2 Things to Know Before You Buy Property Abroad

Know the Rules to Enjoy the Perks…

If you’re buying property in Mexico, you need to know this…

America’s southern neighbor has become wildly popular with investors hoping to cash in on outstanding property price growth in select coastal areas. I saw this myself on a recent visit to Playa del Carmen.

But buying property in Mexico can be complicated by two factors.

First, Mexican law forbids non-citizens from owning property within 100 kilometers of the coastline. Instead, you can have indirect ownership rights through bank trusts, known as a fideicomiso. The fideicomiso is the owner of the property, and you are its beneficiary.

It’s possible to add additional beneficiaries to a fideicomiso. You can add your spouse, your children, any heirs, even limited liability companies you may own. The advantage of this is that when you pass on, those people can continue to be beneficiaries of the trust, so you don’t have a probate issue.

If you already own Mexican property and you haven’t done that… Fortunately, you can do it retrospectively. This involves approaching the bank that holds the fideicomiso and having them update or amend the trust agreement. There will be fees involved, and it’s important to work through a Mexican attorney who knows the process well.

The second issue involves purchasing property on an instalment agreement through a developer.

It’s no secret that Mexico has a drug trafficking problem. If you’ve seen Breaking Bad, you’ll know that one of the biggest challenges to that “industry” is converting cash proceeds into legitimate assets. Channelling drug money into property is a common method.

To combat this, the Mexican government adopted legislation recently that imposes strict anti-money laundering (AML) regulations on developers. Developers and their agents must carefully verify the identity of the buyer and the source of their funds. The consequences for developers of failing to do this adequately can be severe.

To mitigate this risk, some developers tell buyers that once they have verified the account from which they’re going to be making payments, all subsequent payments must come from that same account. That account must be in the name of the person or entity that will take title of the property at transfer.

What happens if you decide that you want to title a property in a limited liability company (LLC) or other legal structure after you’ve signed the deal and started making payments? After all, this is something I recommend for estate planning and tax purposes.

Many people will tell you that the only way around this is to redo all your payments from scratch from a bank account owned by your LLC. The developer will then refund you the payments you’ve already made from your own account, eventually.

That’s not a very appealing prospect, as you can imagine. But it also isn’t strictly necessary, at least legally speaking. As long as the  LLC’s bank account is properly documented, and the rationale for the transition from personal payments to the LLC is recorded properly, this should be acceptable.

The problem is that many developers are more concerned about risks than about keeping the purchaser happy, and may refuse to do this.  One work around is to include the LLC as a beneficiary of the fideicomiso trust that owns the property, at least if it’s in a coastal area. It’s not ideal, but it gets you part of the way to where you want to be.

Owning property overseas requires careful consideration. There are significant estate planning, taxation, and wealth management issues involved—but they can all be overcome with the right advice. It’s important to think about all this carefully before you sign on the dotted line.

Mexican property deals are just one example that highlights the importance of consulting knowledgeable people.

If you’re contemplating purchasing property anywhere abroad… or have questions about visas, residencies, second passports, or anything else related to life overseas… I’d be happy to meet with you for a personal consultation, so I can help you clarify the path to achieving your goals.