Buying Property in Mexico as a Canadian: Costs and Process

2025-02-12 by My Casa

Main post image

Your Essential Guide on How to Buy Real Estate in Mexico as a Canadian Citizen


Buying property in Mexico as a Canadian is a straightforward process, but it comes with specific regulations. While foreigners can own real estate outright in most areas, properties within the "Restricted Zone"—which includes land within 50 kilometers of the coastline or 100 kilometers of international borders—must be held via a Fideicomiso (bank trust) or a Mexican corporation. This trust grants the buyer full rights to use, sell, or lease the property while complying with Mexican law.


With all the moving parts involved in finding and acquiring a property overseas, you need a reliable team in place to help you navigate the process. Reach out to Mycasa Real Estate's licensed agents and get your Mexico adventure started!



Table of Contents


Key Takeaways

  • Restricted Zone: Article 27 of the Mexican Constitution delineates a Restricted Zone where foreign property ownership is limited, but the Fideicomiso trust system enables Canadians to legally obtain real estate within this zone with specific conditions and renewal options.

  • Due diligence is crucial in ensuring the following:
    a smooth transaction
  • clear property titles
  • lien and encumbrance checks
  • negotiation strategies
  • Accurate cost assessments


Understanding Mexico’s real estate laws is crucial for foreign investors. The country’s Restricted Zone and Fideicomiso trust system are essential concepts to grasp before purchasing property.


What is the Restricted Zone?

The Restricted Zone includes:

  • Land within 100 km of international borders
  • Land within 50 km of the coastline
  • Foreigners cannot directly own land in these areas

However, there are two ways for foreigners to legally acquire property in the Restricted Zone:

  1. Fideicomiso (Real Estate Trust) – A bank holds the title while the foreigner enjoys full property rights.
  2. Mexican Corporation – Foreign-owned businesses can directly own land (for commercial use).

The Fideicomiso Trust: How it Works

A Fideicomiso allows foreigners to buy real estate in restricted areas through a bank trust. Key points:
A Mexican bank holds the property title as trustee.
The buyer (foreigner) is the beneficiary and has full control over the property.
Rights include renovating, renting, selling, or passing the property to heirs.
Trusts last 50 years and are renewable indefinitely.
The property does not become a bank asset in case of financial trouble.


Step-by-Step Guide to Purchasing Property with Fideicomiso


Once you understand the legal landscape, here’s how to purchase property in Mexico using a Fideicomiso (Real Estate Trust).

Step 1: Setting Up the Fideicomiso

  1. Sign the promissory agreement to initiate the purchase.
  2. The closing coordinator or seller contacts the buyer’s bank to create the trust.
  3. Execute the purchase agreement and finalize the down payment.
  4. If the property is in the Restricted Zone, the bank holds the property title through the Fideicomiso.

Step 2: Managing Funds via an Escrow Account

Funds needed for the purchase, including down payment and closing costs, are held in an Escrow Account.

  • Managed by a Closing Agent
  • Ensures secure fund disbursement at closing


Step 3: Choosing Your Trustee Bank

The trustee bank manages all legal and tax aspects of the transaction. You can select a bank with or without a lawyer, as banks provide full guidance.

Notable Trustee Banks in Mexico:


Banco del Bajio

Monex Group

Mifel Bank

Banorte Bank


Choosing a reliable trustee bank is essential for a smooth transaction.


Step 4: Understanding Fideicomiso Fees & Duration


Costs of Setting Up a Fideicomiso:

  • Initial setup fee (varies by bank)
  • First-year annuity fee
  • Permit fee from the Ministry of Foreign Affairs


Annual Maintenance Fees

Typically $700 - $1000 per year

Covers ongoing maintenance of the trust


Duration:

50 year term

Renewable indefinitely (in 50 year increments)

Renewal can be handled by the trustee bank or a closing company


Financing Options for Foreign Buyers in Mexico


There are 4 common methods to acquire property as a Canadian in the Riviera Maya:


1.Cash

Most transactions are handled in cash. This is the quickest and least expensive option in terms of closing costs, documentation and time required. 


2. Developer Financing

For those looking to buy property in Riviera Maya, developer financing may be an option, involving large down payments and balance payments spread over several years with interest rates typically between 6% and 10%. It’s also worth noting that presale real estate investment transactions in Mexico can offer flexible payment arrangements and discounts for substantial upfront investments.


3.Personal Lending

Many buyers are looking for retirement homes or new investments and may own other property or assets back which they can borrow against. One such vehicle is a Home Equity Line of Credit. Typically these credit lines have lower closing costs and can be openend faster than a cash-out refinance. And, unlike a refinance mortgage, a credit line can be re-used once it's paid off.


4.Cross-border Lending

More options now exist whereby foreigners can borrow with a traditional mortgage but for an overseas property. Down payments can start as low as 20% and terms are between 5 and 30 years. This method is the most document-intensive and expensive method (in terms of closing costs).


The Importance of Due Diligence in Real Estate Transactions


Thorough due diligence is essential for a successful real estate transaction in Mexico. It ensures clear property ownership, identifies potential issues like liens or encumbrances, and confirms compliance with local laws.


Key Steps in the Due Diligence Process

  1. Work with Professionals:

    • Local real estate agents familiar with the market.
    • Lawyers to handle legal matters.
    • Surveyors or architects for property inspections.

  2. Conduct a Title Search:

    • Identify any easements or rights of way.
    • Verify clear ownership history.

  3. Perform Property Inspections:

    • Assess structural integrity.
    • Ensure compliance with local building codes.

Although not legally required, investing in due diligence services can prevent costly complications in the future.


Conducting Title Verification

The official property title in Mexico is called the Escritura Pública or Escritura de Compraventa. To verify its authenticity:

  • Contact a local notary for verification.
  • Check the Public Registry of Property for ownership records.
  • Have a lawyer or notario review the title’s history and confirm proper documentation.

A comprehensive title review helps avoid legal disputes and ensures the property has a clean history.


Lien and Encumbrance Checks

Before purchasing a property, it is crucial to verify there are no outstanding financial obligations. This includes:

  • Unpaid mortgages or loans
  • Property taxes
  • Homeowner association fees

To confirm a property is free of debt, obtain:

  • A No Liens Certificate
  • Proof of non-debt from municipal public works, water, and electric companies

Mastering Negotiations in the Mexican Real Estate Market


Successfully entering the Mexican real estate market requires an understanding of negotiation dynamics. Being aware of pricing trends and cultural expectations can help buyers secure the best deals.


Key Considerations When Negotiating

  • Asking prices often differ from sale prices. Since Mexico lacks an MLS system, ask your buyer’s agent about recent sale prices of similar properties.
  • Some properties may be overpriced. If sellers are unwilling to negotiate, homes can stay on the market for extended periods.
  • Initial asking prices are often inflated. Sellers may adjust prices over time based on market demand and buyer negotiations.

Cash buyers tend to have more leverage, as all-cash purchases are common among foreigners. Additionally, the seller’s motivation and the buyer’s urgency can greatly influence the negotiation process. Patience and flexibility are essential, as sellers may not feel pressured to lower prices due to low carrying costs.


Cultural Nuances and Negotiation Tactics

Understanding cultural norms and negotiation strategies can improve your chances of securing a favorable deal.

  • Compare prices locally, not internationally. Mexican property values differ from those in other countries, so use local market data when negotiating.
  • Living in the area can provide an advantage. Firsthand experience helps buyers gauge realistic pricing and market trends.
  • Negotiation is expected. Offering below the asking price is customary and not considered offensive.
  • Expect back-and-forth bargaining. Negotiations in Mexico often involve multiple rounds of counteroffers before reaching an agreement.

Achieving a Win-Win Outcome

For a successful negotiation, both buyers and sellers should practice transparency, patience, and flexibility.

  • Be clear about motivations. Understanding why a seller is listing their property can help shape a better offer.
  • Be open to alternatives. If a seller refuses to negotiate, consider other properties, including resale options, to secure better terms.
  • Expect longer negotiations. Many sellers are not in a rush to sell, as property maintenance costs in Mexico are relatively low.


Additional Costs and Taxes in Mexican Real Estate Transactions

In addition to the purchase price and financing costs, there are several additional fees and taxes that buyers should be aware of when purchasing property in Mexico. These costs include closing costs, acquisition taxes, and possible surcharges for non-resident buyers.


Estimating Closing Costs

Closing costs for owning property in Mexico via a Fideicomiso (trust) generally range from 6% to 9% of the purchase price. These costs include:


  • Initial trust setup fee
  • Annual maintenance fees
  • Permit and registration fees
  • Public registry charges
  • Appraisal costs
  • Notary fees
  • City land acquisition tax based on a percentage of the purchase price
  • Public Registry Rights for registering the property, which vary by location and may include additional lien registration fees.

Transfer tax: 2%-3% state tax

  • Trust permit: approximately $2,000
  • Foreign investment registry: approximately $700
  • Trustee bank acceptance fee: around $550
  • First year’s trust fee: around $550
  • Non-encumbrance certificate: approximately $15
  • Preventative notice advice from the land registry office: approximately $30

Registration fees at the Land Registry Office range from 0.5% to 1.0%, depending on the transaction size and location. Notary fees in Mexico typically range from 0.5% to 1% of the transaction size.


Understanding Acquisition Tax and Other Levies

Mexico’s Property Acquisition Tax (ISAI - Impuesto Sobre Adquisición de Inmuebles) usually ranges from 2% to 5% of the property’s assessed value, which can be lower than the market listing price.

The Annual Property Tax (Predial) is due by March 31 each year, based on the property size and location. Buyers may receive incentives for paying early, typically between January and February.

Financial due diligence is essential when purchasing property in Mexico. Ensure that property taxes and homeowner association fees are up to date to avoid inheriting any liabilities from the previous owner.

Rental income in Mexico is subject to a 25% withholding tax for non-resident owners, with no deductions allowed for expenses. The ISR Tax on residential properties is approximately 6.5 pesos per 1,000 pesos of the assessed property value.


Capital Gains Tax

Mexico imposes Capital Gains Tax, which can be calculated in two ways:

  • 25% of the transaction’s declared value
  • 30% of the net value, which is the difference between the assessed value at the time of purchase and the sale price.

There are ways to reduce your capital gains tax exposure which a qualified accountant can review with you to discuss the best options.


The Journey from Reservation to Ownership


5 Steps to Purchasing

Watch this video above to get a quick intro by Raul Morales, Founder & CEO of Mycasa Real Estate (2:52)


The journey from reservation to ownership in Mexico is an exciting process, guiding you toward acquiring your dream property. Here's an overview of the key steps involved:


Reservation Process

  1. Sign the Reservation Agreement
  2. Pay a Refundable Deposit to hold the property
  3. Make an Initial Deposit of $5,000 to $10,000 USD into escrow, usually after the offer is accepted or directly to a reputable developer's account.

Purchasing Process After Reservation

  1. Sign the Promissory Contract detailing the sale terms and the buyer’s commitment.
  2. Sign the Deed in front of a notary public and pay the full property amount.
  3. Close the Transaction by funding the remaining balance, including closing costs, leading to title transfer documentation.
  4. Register the Deed with the relevant authorities, pay applicable taxes, and receive a simple copy of the trust deed.

Making the Initial Earnest Money Deposit

After an offer is accepted, an earnest money deposit demonstrates the buyer’s good faith. In Mexico, this deposit is typically $5,000 USD and is held by the real estate agent or buyer’s attorney. It is an essential part of the reservation process, showing the buyer’s commitment to moving forward with the transaction.


Finalizing the Promissory Agreement

The promissory agreement (Contrato de promesa) secures a commitment for completing the sale within a set timeframe and establishes key terms between buyer and seller. This legally binding document ensures both parties are committed to the transaction and provides penalties for backing out.

A typical promissory agreement includes:

  • Agreed purchase price
  • Property description
  • Payment terms
  • Responsibilities of both parties

Guidance from the buyer’s attorney is crucial to understand the agreement, ensure proper execution, and review all terms.


Completing the Down Payment

The down payment typically involves transferring a negotiated percentage of the purchase price to the seller or an escrow account after deducting the earnest money deposit.

Once the down payment is made, ensure you receive a receipt from the seller or developer. The receipt should clearly detail:

  • The amount paid
  • Any agreed-upon terms

Keep the receipt in a safe place, as it may be required in later stages of the purchase or for tax documentation purposes.


Articles About Relocating and the Cost of Living In Mexico


Tired of the US? Your Ultimate Guide to Moving From the U.S. to Mexico

Discover Affordable Beach Bliss: Your Guide to the Cheapest Beachfront Property in Mexico

How to Buy Property in Mexico 2024: Closing Costs, Laws and Tips

Cost of Living In Playa Del Carmen: What to Expect

Cost of Living in Tulum 2024: Budget, Rent and Lifestyle Guide

Mexico Real Estate Prices: Trends in Quintana Roo & Beyond


What Are Clients Saying About Mycasa Real Estate?


"We have been beyond pleased...we felt in good hands the entire process." Jodi Ribar. Google Review


"...and within 5 minutes, she called me." Leanne Knox. Google Review


"He is incredibly knowledgeable about the area, knows all the details about the property..." Claudia Ruiz. Google Review


"She listened to every single detail of what I was looking for in a property..." Kendra Mangana-Adams. Google Review


Ready to book a trip and shop for your dream home, plan your trip with Google Travel


Frequently Asked Questions

Can foreigners buy property in Mexico?

Yes, foreigners can buy property in Mexico as long as it's outside the restricted zones, with the same rights and responsibilities as Mexican nationals.

Is it hard to buy real estate in Mexico?

Foreigners can face restrictions on purchasing property in certain areas of Mexico, such as the "restricted zone" near borders and coastlines, but they can establish ownership through a bank trust or a Mexican corporation.

Can you buy a house in Mexico with American money?

Yes, you can buy a house in Mexico using American credit and manage the process from the United States. It is possible to purchase property in Mexico with American money.

How much money do I need to buy a house in Mexico?

You will need close to $73,556 USD (1,324,000 Million Pesos) to buy a house in Mexico, which is around 80% less than the average cost of buying a house in the U.S. in 2021.

What is the Restricted Zone in Mexico?

The Restricted Zone in Mexico is defined as areas within 100 kilometers of international borders and 50 kilometers of the seacoast, where foreign ownership of land is limited. It's important to be aware of these restrictions if you're considering purchasing property in these areas.


Cover Photo: Daniel Joseph Petty


Tags :