December 8, 2022
Can I buy a Home in Cabo San Lucas
Los Cabos including San Jose del CaboReturn to Blog
Yes you can
You can buy or sell a home at will
Mexico is rich with opportunities for Americans and Canadians (among others) to buy and invest in real estate. Los Cabos, Cabo San Lucas, and San Jose del Cabo, in particular, are premier, safe places to buy with great historical property appreciation.
Spectacular ocean landscape, pristine beaches, and classic Mexican sabor (flavor), make Cabo a vacation paradise. Los Cabos offers numerous types of properties, locations and price points. It is easy to find a dream home or an investment that will earn you handsomely in the future. If you want to buy a home in Los Cabos, you need an understanding of the process and the regulations. It’s more nuanced than say, buying in the US, but it’s safe and incredibly rewarding.
With advancements in the Short-term Rental Industry, it’s also easy to put our home on the market safely and profitably through an experienced, local property manager.
A 2022 Forbes article highlights the explosive growth of US and foreign ownership in Cabo. 80% of new luxury buyers are from the US, the current property appreciation rate is 5-10% annually. Rising home prices have led to an explosion in new construction including under-$1M, gorgeous beachside condos, and significant valuation growth at all price-points
It’s no longer difficult. On the contrary, it’s easy to buy and sell a home in Mexico. The processes are safe, easier, and take less time. As always, a proper title search is important.
Property transactions here involve many parties. The buyer, seller, escrow agent, closing agent, and notary public. Others that may be required include the bank and the land offices.
The first thing to learn is property ownership in coastal areas like Cabo is through a common, safe, long-term, and transferrable bank trust called a Fideicomiso. It’s a Mexican property trust with an annual fee that allows homeowners to purchase lands in the zone near the border or 50 Kilometers from the coastline. Since Los Cabos is within the zone, Foreigners must use a Fideicomiso to hold title to real estate.
A property owner becomes a beneficiary of the Fideicomiso trust for typically 25 to 50 years. After the term ends, the trust can automatically renew and do so indefinitely. You can hold title without a Fideicomiso if the property is outside a coastal or border zone. The use of a Fideicomiso in no-way inhibits selling a home and profiting by appreciation, just like anywhere else. It does not specifically diminish the value.
All real estate transactions in Mexico require a Notary for the paperwork and documentation. Mexican notaries have more responsibility than a notary in the US.
How Does it Work?
The process can vary, but there are the common steps for a US or Canadian Citizen buying property in Los Cabos:
- Find an agent, find your property, make an offer through an agent and agree on the sales price.
- Sign the sales agreement. Typically, a 5% to 10% deposit is provided by the buyer for pre-construction, and 40% is common for an already-built property. A Mexican attorney will write the legally binding contract in Spanish.
- You’ll send the deposit via wire transfer and follow-on payments as outlined in the contract terms.
- Your agent will assist in sourcing your team in Mexico, which may include an attorney, Notario and/or bank, etc.
- Once you pay the entire purchase price, the seller contacts your Mexican bank to start the trust application for your Fideicomiso. At this point, you can often take possession.
- As with US many US transactions, you’ll pay taxes, closing costs, and other fees. Closing costs average around 4 to 6%.
- Within 90 days of your closing date, the Mexico Public Registry issues the final deed or Escritura to your property, and it’s now yours.
The whole process of registering a property can be fast; 45 to 100 days. The process may be slightly different depending on the type of property (e.g., land purchases, beachfront, pre-construction, etc).
Getting a mortgage in Mexico is not as common as in the US or Canada. However, you can get single home financing more easily; new project purchase financing. Single-family mortgage rates can be high, and the process can be long and tedious.
A large number of existing properties are purchased through second mortgages taken out on a buyer’s other/primary homes and effectively paying cash.
Many gorgeous new developments in the Los Cabos/Cabo San Lucas area offer simple financing for locals and foreigners. You’ll need a down payment, and the rest is pretty easy.
Whether paying cash or getting Mexican financing, an independent escrow company is part of the normal process. This company will handle your finances and keep in touch with the closing agent to ensure that the agreed amount is transferred to the seller once the property signing is done.
Mortgages. Rates are quite high, driving most Americans to take out a US loan or second mortgage on their US home. Developers are often 6-8% for new construction, and banks can be as high as 12%. Mexican Mortgage Brokers can help you navigate the process as they work with the banks for you. Developer or Seller Financing is a common option for pre-construction or pre-sale properties. Many condominium development projects offer some seller financing.
Requirements for getting a mortgage through a broker includes:
- Passport, Tourist visa, or residence visa;
- Property insurance and Life insurance from a Mexican insurer to cover the mortgage;
- Potentially a health exam;
- Tax returns;
- Bank statements and Pay stubs;
- Proof of funds for the down-payment and final purchase; and
- Credit history
Mexican Bank Mortgages
If you’re a permanent or temporary resident, bank mortgages can be had with a long process of paperwork. They take a very long time (2-4 months) but may finance up to 90% of the price.
More About the Fideicomiso
A Fideicomiso is a Mexican bank real estate Trust used daily across the country. It’s a simple, formal Trust that allows an American or Canadian to buy property in Mexican coastal or border zones with the same rights as a Mexican citizen. If you are a corporation, a citizen, or your property isn’t near the coast or border, you don’t need a Fideicomiso. This is an extremely common, safe vehicle for foreign real estate ownership in Mexico. Buy, sell, rent it out, build on it, live on it, and pass it down to your heirs, just like a US property.
- It can be held by one person or more than one. Just like in the US, a husband and wife can be co-owners. Owners can list an heir in the Fideicomiso.
- It lasts 25 to 50 years and is renewable by the owner or heirs. This means that ownership does not expire as long as it’s renewed, which is typically automatic.
- The trust is easily transferrable when an owner wishes to sell.
- IMPORTANT: Owners can hold multiple properties in a single Mexican Fideicomiso.
- Fideicomisos cost $500 to $1,000 USD to create and $400 to $700 USD per year to maintain.
Working With a Realtor
A realtor can help you understand the area, the values, and to narrow down options based on your needs. If you’re speaking directly with the developers for pre-construction and pre-sales, an agent is of less value, but we recommend it. If you want someone to represent you, and help you through the process, an experienced agent is valuable. Realtors may be reluctant to show you a property that doesn’t offer a full commission, so if you don’t see what you want, don’t be afraid to do a little looking on your own.
Mexico’s MLS. There is an MLS in Mexico, particularly in the Los Cabos area (the state is BCS, or Baja California, Sur); it’s a comprehensive tool (MLS BCS) and as good as anywhere in the US. A few sellers and builders may not put their property on the MLS because a realtor will take a piece of the sale. Some developers also have an internal sales team instead of an MLS listing to increase their profits.
Some sellers opt not to list their property with a realtor. And if they do, they’ll raise the price to make up for the commission. However, credibility goes with a seller willing to list the property with a realtor and bear that cost.
Choosing a Realtor. Select an agent who knows the market and inventory and an expert in guiding you through the legal and tax requirements for non-Mexican citizens. Find a real estate agent that has been established in the area for at least five (5) years. They should help a local real estate attorney, Notary, and a local bank to coordinate the closing on your behalf. Typical commissions are from 6-8%.
Using an Escrow in Mexico
Escrows are common in the Cabo area (90%). Mexican developers and single-family homeowners in Baja California Sur (Los Cabos) in particular, know the benefits of using escrow for transactions. The buyer is typically responsible for setup fees of approximately $650.
If you find your dream property and they don’t offer escrow, there are other ways to ensure your transaction is safe. There are Mexico and US-based escrow services. We often recommend US Escrow since they are regulated by the US and comply with all the guarantees that the buyer/seller looks for.
Real Estate closing costs in Mexico total between 4% to 6% of the purchase price. They’re not shared; they are always the responsibility of the buyer. The seller will pay other fees and capital gains taxes.
- Transfer Tax: The buyer pays a 2% acquisition tax when the property changes ownership.
- Property Tax: This is called predial, and the average cost is approximately 0.1% of the property's assessed value at the time of sale.
If you’re planning to pay from a non-Mexican bank account, evaluate the exchange rate and any fees from your bank. Most property is listed in US dollars, so your bank must convert Pesos to Dollars for the transfer. Wire transfers are the method of choice for real estate settlements.
Tips when Looking for Property in Mexico
Work with an AMPI-certified real estate agent. Find an experienced agent online and know what you are looking for when you call. Then let them help you narrow down your search. They all speak English and will be a great help.
You can find a surprising number of unlisted and for-sale-by-owner properties on Facebook groups and Marketplace. Don’t be afraid to look.
The MLS (BCS MLS) is great in Cabo; better than in most other vacation areas, the process will be easier.
Buying Property through a Corporation
The most common reason to use an American LLC to buy property in Mexico is to eliminate capital gains taxes upon sale. A Mexican corporation can be formed in just weeks, with at least two entities, and all can be US or Canadian Citizens. It costs over $1,000 USD. From there, you can buy a property through a normal transaction without a Fideicomiso as a Mexican would. You can also buy autos and expenses related to the home through the corporation.
Everything you buy through a corporation must be done through a check or wire transfer made from the corporation's bank account. And there is no way to avoid capital gains when selling the property. If you manage the property and get receipts for all expenses, you can deduct that against the profit to lower but not eliminate the capital gains.
A corporation will make sense if you intend to buy a non-residential property or a home for a non-residential reason. It will promote a legal source of income in Mexico.
A Fideicomiso is the way to go if you plan on buying property in Mexico and using it for residential, personal, or rental reasons. If you intend to open a business, you will want to form a corporation.
Hiring your Lawyer
A Notario is an experienced Mexican lawyer licensed by the Federal and State Government. They are very used to working with Americans and Canadians. The Notario does not represent you; they are a government representative that finalizes and verifies real estate transactions. They will perform a title search on the property, research the chain of ownership, confirm the seller is authorized to sell the property, and ensure no one else has a claim on the property. They’re essential.
Having a lawyer or Closing Officer review your sales contract can provide confidence since any contract in Mexico must be in Spanish. Sellers should provide a translated contract copy; however, you’ll sign the English and Spanish versions. Most sellers will use a standard contract from AMPI (Asociacion Mexicana de Promotores Inmobiliarios), which certify Mexican real estate agents.
What will a Mexican Lawyer do for you:
- Prepare or review your sales contract just like in the US
- File all permits with the notary.
- Collect the required “no-debt certificates” for taxes, liens, utilities and HOA fees from the notary.
- Coordinate your Fideicomiso with the bank
- Coordinate with the parties to ensure all documentation is provided and correct.
- Help with tax strategies in preparation for a home sale.
Only a licensed Mexican attorney can assist with Mexican real estate.
Most Cabo-area projects are performed by reputable developers and are completed mostly on time. Regardless, you can perform due diligence when buying at a new development or building.
- Legal due diligence: Your attorney or agent (and the developer) can confirm the Seller is the legal owner of the property. They can provide proof of the deed or escritura for the property.
- Your agent should know the reputation of the developer. Ask for references if you desire. The same goes for the in-house or contracted broker.
- You should be comfortable with the sales agent working for the developer. They should explain all legal requirements and attributes and generously assist with the process.
- Often, the developer may contractually pay you a delay fee since you have paid a hefty deposit. If the project does not complete, you will be entitled to the return of your money after the developer sells the project to another developer.
Note that if your unit is on a higher floor, it may be done later than lower-floor units.
Who Will Manage My Property
It’s extremely easy in Cabo to have your property fully-managed and ready to enjoy when you arrive. It’s very easy to set it up to earn revenue in your absence, as the Los Cabos vacation market is big and growing. Its infrastructure, as much as any other location in Mexico, is well-suited to support your needs.
There are “turnkey” property managers providing full, vacation rental marketing and complete maintenance and repair. They can stock the fridge, pick you up at the airport and even have margaritas and hors d'oeuvres waiting. The Cabo area is an exceptional, high-value vacation market, and properties can be very financially rewarding. You can also choose marketing-only property firms or those who simply provide maintenance and repair. Property maintenance in another country is real work, and property near the ocean in a hurricane climate more so. You’ll need a property manager if you’re not there full-time.
You have homes, condos, and fully-managed buildings. For all scenarios, plan for how your property will be maintained, repaired, and made ready when you arrive.
- Homes require someone to manage when you’re away. Ask your realtor or look online for a management company. Most are good, but make sure they’ve been around for a while and ask for references.
- Condos require less work than homes for obvious reasons. If the Association or on-site manager will check on your unit regularly (leaks, HVAC, etc.), make arrangements to do so. If not, hire someone.
- Fully-managed buildings provide a front desk, maids, and maintenance. They’re convenient and avoid much of the need for managers, and association fees are higher. Make sure to review the maintenance and service terms and ask for references to learn more.
Selling your Property in Mexico
Capital gains taxes are 25% with no deductions or 35% minus eligible deductions. There is an exception you can use one time, and to get that, you need residency, an RFC (Mexican Tax ID), and you need to be able to prove that the property is your primary residence. You can only use that deduction once every 3 years. You can also deduct any capital improvements, the purchase closing costs, and the real estate agent fee. You will need facturas (official receipts) to prove all of these deductions.
Properties are frequently sold in US dollars, but capital gains are calculated in pesos, so be aware of changing currency conversion rates could affect your revenue. Real estate commission is typically more than or less than 10% of the sale price, and a 16% IVA (VAT) tax will be assessed on top of that commission rate. The full commission you pay a real estate agent is deductible as an expense when calculating your capital gains. Closing the Fideicomiso can cost around $1,000 US.
About the Author
Andres Petrone has worked with American and international property owners for over 25 years.
He is a partner in Great Villas (www.greatVillas.net) a premier short term (vacation) rental property management firm based in Cabo San Lucas, the United States and the Mayan Riviera. Andres is a Property manager, Real Estate Broker and Concierge Services expert.