By Raul Jaime, General Manager
San Angel Closers – Land Investments - Mexico
www.sanangelclosers.com

While it is undeniable that the market for second homes has suffered everywhere, including Mexico, credit institutions and Real Estate Developers continue to see significant demand from Americans and Canadians that seek to purchase a second or retirement home in Mexico. The lower cost of living and relative affordability of property in Mexico continue to be the main factors that prompt Americans and Canadians to set their goals south of the border. Interest rates are still quite high if compared to those in Canada (about 9%), but year after year since the turn of the century, there has been a record growth in mortgage loans in Mexico both for national and foreign buyers.

However attractive owning a place on the beach may be, it is still a serious investment that should not be taken lightly. Mexico’s Real Estate industry and market are unregulated so it is wise to make sure you are doing all the due diligence before you purchase. Perhaps the main issue I come across is developers who lack proper funding for their constructions projects and who expect to get funding from their pre-construction sales. It’s not too hard to spot the developers who are hurting for money, as they will be the ones asking you to put most of the money upfront before they deliver the units to you. On the other hand, a developer with proper financing and funds will only ask for a deposit of 20-30% when you sign your acquisition contract, and the balance is not due until you take possession of the property and the title is transferred onto you.

The first recommendation to potential buyers is for them to make sure they have a clear objective in their minds. They have to decide if their purchase is an investment or a vacation home. I know it is hard to make such a strict distinction between the two, after all nobody wants to lose money when they buy a second home, but one does have to take priority above the other. If they are looking for an investment that will generate rental income, I would suggest looking for something that makes you break even with only 20 weeks of rent per year, especially if you plan to use it yourself. Most Canadians will plan to visit their properties during the high season and that takes away valuable time when the property can be rented out. The best rent generators are usually close to local amenities and this can also be translated into old parts of town and therefore older buildings that will not see the same rate of appreciation as newer areas of development will.

The four main areas of development in Mexico, and the most popular tourist destinations, are the Mayan Riviera, Puerto Vallarta, Los Cabos and Mazatlan in that order. However, there are many other destinations that will soon be at the top of the list for airlines, tourist and residential developments such as Huatulco in the state of Oaxaca or Puerto Penasco just a couple of hours away from Phoenix Arizona by car. It is hard to tell where the next big destination is going to be, but if you are looking for a safe bet, choose an area close to an already established spot and follow the development of new attractions such as golf courses or luxury hotels.

The aging population of Canada and the US will produce over 60 million retirees through the better part of the next 20 years. Mexico has now become the number 1 destination for baby boomers seeking retirement beyond their borders and it is not hard to understand why. As they reach the age of retirement, most people have a good share of equity into their own homes or have even paid off their mortgages. In most Canadian cities, $400,000 affords you either a condo or a small house in a residential neighborhood, while in Mexico that same amount of money can get you into a beach or fairway-front house or condo of at least 3,000 sq ft. Beyond being able to afford a higher standard of living with the same amount of money, property taxes are almost insignificant in Mexico and the climate could not be better. Some destinations in Mexico have an expatriate community that reaches as high as 60% of the total population.