What is a Fideicomiso?
If you are thinking about buying property in Los Cabos and you are not a Mexican citizen, you have probably heard the word Fideicomiso (fee-day-co-me-so). Most foreign homeowners in Los Cabos need a fideicomiso, which is basically a Spanish term for a real estate Trust. This means that the actual owner and administrator of the property is the bank Trust that you set up when you purchase the property, with you as the beneficiary of that Trust. As the beneficiary, you have all the rights of ownership, including the right to use, sell, or make improvements to the property. The asset is yours, and not the bank’s.
While owning property in a bank Trust sounds a little scary, and lots of people who do not understand the fideicomiso will tell you that the government or the bank can come to take your property at any time and without cause, this is not the case. The fideicomiso is actually set up to protect your rights of ownership, and the very same system exists in the United States and Canada. People there choose to purchase their homes through trusts to provide a layer of protection against lawsuits, and to ensure that their beneficiaries will have direct ownership of the property without having the headache of probate.
This is an important note worth highlighting – one of the best uses of the Fideicomiso is, you get to name your successors directly in the deed, making the process of inheritance incredibly easy to execute.
Let’s take a step back and understand why foreigners must have a fideicomiso to purchase a property in certain areas of Mexico. The constitution of Mexico forbids foreign investors to buy property within 100 kilometers of any bordering country and 50 kilometers of the ocean. That means all of Los Cabos falls withing this restricted zone. But in the 1970’s they realized that foreign investment could be quite lucrative and beneficial to the country, so they created a new type of Trust called the “fideicomiso en zona restringida” whereby the Secretary of Foreign Relations issues a permit for the foreigner’s “use and enjoyment” of the property, which in essence is a way around constitutional law.
The key takeaway here is that the Mexican government wants your investment dollars very much. Coming to take your land without cause would be counterproductive to their goals of attracting foreign investment. They intend for you to keep your property, and to continue to spend your money here. The Trust (fideicomiso) is valid for 50 years, but it can be renewed in perpetuity. The heirs (beneficiaries) of the trust that you designate will obtain the property when you pass it on.
Setting up a fideicomiso does have additional costs associated with it. For a brand-new, 50-year Trust, the cost is around $2,000.00 USD. In addition, you will have to pay an annual trust fee to the bank which usually runs around $550.00 USD. If you are purchasing a property that is already held in a fideicomiso, you may assume that trust and save around $1,000.00 USD, but it is wise to first check to see how many years are left on that Trust. If it is approaching the 50-year mark, you will probably want to just establish a new Trust.
There is another restriction to this kind of Fideicomiso worth noting: it is most intended for residential use, and properties up to an acre in size. Properties over 4,000 square meters are subject to a foreign investment clause – this clause is a commitment from the purchaser to invest a certain amount of money, starting at $250,000 USD, into the property within 24 months of purchasing. Where this gets tricky is large parcels, especially for investors…and this is where a foreign owned Mexican company becomes a great option – more on that in an upcoming post. Stay tuned!
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