Let me start by giving you some background as to my views and opinions regarding the content of this article. 11 years ago I made the improbable and unplanned decision to move from Arizona to Playa del Carmen, Mexico. This decision, at least for my family, has turned out to be one of the most rewarding experiences of our lives. On the day of our move it was just my wife and I with a rental home near the beach. Now, 11 years later, we run a successful company, have built two homes from scratch, invested in dozens of other properties and best of all, have an American-Mexican son, who was born in Cancun, Mexico.
I am not a lawyer or financial advisor and you should not misinterpret my opinions in this article; as they are just that, my opinions. I am however a some-what “expert” in the Real Estate and Vacation Rental business, having been involved in this industry together with my wife for over 11 years. I certainly don’t know it all, but I do have enough knowhow and experience that others might find valuable.
Buying Real Estate in Mexico or internationally for that matter is not for everyone and is a decision that should not be taken lightly. It will most certainly affect the rest of your life in every aspect, not just financially, but also in terms of whom you will later become. Lets face it, living in Mexico for 11 years, you eventually become familiar with the culture and its ins and outs. You adopt different habits, patterns and certainly a different perspective of time. So in regards to buying Real Estate in Mexico (or any other foreign country), there are a few important things to consider.
What’s the reason behind your decision to buy a property?
Being part of one of the most successful and reputable Real Estate and Vacation Rental companies in Mexico, I have pretty much seen and heard it all; a lot of the stories not much different than my own 11 years ago. A typical scenario usually involves a nice couple walking into the office requesting information on Real Estate options in the area. Often times, these potential buyers, who have clearly spent some time in the sun, come meandering in, with tan lines from their sunglass, a giddy grin across their red faces and the smell of tequila on their breath. Nonetheless, they have decided, that purchasing a property in Playa del Carmen is the right choice for them. When it comes down to it, only 1 percent of these people actually succeed in fulfilling their dreams. The vast majority have no clue as to what they are getting themselves into and have not contemplated their decision wisely.
So, my first suggestion is really ask yourself if this is something you will be happy you did in the long run. Their are a million ways to spend and invest your money and believe me, margaritas on the beach everyday and Mariachi bands eventually get old. Take your time. Gather some information and do not make a spur of the moment decision. During the time it has taken to return home and recover from your sunburn, you will have given yourself the necessary time to realistically analyze the potential for such a life changing experience. I’m a big proponent of “if your going to do it, then do it right!”
I can say this not only because I’ve seen it happen hundreds of times to my clients, but because I was one of these spontaneous souls I joke about. Not 2 days into our trip to Mexico, my friend Randy and I sat under the hot July sun on the white sand beaches, drinking way too many Dos XXs. Before we knew it, we were sitting in some Mexican Legal office signing documents and writing checks, with not the slightest inkling as to what we were even signing. I can say, that fortunately for Randy and I, this “brilliant” business investment decision evolved into lasting friendships, great experiences and financial success. Sometimes luck is on your side, but going in blindly is a big and unnecessary risk.
Where to start?
If there is nothing else that you take away from this article, please remember…find a great realtor! But be careful, the chain-smoking guy you are so excitingly having beers with at the local beach bar is probably not that guy. He might be your best friend now and I’m sure that his second cousin is a great realtor with lots of information to share, but trust me…walk away as soon as possible!
There are two important things to know when setting out on your search for a realtor. I base my opinion on life experiences and not only in the Real Estate business.
1) Only use a licensed realtor! It is actually the law (even in Mexico). There may be some 100 realtors in Playa del Carmen, but only a handful are actually licensed and bonded. They must pass some fairly strict educational exams and are required to own an actual office, as opposed to working out of a back room at Grandma Maria’s. Trust me on this one! Everyone and their brother will offer you deals and most of them are too good to be true. You and I know very well how the saying goes, if it sounds too good to be true, it usually is. Again, choose a licensed realtor with an office. Ask for credentials and don’t accept any excuses.
2) To further weed out the “wanna-be-realtors” from the ones that actually know what they are doing, choose to work with a Licensed Realtor that actually OWNS property of their own. I have come across too many so-called experts that have never owned a property of their own. If the person you are dealing with has been through the process him/herself, then he/she is far more qualified to offer authentic advice that will guide you in the right direction and hopefully allow you to avoid amateur mistakes.
Speaking of choosing an experienced professional, it reminds me of the time when I met with my first Investment “Advisor.” This guy was explaining to me how I could turn my hard-earned savings into millions of dollars if I invested with him. All the while, watching his 15-year old Trans-Am leaking oil all over my driveway. I couldn’t help thinking that this guy couldn’t even afford to have his car fixed. How was he going to advise me on making money?
The laws in Mexico
There’s not much to know here other than that there are many laws and they change frequently. Whether you have decided to become a part-time or full-time resident, these updated laws will over time affect your real estate investment, immigration status, how you register a car and even your child’s school enrollment.
As previously mentioned, I am not a lawyer, but I do recommend getting legal advice both in your home country and in Mexico. Unfortunately, as what happens all over the world, their are a few bad apples not only in Real Estate, but in the legal profession as well. Start by getting some references from your [licensed] realtor.
In my 10+ years in Mexico I have seen laws change often. Without my core group of advisors I would have had no idea about the changes. There are some important laws that can be revised overnight. Find a reputable legal advisor so you can be made aware of any reforms so as to avoid any costly consequences or on the other hand, possibly benefit from new opportunities.
Not to overstate the obvious, but keep in mind that Mexico uses the Peso as its currency. Although in many cities across Mexico, especially those catering to foreigners, home and condo pricing is often depicted in US Dollars. So, not really a big deal, but here is how it may affect you when selling a property…and again, I speak from [lack of] experience here.
For example, you purchase a condo for $300,000 USD and for easy math, let’s say you decide for whatever reason to sell the property a year later for the same amount. You would assume that your capital gains tax (which is 35% in Mexico), would be zero. However, when closing on the condo, the official price is always depicted in Pesos at that day’s current exchange rate. If you purchased at a time when the exchange rate was 12 Pesos to 1 Dollar and later sold when the exchange rate was 18 Pesos to 1 Dollar, you have an effective exchange rate liability of $100,000. You now owe the Mexican government the equivalent of $35,000 USD (35% of $100,000USD.) Instead of breaking even after 1 year, you just lost over 10% on your cash investment. But here’s the good news…if the exchange rate calculations were the other way around, in other words, the Dollar weakened against the Peso, you could save yourself tons of money. You would end up paying zero on capital gains, even if you made money on the sale of your property.
Keep in mind the Macro-Economic effects that are going on around us. You are buying in a foreign country with different laws and different currencies. Make sure you are properly advised and don’t overlook the details as I once did.
Simply stated, forget about it unless you are a Mexican National. Don’t let anyone advise you differently. Save money and aggravation, if you can make it happen, buy in cash.
Lastly, remember why you are buying this property. 90% of our clients buy with the intention of using the property to generate rental income, while also using the property for their own personal use periodically throughout the year. What is important to know here is that many people and companies are going to promise you huge returns and tremendous success…too good to be true! In reality, a 3-6% Net return every year in cash flow is great. It might not seem like a lot, but it’s certainly better than most investments. Let’s face it, it’s way more fun to own a second home in Mexico as opposed to a random mutual fund managed by some guy who’s Trans-Am is leaking oil in your drive way!
For an accurate and reliable Return on Investment Calculator, visit BRIC Vacation Rentals. Based on experience and results, a reputable real estate broker I highly recommend is Joaquin Martinez. He speaks English and Spanish fluently and can be reached at (US) (519) 410-8831 or locally at 984-113-5104. His office is located on 1st Avenue in between Calle 26 and 28 and his listings can be found at http://playadelcarmen-realestate.net/.
If you have already purchased a property and are looking for vacation rental or property management advice, visit http://www.bricrental.com or speak with Sergio Rodriguez. He has lived the majority of his life in Canada and is fluent in Spanish and English. His office is located on Calle 38 near the beach and he can be reached Toll Free at 1 (800) 519-2486 or locally at (984) 803-3191.
You may not end up using either one of these firms, but you owe it to yourself to inquire with them. Both companies are fully licensed and have been in the business for over 10 years. Success speaks for itself…and P.S. neither of their vehicles will leak oil on your driveway!