How to make a living off a rental property in Mexico
People move to Mexico for various reasons. Some relocate as a result of a job transfer, others take advantage of Internet technologies and look for a heavenly place to work remotely from. What is more, Mexico was voted an ideal retirement location, attracting thousands of senior people from the U.S., Canada, Asia, and Europe every year. What makes Mexico such a great country to live in? The answer is simple: sunny weather and low cost of living. But even if you are not ready to move to Mexico yourself, you can buy property in Los Cabos or Baja and rent it to receive passive income.
4 reasons to rent property in Mexico
1. Low taxes
Property tax in Mexico is called predial. On average, it equals 0,1% of the assessed value of the property at the moment of sale. No manner how the market changes, your property tax won’t change throughout your entire ownership period.
2. Secure income
There may come a time in your life when you will lose your job or struggle financially. If you buy property in Mexico, you will always have a fixed monthly income to fall back on.
3. Smart investment
Real estate tends to increase in value over time. Whenever you need money, you can always sell your property for a good market price.
4. High demand
A lot of people move South to spend winter months in the sun and are looking to rent a house or apartment temporarily. Which means that your beautiful villa by the sea will never be empty.
How to buy property in Mexico
There are a few ways for a foreigner to buy real estate in this country:
● Holding title as a corporation
You can establish a Mexican corporation to hold title to any amount of non-residential property (houses or apartments used only for rental or other commercial reasons). Then you will have to pay an IVA tax of 15% of the assessed property value at the moment of acquisition as well as 2% acquisition tax. You will be obliged to file monthly tax declarations and pay taxes and utility bills at a rate for commercial properties. Please note, that the stocks of the corporation are subject to an income tax. We don’t recommend this type of ownership if you own no more than a few properties since maintaining a corporation is rather expensive.
● Holding title in fee simple/trust
If you buy property in the interior of Mexico, you can hold title in fee simple (property is registered with the Secretary of Foreign Relations). If the real estate you wish to acquire is in the restricted zone (the coveted shoreline), the alternative is a trust (fideicomiso). In this case, there is an annual trustee fee of $375-550. Property taxes and utilities are charged at a residential rate.
Remember that to protect yourself, it is always better to sign an official rental contract with your tenants. Keep it simple and include an arbitration clause. Also, taking a security deposit is never a bad idea. If you have any questions about the intricacies of Mexican legislation and taxation, don’t hesitate to have an attorney reviewing your case. Better safe than sorry!