How to increase rate of return on your vacation property

how USD CAD exchange rate helped to make money on mexican real estateWith recent spike in USD-CAD exchange rate my Canadian clients enjoyed a healthy return of at least 10% in past 6 month on their Mexican properties.

Let me explain. Real estate prices in Cabo San Lucas are in USD and when my clients purchased real estate here they paid in USD. In past 2-3 years the exchange rate for USD-CAD  was close to par, but in a summer of 2013 the USD start climbing sharply and  as of today sits at 88 cents. Some economists predict that USD-CAD exchange rate will return to pre crisis level of 80 cents meaning further gains of  9% from here. This is how investors are able to increase rate of return on Mexican properties without any price increase of underlying asset.

If foreign exchange market will return to pre crisis level, Cabo properties will gain an additional  20% or so due to USD and Mexican Peso exchange rate. Currently we sit around $1 usd = $13 Peso exchange and we used to be at $9 to $10 range before the financial crises. If we get back to this exchange rate the price of labour and materials will increase and real estate prices will follow.

If you would like to explore investment opportunities in Los Cabos please contact me and I will be happy to assist you.

Marriott hotels plans further expansion in Mexico

marriott hotel resorts in mexicoIt has been a busy year for hotel industry in Mexico. Most recently we saw a few new hotels completed such as El Ganzo hotel at Puerto Los Cabos Marina, Hyatt  Place in San Jose near Mega and Best Western Aeropuerto near Los Cabos International airport. Also there  has been a noticeable acquisition of Hilton Los Cabos by MetLife and Thayer Lodging. But this is just a beginning of what is coming.

Marriott hotels and resort has announced expansion into Mexico with 20 new hotels and Los Cabos will be part of it. The 300 room JW Marriott schedule to open at Puerto Los Cabos in 2015 and Ritz Carlton Reserve with 124 private oceanfront villas planned for 2014.

The 500 suites Secret at Puerto Los Cabos will  open in just a few weeks and former Temptations hotel going through major renovations and re-branding with Royal Decameron Los Cabos.

The new Holiday Inn Express is under construction in Cabo Corridor across from Costco.

Montage Resorts is currently under development at Playa Santa Maria. It is a first resort outside of US for this California based company.

There is also a new beachfront hotel coming up in San Jose, right beside Best Western’s Posada Real.

As I mentioned at the beginning – hotels are hot investment in Los Cabos.

Largest commercial deal of 2013

commercial real estate in los cabosThe commercial real estate activity in Los Cabos area has been rising in past few years. Areas closest to the water are in high demand. We have seen a number of developers to break ground this year on master planned communities that includes Villas del Mar Developer with Villas at la Montana, Puerto Los Cabos with custom single family homes and beautiful golf-course condos, Cabo del Mar Ocean and EcoPark (near Los Cabos Country Club), Copala at Quevira on Pacific side and many many others.

But largest deal was made at the end of September when New York based MetLife and Thayer Lodging based in Annapolis purchased Hilton Los Cabos Hotel for undisclosed amount. The hotel has 365 rooms with access to private cove for swimming and water sports. It is located in Corridor between San Jose del Cabo and Cabo San Lucas. Across from Hilton hotel there is Cabo Real golf course which makes it perfect destination for golfers year round.

We have seen a number of hotel deal this year but Hilton hotel sale is the largest deal thus far.

Cabo San Lucas Real Estate on HGTV

realtor in mexicoCabo San Lucas was featured in July episode of ” House Hunters International”. Jessica and David were looking for a property in Cabo around $200 000 range.They got to choose from three properties: one in “Ventanas Residencial” located in Cabo Corridor, the second property was a “Santa Rita” townhome in Cabo San Lucas central and the third one was a “Punta Arena” which is also located in the Corridor. To find out which property they got pick watch a full episode here.

 

Mexican Land Trusts are not a trusts for US tax purposes

fideicomisoI came across a very interesting article today by Grand Thornton LLP regarding fideicomiso (or Mexican Land Trust). As I have posted on my “How to own property in Mexico” page the foreign nationals can own property within a restricted coastal zone by opening a Mexican Land Trust with the Bank. The IRS issued a guidance (Rev. Rul. 2013-14)  providing that the Land Trusts in Mexico are not trusts for US tax purposes .This means no reporting is required regarding the Mexican Land Trusts (such as Forms 3520 and 3520-A). It goes on to explain that the Bank does not pay any property related expenses and therefore is not treated as a trust.

 

Our brokerage is going Global

luxury real estate in mexicoEngel & Völkers Brings International Attention to High End Real Estate with New Los Cabos, Mexico Brokerage

 Debuting as the market leader in luxury real estate with active listing volume of nearly $600 million, Engel & Völkers Los Cabos meets the growing demand for premier properties among buyers from the U.S., Canada, Europe, Asia and Russia.

 

 New York, NY (April 1, 2013) – Engel & Völkers, a leading luxury real estate brand with an international presence spanning five continents, today announced the newest addition to its global network with Engel &Völkers Los Cabos, Mexico.

 The new brokerage increases the number of countries where Engel & Völkers currently provides its distinctive brand of luxury real estate services to 36 countries and the total number of its residential brokerages worldwide to 490.  The high-end international real estate brand began the New Year expanding globally with new brokerages in the U.S., Spain, Austria and Malta.

 

 Engel & Völkers Los Cabos debuts with an active listing volume of nearly $600 million and 86% of the market share in premium real estate sales in Los Cabos. Their current clients include commercial and residential investors, current homeowners, hoteliers, Hollywood insiders and industry power brokers.  The majority of real estate buyers from abroad have come from California, Texas, the West Coast of Canada and Mainland Mexico with growing interest from locations abroad, including Germany, China and Russia.

 

“Our success as a global brand has been directly related to how we select locations where we are confident our particular clients desire to be,” said Anthony Hitt, Chief Operating Officer of Engel & Völkers in North America. “Los Cabos, Mexico is the ideal Engel & Völkers market, growing in popularity among world luxury travelers seeking exceptional properties for second home opportunities.”

 

“I am delighted to be representing the service quality and global presence of Engel & Völkers in Los Cabos,” said Managing Director, Vanessa Fukunaga, who joins the brand with high-end real estate brokerage leadership experience, specifically as the President and CEO of Snell Real Estate, the largest independent luxury real estate brokerage in Baja. “The international demand for high-end property and the exceptional service quality to go along with it, is very high. The worldwide network of Engel & Völkers gives us access to an international pool of prospective clients and opens up the opportunity for us to offer our properties in 500 locations around the globe.”

 

Los Cabos, which is home to the communities of San Jose del Cabo and Cabo San Lucas, is located on the southernmost point of the Baja Peninsula in the state of Baja California Sur. Both residents and visitors enjoy championship golf courses, award-winning hotels, renowned spas and retreats, authentic regional cuisine, exciting nightlife and premier fishing opportunities. The most sought-after locations in Los Cabos include Villas Del Mar, Puerto Los Cabos, Oasis Palmilla, Espiritu Del Mar, Club Campestre,  as well as individual housing developments in masterplanned communities like Palmilla, Cabo del Sol, Pedregal and Punta Ballena. The architecture can range from traditional hacienda-style to contemporary with a Mexican flare, all the way to ultra modern. Among these styles, ultra modern designs have gained in popularity for the most recent buyers. Golf course, mountain and sea views combined with direct access to the Sea of Cortez and the Pacific Ocean rank amongst the most important purchase criteria. Prestigious properties in premium locations are reaching top prices here of up to 25 million euros.

 

Since the 1950s, Los Cabos has been a hotspot for prominent figures from the the world of film and finance. Once a quiet fishing village the community has become one of the most popular luxury destinations for paradise seekers from all over the globe. In 2011, Los Cabos was voted the No. 1 Resort Destination in Mexico by TripAdvisor’s Traveler’s Choice Awards, an accolade determined annually by millions of real travelers and their reviews.

 

In 2012 Los Cabos hosted the seventh Group of 20 (G20) Summit, a gathering of world economic leaders, dignitaries and heads of state who gather annually to coordinate international financial policies to manage the health of the world economy. Most recently, Forbes named Mexico #4 in the Top Places to Retire in 2013. Truly, Los Cabos is the place to be.

 

About Engel & Völkers

 

From its beginning in 1977 as a specialty boutique providing exclusive, high-end real estate services, Engel & Völkers<http://www.evusa.com> has become one of the world’s leading companies specializing in the sale and lease of premium residential and commercial property and yachts. Engel & Völkers opened its first brokerage in North America in 2006 extending its global network of 3,800 real estate advisors in 490 residential brokerages and 43 commercial offices spanning 36 countries offering both private and institutional clients a professionally tailored range of luxury services. Committed to exceptional service, Engel & Völkers supports its agents with an array of high quality business services; marketing programs and tools; cutting edge mobile, social and web technologies; as well as access to its global network of real estate professionals and data. Engel & Völkers is an active supporter of the Fair Housing Act and the Equal Opportunity Act. Each brokerage is independently owned and operated.

 

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For further information please contact:

 Viktoria Ruban

Sales Executive

Toll Free: 1 800 809 7039

From US/CAN: 011 521 624 166 5342

Mx Mobile: 044 624 166 5342

 

Most popular destinations for Canadian expats

cabo real estateMexico is in to 10 destinations for Canadian expats as reported by MSN Money a few weeks ago. An estimated 200,000 Canadians over age of 55 spend three month or more around the world each year. Los Cabos is one of the top destinations in Mexico, due to perfect climate, especially during winter .Real estate is a fraction of the cost compare to Vancouver and Toronto. There are number of non-stop flights to Mexico and it takes around 4 hours to get from Canada to most popular Mexican destinations. For complete slideshow of popular places for Canadian expats please click HERE.

Capital Gains in Mexico

Capital gains tax law in Mexico states that tax is owed on the profit you receive when you sell your home or property. By law, you have two options when it comes to capital gains and you can use whichever is the better of the two options for you:
1. You pay 28 percent* of the net profit. (There are a variety of deductions included in this option.)
2. You pay 25 percent* of the gross sales amount with no deductions.
Although a 28 percent capital gains tax may seem high, Mexico does have several laws and procedures that will assist you in maximizing your cost basis, thereby reducing your net profit and lowering your capital gains. The key is to understand these laws before you buy, not when you decide to sell.
*Percentages reflect the 2007 Tax Code.

Always record your true Purchase Price at closing.
In the past, some real estate companies have recorded values lower than the actual purchase price in an effort to “save” taxes for their client; they thought they could save money on the two percent acquisition tax. This is a major error. Never record a lower value than what you actually paid for the property. Doing so simply establishes a lower cost basis for the property, which increases your capital gains tax liability. The first step in calculating your capital gains is to subtract the value you have recorded in your trust, or Fideicomiso (fee-day-co-me-so), from the sale price of your property.

An oversimplified example is: You wisely purchase a home site (lot) for $1 million, but unwisely record a value of $500,000. In the eyes of Mexican tax law, your cost basis is now $500,000. If you sell the lot for $1.2 million, you see a profit of $200,000. However, according to your recorded cost basis, Mexico sees a profit of $700,000 and your capital gains tax for Mexico will be 28 percent of $700,000 ($196,000) — a difference of $140,000 in profit. Snell Real Estate’s approach to ownership in Mexico, specifically the trust process, has been established to protect you and provide you with the legal means to safeguard your investment. Recording your authentic purchase price with proper documentation is the only way to maximize your potential profits. The bottom line is to always secure your property trust for the true value of your purchase as quickly as possible.

Never allow anyone to convince you to record a lower value than what you have actually paid for your property, or you will assume the Seller’s capital gains tax liability. Recording a lower value today can cost you, should you decide to sell in the coming years. If a Seller can convince a Purchaser to record a lower value, the tax liability is simply passed along, and eventually someone will have to pay. Don’t let anyone tell you, “That’s how we do it here.” Mexico is like everywhere else — the capital gains tax is the responsibility of the Seller.

Fact: Recording a property’s true value benefits you and establishes your cost basis in the eyes of Mexico.
Fact: The amount you pay for a property has no impact on your yearly property taxes.
Fact: Capital gains taxes you pay in Mexico can be applied to your U.S. taxes.

How do I know if my value is recorded correctly?
Snell Real Estate’s closing officer oversees the creation and completion of your trust. We review the documents with you to make certain everything is in order, and we are present when you sign your trust. You can verify the value yourself by examining your trust and noting the amount written in text, which is indicated in U.S. dollars or Mexican pesos and includes the exchange rate of that day. (We will provide a certified translation of your Spanish trust.) Simply divide the current exchange rate into the peso amount and make sure the result reflects the actual dollar amount you have paid. If you would like to review an old trust, simply determine the peso rate for the day and year the trust was executed. We can assist you in finding the exchange rate, as can the bank and the Internet.

What is inflationary credit?
As soon as you pay your two percent acquisition tax to receive your trust, you are eligible to receive an inflationary credit from the Mexican government for each year you own the property. This credit is added to your cost basis when you decide to sell your property. The credit is based on consumer index adjustments (inflation) and can be quite significant. In the past when inflation was higher, we have seen credits in excess of 15 percent per year applied to a cost basis when you acquired your property some years ago. On a million-dollar property, this can be as much as $150,000 USD per year added to your cost basis, significantly reducing your capital gains tax should you decide to sell in the coming years.

Fact: You are not eligible to receive the inflationary credit unless you have paid your two percent acquisition tax.

What about the primary residence capital gains exclusion?
Mexico, as well as the U.S., provides its residents a capital gains tax incentive for their primary home. The tax incentive in Mexico states that if you sell your “primary residence,” you pay no capital gains. This law is in place for “residents” (Mexican nationals or foreigners) of Mexico only, and there are several items required to establish residency status. In order to claim your home as your primary residence in Mexico, you must be able to prove that it really was your primary residence for a period of five years. At closing, you will be required to provide the Notary with a residence visa or working permit (FM2), as well as a bank account, water, phone and electric bills, paid tax receipts and your Trust — all in your name, all with the address of the home, and all in place for more than five years. In some circumstances, a tax ID number may be necessary. Please keep in mind that this is just a guideline of the requirements. It is necessary to communicate with the Notary prior to closing your transaction in order to know if you are eligible for exemption.
*Based on the 2007 Tax Code.

Fact: You cannot have two primary residences at the same time. Therefore, if you claim the home in Mexico as your primary residence, you give up your primary residency status in the U.S.

Fact: The capital gains tax exclusion is intended for residents of Mexico, not for persons owning second homes or vacation homes.

Just as there are no shortcuts or legal ways around taxes in the U.S. or Canada, there are no shortcuts around taxes in Mexico. Your home is a sizable investment and following proper legal steps will ensure a safe and enjoyable experience in Mexico. If someone says, “This is Mexico, and that’s the way we do it here,” then beware. Seek another agent or Broker. If you plan on building a home or doing a major remodel to an existing home, please read our brochure, “Manifesting Your Construction,” to make certain all your expenses are added to your cost basis. If you are considering a real estate purchase in Baja, make certain everything is done right. Allow Snell Real Estate to put our knowledge and experience to work for you. We are an independent brokerage, assuring our only interest is representing you in a safe, solid and secure real estate transaction.

Helpful Hint:  When you sign your new trust, ask the Notary to jot down the exchange rate on the document itself. This will be useful in the future.

 

Finding the American Dream – In Mexico


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At some point last fall, the one millionth American established residency here  in Mexico. That makes Mexico the host nation for the largest American expatriate community in the world. There are now more Americans living in Mexico than there are in the U.K. or Canada.

This trend is accelerating as the U.S. recession deepens and job losses across the United States accelerate. “We’ve seen an increase of almost 40 percent in the number of American citizens making inquiries about the requirements for moving to Mexico,” said an official at the Mexican Consulate in New York. “There are definitely more Americans emigrating to Mexico than this time last year.”

This is confirmed by recruiters and global relocation firms. “Mexico is supposed to be gearing up for a great year right now,” Annie Levy Sandin, of Emerging Globe Group, a recruiting firm.

That Americans are moving to Mexico is nothing new, but the kinds of Americans who are establishing themselves have changed.

“For decades you’ve had three kinds of Americans coming here,” said Ramon Segura, an importer-exporter with decades of experience working with foreign nationals.

“Foremost are the retirees, who can have a higher standard of living in Mexico than they could in the U.S. Then there were the professionals who were sent here by their companies or were here on business. And of course, there were those trying to make a clean break from their pasts – usually men escaping alimony, child support, business failures or the country that sent them to Vietnam.”

But now there are two other kinds of Americans moving to Mexico: those who are starting or raising families and entrepreneurs seeking greater opportunities.

“Top of the list is that the economic benefits of being here allow us both to spend far more time with our son Johnny than we would be allowed if we lived the same style of life back in the New York,” said John Rogers, who moved from New York to Merida. “We would both have to work full time and our child would be raised with home help and daycare. To be able to personally care for him and watch his daily development is a luxury that we fully appreciate, and it seems a more natural and beneficial way to live.”

A generation ago, it would have raised eyebrows for a New York couple to decide to have their child be born in Mexico, but with state-of-the-art medical facilities, bilingual doctors and communities that are structured to support and encourage families, more foreign couples are realizing that in Mexican cities, such as Merida, families with children are welcomed.

“The Mexican people around us here in Merida and the Yucatan peninsula are very family oriented and absolutely love babies,” John Rogers added. It’s not unusual to enter a restaurant and have the waiter eagerly ask to hold the guests’ baby and take him for a tour of the kitchen. “The affection is genuine and heartwarming to watch. Same goes for shopkeepers, the ladies at the local market, casual acquaintances.”

The number of new English-speaking mothers is so great that Roberta Graham organized a breastfeeding support group for young mothers. Women from the United States, Canada and Europe socialize as they share their experiences of being new mothers in a community that dotes over babies and children.

Those with young children are also making their way to Mexico. John and Nicole Larson drove from Minnesota to the Yucatan to start new lives with their daughter, a toddler. “We think that the combination of language, culture, people, customs, and traditions here would have an indelible and overwhelmingly positive effect on her,” John Larson said. Although they have not found work with a Mexican company, they are still in the process of settling down. “My wife and I are both self-employed, so while we don’t make as much money as some of our peers, one of our currencies is freedom and the ability to work anywhere,” John Larson explains. “We keep the focus on results with our clients, not where or how the work gets done. Two recurring themes from all the expatriates we meet here are opportunity and reinvention. There is a lot of business opportunity here and many people, on purpose and sometimes by accident, find themselves switching careers and working in a new industry.”

The Larsen’s are not alone among American’s pursing business opportunities in a more receptive climate. “Merida has welcomed me with open arms, and I could not be happier,” said Vince Gricus, who relocated here after a career with TWA in St. Louis. “I arrived here and I did what I always wanted to do: open a bed and breakfast.”

Describing his experience as “wonderful,” Gricus explains how his neighbors have become like family to him, and how he has been able to transform Casa Santiago into one of the B&Bs that are consistently ranked among the favorites on the online travel referral service TripAdvisor.

The locals have been gracious and surprised by the influx of Americans settling down in their midst. Eugenia Montalvan, editor of the city’s premier cultural magazine, Unas Letras summed up the sentiment in one word: Welcome!

Mesoamerica, a foundation with strong roots in the community, has gone as far as to establish an English-language Literary Salon. Under the direction of Katalina McNulty, who describes herself as an “unrepentant” hippie from Berkeley, the salon assembles each Monday to discuss topics ranging from feminism in the 21st Century to George Orwell to how manners in the modern world have changed. “It’s wonderful to have weekly readings and the opportunity to engage in lively discussions,” she explained.

The number of Americans and Canadians relocating to Mexico is resulting is peculiar developments. In Merida, for instance, there are enough newcomers to justify an English-language lending library — The Merida English Language Library, is affectionately known as “MELL,” and is also a member of the American Library Association. “The biggest event is our annual chili cook-off,” explained Regniald Deneau, MELL’s administrator. “This is a wonderful place.”

Merida city government cooperates by granting permits to close off streets for this fundraising event. Gricus, of Casa Santiago, echoes that sentiment. “Civic involvement is open to anyone, and there are many opportunities to become involved.” For his part, he helped start the Merida Bed & Breakfast Association to help visitors find the perfect accommodations when visiting.

Rogers, a movie executive, has become the unofficial spokesman for the American expatriate community in Merida. Featured in the Los Angeles Times, he is quick to point out the distorted image the American media paints of the violence in Mexico.

“Although the mainstream media would have you believe that all of Mexico is on the verge of a violent drug-fueled meltdown, the areas affected by those unfortunate problems are far from where we live, and are mostly restricted to those in the drug trade, or those directly combating them,” he said. “To get swept up in any of the problems it seems you’d have to go out of your way to get involved, or to travel into the cities that are afflicted – not likely if you have any common sense.”

Gricus expressed the new sentiment of the Americans making their home to Mexico this way: “I never would have thought that to live out the American Dream I’d have to move to Mexico, but there it is!”

NAM contributor Louis E.V. Nevaer. His book, “The Hispanic & Latino Employee,” will be published in December 2009.

 

 

History of Real Estate in Mexico

History of Real Estate in Mexico

history of real estate in mexico
To fully understand how land ownership in Mexico works, it is vital to learn the history of property ownership in Mexico. If you picture a country that has been dominated by foreign owners since the early 1500’s, you will begin to see why Mexico is so protective of its most valuable resource…land.

In 1517, when Hernandez de Cordoba sailed from Spain to the Yucatan Peninsula, foreigners laid claim to Mexican lands. Spain decided that since they had landed here, it was now theirs. It was not until 1822 that Mexico declared its independence from Spain, much like the U.S. declared independence from England, but even with this new independence, the lands of Mexico were still owned by wealthy foreigners, the Mexican upper class and the Church. Porfirio Diaz, a former President of Mexico for over 30 years, nearly sold all of Mexico to foreigners during his term.

The end result was the Mexican Revolution, which cost over one million lives and was the basis for the Federal Constitution of 1917. The new constitution imposed new laws and restrictions on foreign ownership and ownership of real estate by the Catholic Church. Article 27 of the constitution allows Mexican Nationals and Mexican Companies to own property in Mexico, however it restricts foreigners from owning land with the restricted zone. Foreign citizens must obtain a Fideicomiso, which acts as a bank trust, in order to buy property in Mexico.

It is also said that the U.S. was involved in this new zoning in an effort to prevent the installation of foreign military bases on our borders or near our coastlines. This “restricted zone” is defined as property within 60 miles from any Mexican border or within 30 miles of any Mexican coastline, which includes the real estate in Los Cabos.

Not until the 1930’s did the Mexican people truly see the property being returned to them. President Lazaro Cardenas disassembled the large property holding and distributed them in the form of cooperative farms or “Ejidos”. The people were given ownership of these properties and were allowed to farm and cultivate them and receive the profit from their efforts. After nearly 4000 years, over 50 million acres of land was back in the hands of the Mexican people, however, it was still owned by the Federal Government.

Even though the people were allowed to farm the properties and profit from their work, it was not until 1992 that they were allowed to sell the properties. The 1992 Agrarian Law recognizes property rights within the Ejido and allows for the owner of record to sell or lease the property to a non-Ejido member. The property can be removed from the National Agrarian Registry (removed from Federal Control) and placed in the public land registry allowing it to be sold or leased. Today, thousands of acres are being removed on a daily basis from the Ejidos, added to the public lands and being sold or leased. There are well over 50 million acres of land that will go through this process to be either leased or sold over the coming years, making investing in Mexican real estate an attractive venture for foreign investors.