Cozumel Home BuildingCozumel Real Estate Basics
If you are considering investing in land or a pre-built home on Cozumel, there are some things you should know. Because Mexican real estate transactions work on a different set of rules than you are probably used to.
It is important to retain a reputable Mexican lawyer to guard your interests in any real estate transaction.
The up-side is that Mexican lawyers are much more reasonably priced than their counterparts in the US. We believe you will be pleasantly surprised and just how affordable they can be. If you need a reference, we know several who are fluent in English and answer emails promptly.
Another thing that is very different about purchasing property in Mexico…and applies specifically to Cozumel because the entire island is inside what is known as “the restricted zone”:
In 1917 Mexican Constitution placed into effect a law designed to put a stop to past problems with the French, Spanish and Americans controlling Mexico’s land and waterways. Now Mexicans only could own land.
Times changed and, in 1973, along came a constitutional amendment called the Foreign Investment Law. This amendment allowed foreigners to purchase property anywhere in Mexico — except in what has come to be known as the “restricted zone.”
The restricted zone is defined as within 32 miles of the coast during high tide and 64 miles from any border. So Cozumel, which is only about 12 miles wide is entirely in the restricted zone.
The following year, when NAFTA went into effect, Mexico passed another amendment to the constitution that allowed foreigners to own property in the restricted zone. But it had to be through a bank trust known in Spanish as a Fideicomiso (fee DAY ee coh MEE so). This trust system was an end run around the constitution’s restrictions on foreign property ownership. It allowed allowed foreigners to legally own land near the coastline or border without actually having to change the basic Mexican Constitution.
About the Fideicomiso
On Cozumel today foreign home owners may choose to own their property through a Fideicomiso bank trust or a corporation. We will discuss both of these options below.
When you are ready to buy land or a lot, you choose a Mexican bank to be your “trustee”. The bank holds the trust deed for you, the buyer, who is known as the trust beneficiary. It should be made clear that your new property is not part of the bank’s assets and cannot be subject to any lien or attachment for any bank obligations. As the beneficiary of your bank trust, you have all ownership rights to the property and may sell, lease, mortgage or pass it on to your heirs.
A bank trust is not a lease.You really do own the property. But the bank is supposed to be there to protect your interests and, as we said, circumvent the Mexican constitution which they don’t feel like changing just yet.
Trusts are usually granted for 50 year periods. When the trust period ends, you have an additional 10 years to renew it for yet another 50-year period and on and on until you or your heirs decide to sell the property. At which time your trust is dissolved and a new one established for the new property owner.
There’s an initial fee for setting up your trust which your lawyer can handle for you . The fees can range from a low of around $350 USD to over $1000 USD. There is also a yearly fee you must pay to the bank which seems to bear some relationship to the size of the property. But generally it will be between $400 and $750 USD/year. TIP: Have your lawyer help you shop all the banks before signing up for your trust.
The other way for a foreigner to own property in Mexico–including property on Cozumel which is entirely in the restricted zone–is by setting up a corporation and purchasing the property through this entity. Foreign buyers who are interested in using their property as an investment — for example renting it out part of the year when they are not in residence — often choose this option.
There are several different types of Mexican corporations. The two most common are an LLP (Limited Liability Partnership) and an LLC (Limited Liability Corporation). Both types require two or more individual investors who together control 100% of the corporation. None of the corporation’s investors can be Mexican.
If you decide to go this route, be sure to discuss your options with a lawyer or accountant in both your home country and Mexico to be sure you understand the benefits as well as the costs involved. Doing this planning in advance and making the best choice for you at the onset can save you time and money down the line!
Once your Mexican corporation is in hand, the entity has the legal ability to acquire right of domain over a property anywhere in Mexico, including the restricted zone. Through a corporation, foreign owners acquire the right of domain and the same rights as if it were a Mexican entity.
The typical costs for setting up this type of corporation for holding your investment property will run around $2000 USD for the legal work. Then you will need to contract with a Mexican accountant to handle the monthly accounting at a cost of around $100 USD/month.
Until fairly recently, Mexican real estate transactions were purely cash on the barrel head. In the past five or so years, US and Mexican banks have begun offering mortgage deals on this type of property. The rates are not as good as on a US property. However, if you find yourself in need of this type of deal to finance the purchase, you should know that this is now an available option.