I’ve been here in Mexico for about twenty-four years now and I’d like to say upfront, I do not own property in Mexico, especially Puerto Vallarta. I am no expert by a long shot, but I’m not stupid and the things I’ve seen over the years just reinforce my feelings on this. While North Americans have the legal right to own and control property in non-tourist zones, it’s not for everyone and I’ll start with what I see from my ‘knot-hole”.
Ok, so let’s imagine you’re coming to Mexico, Puerto Vallarta to be specific, in this example, you see a property, it’s attractive and as you hear “You better act fast, there are only a few left”. Panic strikes and you drop the money they’re asking for with fears you will lose the property you just picked with the ocean view and the beach in front. In the United States, when you do something like this, you know you’re going to get the property. You of course don’t do your due diligence using your gringo mentality thinking it’s the same in Mexico as it is in North America. You make the emotional decision, then you fork out possibly hundreds of thousands of dollars. But we’re not in the United States amigos! The Billboards with the computer-generated images of the property, with the beautiful people walking on the beach in Puerto Vallarta are the things “dreams are made of”. You see the words “Pre-Sale” in English, not Spanish. Only wealthy Mexicans can afford these properties, so they’re presented to North Americans who think they’re amazingly affordable. After all, a condo like that in California would never be within reach of ‘everyday people’. A beachfront condo with an unobstructed view of the ocean and downtown Puerto Vallarta, you can imagine how the view of the city at night would fit into that dream.
We’re in Mexico, your North American expectations should have been left at the border, but seldom are in these cases. But you’re excited, you’re thinking with your gringo brain and you drop the money on the table, figuratively of course. You get a tentative schedule and with a contract in your hand, you’re excited about your new home in Puerto Vallarta. The anticipation about things like furniture, tile, colors, etc. just fuels the flame and the excitement.
Now here’s the bad news, what you’ve just done is considered “Speculation”! Let me give you two examples of what this means in real experiences. Not mine, my friends and clients have shared these things with me. Again, I’m looking at all this not as an expert, but more as a person paying attention to what’s happening around me. So here’s example one: I have two clients that have been fishing with my company for many years and we’ve become friends. There was a project here in Marina Vallarta on the waterfront. The plan was, the construction company was going to put up three high-rise towers and have a fourth as a hotel. Now it’s been determined that a hotel and private property can’t be on the same grounds on PV. And this may have been determined while my “friends, D&L” were in the process of this new experiment of private residences on hotel properties.
D&L isn’t exactly broke, but that doesn’t mean anything. The simple fact they have a couple of nickels to rub together is / was probably their biggest problem. Well, that and their Gringo mentality. So D&L decided to drop forty-five thousand dollars ($45,000 USD) down on this “Pre-sale” reservation and walked out of the sales office with a contract in hand. This was over ten years ago and they’ve given up on any of the towers ever being built. I could tell you how the first and only tower had an additional ten floors added on illegally and all the problems that created for the future owners. The project was stopped because of all the corruption and the one tower we’re speaking of, is still the only tower built. D&L was shocked to hear, from various legal types, that this was “Speculation” and like purchasing stocks, you can lose all or part of your investment. They literally bought a piece of ‘Pie in the sky’. Now, more than ten years after the fact, this same construction company is ‘pre-selling’ two more towers, but this time there is no hotel in the plan. What was presented to D&L as a safe and secured investment, was anything but.
OK, let’s move on to another example. I’ve been in Puerto Vallarta now going on 25 years. I’ve made many new and intelligent friends during this time, most own property here in Mexico. One of these new friends and his wife, I’ll refer to them as ‘J&M’, a middle-aged couple, living in a rented condo, they decided they wanted to own their own property and stop throwing money down the drain. M was pushing for this mostly, and J agreed. They went looking for a property and found something very attractive for the money. M shared this information with her 2 brothers. Remembering J&M are Mexican, they too, including a lot of money from M’s two brothers, dropped the cash down on the table of Speculation. This was all recently and you’d think a Mexican would both know and understand this sort of situation. To me, the results were predictable. But it was a great deal and they made a leap of faith. So much for “Pre-Sale” properties.
Now I’m not saying all the companies will do this sort of thing, it’s a word-of-mouth thing I guess. But how do you know you’ve got a company that won’t be a “pre-sale” rip-off? Especially when the motivations of agents can be suspect. The answer to this question is: I don’t know! It’s not like you can go on social media and get reviews for this sort of thing. So you want to purchase a property and now the pre-sale thing has you spooked, what do you do? My suggestion is not to purchase any property you can’t put the deed in your hand. But, even then you have to make sure the name on the deed matches the person’s name selling the property. You see here in Mexico, Puerto Vallarta many times a sale will go through with another person’s name on the deed. There seem to be some tax advantages to this and I’m told by some agents this is ok. Well, it doesn’t seem “ok” to me.
Now let’s say you finally found a property, your agent did his job well and you present an offer. Your offer is accepted, then for some reason the sale falls through. I’ve personally seen this happen. I had a friend, we’ll call him ‘E’, and he was looking for a three bedroom unit in Marina Vallarta. It just so happens I knew the person who was selling the property, we’ll call him ‘S’. He accepted the offer, but the sale never went through. So, you may wonder what happened. It seems the agents couldn’t get the commission issue out of the way, and finally, the offer was withdrawn. I connected both E and S, they discussed how they were both good with the offer and the sale. It turns out the agents were having a personal war over the sale as greed set in and neither would bend to the other. The sale never happened and ‘E’ and ‘S’ lost out, the agents lost out and in the end ‘E’ made an offer on even better, less expensive property.
Also, when considering purchasing a property, ask yourself, what are the advantages to owning property in Mexico? Many people coming to the Puerto Vallarta area are retirees. Once you set up a rental contract, you have the protection of what Americans would call “rent control”. Legally your rent can’t go up more than inflation from year to year. Now most people don’t know this, especially expats, so their ignorance can be a problem. So this article has several purposes. But don’t expect your landlord to honor this law, so there could be some yearly discussions about this. As renters, either here with residence cards or vacationers locking in a rented location for six months out of the year (but keep paying rent during this time, a yearly contract). You have legal rights.
Something you should also be aware of, you may never think of, is how qualified is your “Real Estate Agent”? What do you know about this person, other than they’re a nice person, they speak English and they look and sound professional. Nice building, nice car, this person must be qualified, right? I say this with “tongue in cheek”, smiling the whole time. It’s funny, there are no licensed Real Estate Agents in Puerto Vallarta. There is a Broker, the agents work for this person, but no license is necessary to sell Real Estate in Mexico. I know some nice-looking agents that are no more than salespeople. No special training in anything, including the law or any responsibility to tell you important details that would negatively affect the sale of the property. Now there are reputable real estate agents. Remember to do your due Diligence, and research this person through forums and social media.
Another thing is the Agents Commission fee. Plan on paying ten percent (10%) of the property’s sale price. Figure on a long list of fees you won’t know about until after you sign the dotted line. Another reason to do your Due Diligence is to cover your backside. It’s been my experience that once you put that money down, it will be very difficult to get it back, if only in part. There is no real turning back. Take care and choose carefully who you do business with.
Let’s say you’ve gotten to the point of negotiations. For a Mexican, it’s just basic human nature to want to get every peso of value out of their property when they list it for sale. Normally a Mexican National will price his house based on what other prices are in the surrounding area. Most of the time there isn’t much logic involved in these decisions, greed is the primary factor. Here is another example of negotiations I’ve seen all too often.
So, you make an offer. The price seems fair enough to you, in fact, is seems too cheap. So the North American couple agrees to the full price, let’s move forward. The papers are signed, the money is deposited in an escrow account. Just need to review the papers, property, accounts, etc. Everything moves forward normally, or so you think. Time passes by, you ask your agent “What’s going on”. And of course he doesn’t look into it for weeks. As you start to wonder what’s up, you learn the seller has decided he wants more money for the property. In fact the seller wants an additional thirty-five thousand dollars ($35,000 usd). You as the North American thought it was a little on the cheap side, so you cough up the extra cash, no hard feelings, the sale moves on. Then they resubmit the offer, the papers are signed again, escrow is the next step. A fair amount of time goes by, you don’t understand what the holdup is, and then your agent says the sale isn’t going through. In fact, the seller wants an additional twenty five thousand dollars ($25,000 usd). At this point, you’re past the point of being calm and collected and get a little upset. Probably a lot upset, but you still want the property. You have just unknowingly entered the real negotiations amigo. Until you push back, start crying to the point of walking away from the sale, the transaction will never go through.
You may say, “Hey, we signed papers, dropped a chunk of cash in their laps, then bumped it up another thirty five thousand dollars and they want more”? Well of course they do! And you have nobody to blame but yourself for this. Again, you may have too much money, which once again is the problem. By not pushing back on the first 35K, you signaled to the seller that he was “leaving money” on the table. Now that you’re finally upset, you start to push back, the seller now knows he’s getting full value. Once you reluctantly drop the other 25K, the sale of the property will finally proceed. Had you cried like a baby before the 35K usd requested increase, you would have never gotten to the additional 25K dollars spike. In Mexico, everything is a negotiation, and your agent benefits from this as well. There are no laws saying the agent is your friend. He’s his own friend and may well have gotten to the seller telling him how he could get more money, this sort of thing is common. The agent is going to benefit, remember this. The seller will benefit and the Gringo can afford the Mexican Run-Around. At ten percent, the commission just increased by six thousand dollars ($6,000 usd), to your agent, now think about that one for a minute.
And as normal, here’s the bottom line. You have to be in possession of a Residence card to own property in Mexico, Real Estate is what we’re focusing on here. Many people over the years have purchased the property as the Mexican Government looked the other way since it brought Dollars and a steady flow of future income. Not to mention visitors with money don’t cause problems, especially retired North Americans. Everyone benefitted, but at the basic foundation of property ownership lies in being recognized by the Mexican Government under present Mexican Law. Many people have been operating on the “six-month visa” plan. Every time North Americans return to Mexico, they can re-up another six months.
Now I’m not telling you that you’ll lose your property, but I am telling you that it may be something to look into.
But of course, when you get past all this “brain-rattling”, when you wake up in the morning, in your own place with the ocean view and beach in front of your tropical dream home! All I can say at that point is, “Welcome to Puerto Vallarta”!
Written by Stan Gabruk, owner of Master Baiter’s Sportfishing
