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Buying Mexican real estate gets easier -- Page 2

While there's more bureaucracy involved in the trust process, "it is still as good as outright ownership ... and it's a real opportunity for people from the U.S. to settle in some incredibly beautiful areas such as Puerto Vallarta and Cancun," says Gomez del Campo. "Prior to 1992, all you could do was lease."

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Closings pricey
The Mexican bank trust, which costs about $500 to establish, is good for 50 years and is easily renewable for another 50 years. Other costs, however, can add up quickly. There's a mandatory real-estate transfer tax, which averages 2 percent, a 1-percent to 3-percent fee for a government-appointed "notario publico" for processing and transaction certification, plus a bank appraisal fee.

"Buyers just have to realize that they are going to pay at least 6 percent to close a deal, as opposed to about 1 to 2 percent in the U.S.," said Stewart Title's Creekmore, who teaches classes to real estate agents on Mexican real estate. "While real estate deals in Mexico are more expensive ... some of that (extra money) goes to providing protective benefits to the foreign buyer. And once you do close, it's a little easier going, because property taxes are much cheaper and the trust fees are small."

Indeed, property taxes are only about a half of one percent in the Los Cabos region of Baja California, says Ted Downward, co-owner of Century 21 Paradise in Los Cabos. The cost of living in the area, which encompasses Cabos San Lucas and San Jose del Cabo, is also low and seems to be dropping as Mexican merchants adjust their prices to compete with such new-to-the-market American retailers as Costco, he said.

The Century 21 Paradise agent recalls when he first came to Los Cabos 21 years ago. "There were just a handful of gringos who lived here. Now, there are tens of thousands." Property values have risen rapidly and in many cases have more than tripled in the last half decade, Downward said. "It's been almost astronomical. I guess because we were so behind the U.S. for so long, everything here seems like a bargain."

U.S. lenders can offer much more competitive mortgage rates to buyers than their Mexican counterparts, although rates are still slightly higher than what buyers would pay for American real estate due to the added risks and extra legal precautions necessary to do business in another country, say real estate agents.

Cash, not credit, rules
Currently most loans used to buy Mexican property originate through developers or sellers, who require down payments of 30 percent or more and terms of 7 percent interest or more on the balance. "These are generally five- to 10-year loans that require a lot of cash," Downward says. "The good thing is that if you have the 30 percent, then you instantly qualify here, regardless of your credit."

In the past, the main obstacle for U.S. lenders has been Mexico's lax foreclosure laws, which virtually prohibited them from pursuing homeowners in Mexico who were in default. "That is changing," says Downward. "The Mexican government is becoming more reasonable and that is making it a little easier to foreclose and a little more worth the risk."

Representatives of more than a half-dozen mortgage-lending companies interested in offering Mexican mortgages from the U.S. side have talked with Downward recently about opportunities in the country, he says. "That's a market that is really going to open up. Lenders are just trying to figure out how to make it work."

See also: 5 questions to answer when buying Mexican real estate

PAGE 1 | 2

-- Posted: Feb. 4, 2005

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