The deal for your dream vacation home in an exotic country is done…well, almost done anyway. You still have to take account of closing costs. Of course, closing costs aren’t the same here as they are over there, so I’ll be a real nice blog writer and give you all a quick run-through of what goes down, down here, that way you don’t have to worry about rough translations or misunderstandings during payoffs. So let’s get to it.
General Outlook of Costs
First off, before getting into specifics, let’s talk amounts, and more importantly, money. Closing costs usually vary anywhere from 5 to 7 percent of the property’s purchase price, this includes: the covering of title insurance, bank trusts, real estate commissions, government permits, notary fees, title search, and transfer taxes. A bit winded a list, but you must remember that unless you pay up all these expenses, you won’t obtain a registered title. So do take that into account. Now onto the list:
Appraisal and Acquisition
Acquisition (otherwise known as Transfer Tax) makes up the major bulk of the expenses, about 2% of the property’s value. Appraisal on the other hand is made by a government appointee, with a cost range from 250 to 1000 USD per parcel (depending on property value), which includes the fees charged by the property tax department for authorizing said appraisal, and the fees for the appraiser’s services.
Bank Trust and Fees
There’s two ways you can go about a bank trust, either the property already has one (put on by the seller), or there is none. For the latter, you’d be in luck, because you only need to pay the bank transfer fees, beneficial rights and the registration on the Foreign Investment Registry. This clocks in at about 440 USD.
If we’re talking the former then you need to acquire a permit from the Secretary of Foreign Relations to make one. Said permit must mention the intent of use for the property (development project, vacant lots, the amount of money involved, and so on), and usually goes for about 1200 USD.
If the title of the property happens to be in a bank trust you will be looking at annual fees to pay off the administration of said trust. These go as little as 350 USD to upwards of 550 USD. However, do try to keep sharp because banks don’t send annual statements most of the time, so it’s up to you to keep up and avoid any form of past-due-date penalties.
Title Search and Insurance
A title search shows the history of the property, so any liens, easements, important, nitty-gritty details will be fully detailed in the document. This not only helps you know exactly what it is you’re buying (and what might need to be re-tooled or fixed up) but it’s also necessary for any kind of institutional financing and title insurance. So when you find a property that you like, do make an effort to get the title search. The cost clocks in at about 400 USD but it’s worth it.
With a proper title search, now you’re looking at the possibility of getting yourself a title insurance. These cost about 5 to 7 USD per 1000 USD of the property’s purchase price and come in the varieties of: American, Stewart and Fidelity Title Insurance policies.
Capital Gains, Property Tax and Settlement Costs
Capital Gains Tax falls on the seller’s side of things, and to explain it succinctly: it’s either 34% of the net profit (based on the registered amount during purchase), or 25% of the gross sales without deductions.
As for property taxes, it’s simple enough. It’s more so a way of handling taxes than an actual tax in of itself, and it means that all taxes must be paid before closing, unlike the US.
Now we’ve got settlement costs. These are pretty straightforward as well, and take services provided into account, such as: tax payments, supervision, coordination of permits, and other details necessary to obtain a full legal title. The exact cost varies depending on the purchase price.
Notario Fees
As you probably know by now, you must finalize all your real estate transactions in the presence of a Mexican notario (public notary), whose services usually fall in the 1000 to 1200 USD range, depending, of course, on the value of the property.
IVA and Other Closing Costs
IVA might sound too foreign an acronym, but it’s just another tax, an added value tax. This specific tax adds on to the service fees (anywhere from 10-16% extra) of any professional involved in the transaction, such as the notario and the appraiser. This specific tax only applies in commercial real estate.
Beyond that, there are several other minor fees and taxes (for buyers) you might need to go through, but if we’re talking important, then that’s definitely the Federal Maritime Assessment.
To make a long story short, the FMA (Federal Maritime Assessment), is your only way to purchase beachfront property in Mexico. It won’t be a full property but it’s the next best thing, a concession for use. The costs for this are handled as yearly expenses, and clock in at about 7 USD per square meter (if unimproved) and 23 USD per square meter (if improved).
That’s it! Confirmation of documents aside (Apostille), that’s all there really is to know about closing costs. These may turn out bigger tasks in practice than in theory, of course, but viewing things in perspective always helps to make it feel like less of a chore and more of a straightforward process you’re going to get over with eventually.
It also doubles up as a very functional “security” checklist. If any of these costs aren’t mentioned by a seller or during the transaction, you might be looking at a fraudulent scheme, so it’s best for you to double-check and see where their priorities lie.
It’s better to know the rules, that way you can tell who’s breaking them. As always, keep sharp and keep at it!