhere safe with your other travel documents. You must have this card to be here legally in Mexico and, if you’re flying, you must turn it in at the airport when you exit the country. If you do decide to make an offer on a La Paz area property, you will also need to provide copies of your driver’s licenses, and a current utility bill in your name. Are you married? If so, try to have a copy of your marriage license as well, in case the bank requires it (not all do, but it’s better to prepare as if they will).
Plan a Realistic Budget
Yes, La Paz real estate is still a good value, and homes here often cost less than comparable properties in the US and Canada. However, the real estate market in La Paz has changed significantly in the last two years. Prices for existing homes, as well as lots and new construction prices, have been steadily increasing, with properties for sale going much faster and closer to asking prices. It’s a good idea to browse local La Paz listings before your trip to get an idea of how much the type of home or condo in your preferred location will cost. For example, a two-bedroom, two-bath home in the hills of El Centenario on a 1,500m2 lot with an ocean view and a pool typically starts around $250,000 USD, and can go up from there, depending on the location, view and amenities included. A condo in town can be less or more, again depending on the view and amenities. La Paz is part of the Los Cabos MLS system, so you can research current listings on our web site here.
How Will I Hold Title?
By Mexican law, only Mexicans can own properties within 50 km of any ocean front, and within 100 km of any border, in a simple deed. Any other persons must hold title via a bank trust, called a fideicomiso. Since most Baja property falls within that zone, you will most likely need a fideicomiso to purchase your property. With a fideicomiso, you still own the property, but the title is held in a trust by the bank. As the beneficiary of the trust, you have all the rights of ownership of the property, including the right to build on and improve your property, or sell it at any time. A fideicomiso requires an annual fee paid to the bank (typically less than $500 USD per year). You can also purchase property using a Mexican corporation, but in that case you must also file monthly Mexican income taxes (which costs roughly the same as the annual fideicomiso fee each year). Unless you intend to purchase multiple properties or a single property that is larger than ½ acre, the simplest method is to use the fideicomiso. You can get more details on the fideicomiso and the process of buying a home in Mexico on our Frequently Asked Questions page here.
The closing costs for a purchase in Mexico tend to be a bit higher than in the US or Canada, primarily because of the ways we must hold title. Regardless of whether you use a fideicomiso or a Mexican corporation, you will have roughly $5,000 USD of fixed closing costs regardless of the purchase price. These fees are to set up the fideicomiso (or Mexican corporation) and pay for the appraisal, certificates, and the attorney and notary who will close the deal. The balance of the closing costs is an acquisition tax equal to 2.5% of the purchase price. Make sure that your budget includes these costs.
Financing Your La Paz Property Purchase
Most property purchases by foreigners in Mexico are 100% cash purchases. There are very limited financing options for foreigners, such as https://www.globalmortgage.mx/, but these tend to come with high interest rates and closing costs, and generally complicates any purchase. Interest rates (at the time this article was published) range from 7.5% to 11.5%, plus a 3% origination fee on top of the normal closing costs, and you can only borrow up to 60% of the purchase price. A better option for many expats purchasing property here is to either sell your existing home in the US or Canada first, or to take out a home equity loan on your existing home to finance your purchase here in La Paz. Plan accordingly, as an offer with a contingency to first sell your home and/or to obtain the financing before you close on your property is not as strong as a cash offer with no contingencies, and may require you to negotiate a less favorable purchase price.
Have Funds Available Before You Make an Offer
When you make an offer, you will be required to send a good faith deposit, typically 10% of the purchase price, within 5-7 days of the signed offer. Checks are not accepted, even cashier’s checks. The required method is to have the funds wired from your bank to an escrow account either in Mexico or the US. Be sure that you have sufficient funds available to send the deposit within this time. Also, be sure to verify that your bank allows you to wire funds to a US or Mexico account. If you plan to stay in La Paz while you purchase the property, make sure you can initiate a wire transfer remotely, so you are ready to make your deposit along with your offer once you find the perfect property.
Choose Your Beneficiaries
A fideicomiso allows you to select substitute beneficiaries who will inherit the property without requiring a will or probate, should anything happen to you. In fact, the bank REQUIRES you to select at least one substitute beneficiary who will manage the fideicomiso (and any associated fees) in your absence. It’s a good idea to start thinking now about who your substitute beneficiaries will be, and to check with them to make sure they are okay with inheriting the property. You can name as many people as you want as substitute beneficiaries, but each person named must have a valid passport (or a drivers license AND birth certificate).
Wait to Start Your Residency Process
If you are going to purchase property and plan on retiring here full time or spending a good amount of time in La Paz, you will eventually want to apply for either temporary or permanent residency. This is also a good idea if you plan on renting out your property when you’re not here, as you will need to pay taxes in Mexico on any income you generate. However, you do NOT need to have residency status in order to purchase property in Mexico. You can come here as a visitor on an FMM (tourist card) and purchase property with no problem. In fact, it’s a good idea to wait to start your immigration application after you’ve purchased your property here. For one thing, owning a property will help you with your residency application, as it indicates you have made an investment in Mexico and are serious about living here. Utility accounts in your name will also help with the process. Second, if you start the process before you arrive, you will have to submit your passports to immigration at a time when you will need these documents to initiate a property purchase.
Contact Us for Details
If you have any questions about the process of making an offer on a La Paz area home, or any other questions about La Paz area real estate, don’t be shy! Feel free to email us anytime at email@example.com. We are happy to help!