The Mexican Market That Rewards Gringos
Date: 02/23/2008Sunday, Feb. 24, 2008
Get more helpful expat advice in International Living Postcards—Sunday Edition
We all like having our biases affirmed…like when your doctor tells you that red wine is good for your heart.
Or when a local real estate expert tells you that you’re doing the right thing with your colonial-style home in Mexico.
If you’re like me, you’ll drink red wine whether it’s healthy or not…just like my wife, Suzan, and I would have bought our little colonial in Mérida’s historic Centro district even if it wasn’t experiencing a mini-renaissance and price boom.
Like wine, we love our house simply for what it is.
But over a few glasses of Cabernet the other night with our friend Eric Partney, we got an update on the Mérida-area real estate market that gave us that warm glow…the one you get when someone you respect tells you’re doing the right thing.
We bought our house in Mérida just because we love the town and Mexico’s Yucatan State in general. It’s where we want to live…the city is large, clean, prosperous, and inexpensive. Quaint Mayan villages and important Mayan archeological sites surround us, and the white beaches of the Gulf Coast are just up the road.
And according to Eric, who is one of the top sales agents for Mexico Intl. real estate, all these qualities are priming the Mérida market for solid growth for at least the next three to five years.
But Eric had some pretty pointed advice for expats looking to get in the market here now.
“The revival of Centro started about six years ago,” said Eric, “and at that time it was just gringos buying a few of the gorgeous old colonial mansions and turning them into show pieces. Now, buyers from Mexico City and Guadalajara are getting into the act. The inventory is shrinking, and prices are rising.
“At this point in the cycle, it’s the really well-done remodels and the ruins…the blank slates…that are selling,” Eric said. “In between are a lot of unremarkable mid-sized colonials that people have done quick patch-and-paint jobs on and put back on the market. Shoppers aren’t responding to them as well or as quickly.”
Eric said he’s now telling clients to either go all out and transform an old house into a dream home like Suzan and I are doing (warm glow!), or buy a complete ruin and sit on it while the inventory shrinks even further. Those are the two plays in Centro that will get you the best return in the long run, said Eric.
I have to agree with him, because Suzan and I have rented more than a few of those unremarkable Centro paint-and-patch jobs while waiting for our home to be renovated. Not only are some of them renting at completely unjustified rates—$1,200 to $1,750…or more…per month—but most of them are for sale as well…some at prices that make no sense considering the cheap “rental redo” level of fit and finish inside.
We’ve seen places on offer for more than $300,000…with gray concrete kitchen counters, Home Depot toilets and fixtures, poorly plastered walls, and no real aesthetic charm.
Kind of silly, when you can still get colonial and colonial-style shells for as little as $60,000 to $70,000. We’ve seen wrecks like this become extraordinary places with just $50,000 or $60,000 worth of improvements.
Or, as Eric said, just buy a well-located ruin and wait for the inventory to shrink even further.
So Suzan and I have had our bias—to remodel our house like it’s the last place we’ll ever live—confirmed. However, if we ever do decide to sell it, Eric had another piece of advice: to put our home utility bills in both our names. Here’s why:
We own our property through a fideicomiso, or bank trust, since Mérida is within Mexico’s restricted ownership zone of 50 kilometers from shore. The trust is like a living will in the States; a qualified Mexican national bank holds the title in trust and administers it on behalf of the beneficiary (us).
“You’re glad you did that instead of owning through a corporation,” said Eric, “because with a fideicomiso you can sell it and be exempt from capital gains tax. In fact, you can sell one fideicomiso property every year and get the capital gains tax exemption each time. You don’t get that exemption with a corporation.”
And since Suzan and I both have our names on the trust deed, Eric advised us to put the bills in both our names as well…for example, Suzan’s name will be on the electric bill, and mine on the phone bill. That way we can both claim the capital gains exemption if we sell.
“When the tax authorities determine whether you qualify for the exemption, they’ll use the utility bills to see if you’ve resided there for the required year,” Eric said. “If both your names are on the trust but only one of you pays the bills, only one of you gets the exemption. The other will pay capital gains tax.”
So we’ll each have our names on different bills at our house. And with the potential tax exemption and the full-tilt renovation, we’ll be in nice shape if we ever decide to sell into this market.
Wow…huge warm glow. That calls for another glass of wine!
Publisher, International Living
P.S. Get the full details on living and investing in Mérida and the other top colonial cities in Mexico at IL’s Live and Invest in Mexico Seminar. We’re hosting it in Mérida in November…a good time to visit. To get discounts and special offers, contact events@internationalliving.com.
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