Purchasing a home in Puerto Vallarta, Mexico, can be a dream come true for many. This coastal city on the Pacific Ocean offers stunning beaches, vibrant nightlife, and a thriving real estate market. However, before you embark on this exciting journey, it’s essential to understand the nuances of the process. In this comprehensive guide, we’ll walk you through the steps and considerations for buying your dream home in Puerto Vallarta.
1. Do Your Research
Understanding Mexican Real Estate Laws is a key aspect of purchasing your home in Puerto Vallarta, especially for those coming from abroad. Get started by researching online, and make sure to talk with a real estate professional about the details of this important topic.
Purchasing as a Foreigner
As a foreigner, you may be wondering about the differences in property ownership between Mexican nationals and foreign citizens. The good news is that you can both purchase a home in Puerto Vallarta and obtain a mortgage as a foreigner to Mexico, even without Mexican residency. However, the Mexican government has specific laws in place to regulate property ownership by foreigners, which typically involves the use of a bank trust or “fideicomiso,” specifically in Restricted Zones.
What are Restricted Zones?
One of the essential concepts to grasp is the restricted zone. In Mexico, there are specific regulations regarding foreign ownership of property 100 km from international borders and 50 km inland from coastlines. Because of the coastline restriction, this applies to most properties in Puerto Vallarta and Banderas Bay. Understanding the restrictions and how they may apply to your purchase is crucial. For more information, reach out to your real estate agent or consult with an attorney, such as Orlando Santamaria Zepeda from Lex360, who has extensive knowledge of the topic.
Property Taxes in Mexico
Property taxes in Mexico are known as “predial.” The amount you pay depends on the assessed value of the property but is considerably lower than property taxes in the United States or Canada. It’s important to research the current tax rates and ensure that you are aware of your tax obligations as a property owner in Puerto Vallarta.
2. Look into Your Financing Options
It is of considerable importance to pre-qualify for financing and line up your options as early as possible. When it comes time to make an offer on your dream place, you risk losing it if you are unsure where the funds are coming from for the purchase. Talk to your real estate agent about your financing options and begin the application process early on to ensure you lock down your home in Puerto Vallarta.
Get a Mortgage
There are various mortgage options available to finance your Puerto Vallarta home. To get an idea of basic costs, I spoke to Joshua Rappaport, a Canadian who runs Cross Border Investment CBI, based in Puerto Vallarta, Mexico. Josh has been facilitating mortgages for Americans, Canadians, and other foreigners to Mexico since 2011. He said as some broad guidelines for your financial planning, expect interest rates that range from 8%-12% and payback periods of up to 30 years. Another popular financial institution that provides mortgages to foreigners is Intercam, which offers a “Dream Loan” with some of the lowest interest rates available.
Finance at Home & Come with Liquidity
People generally do this through a variety of methods: a home equity line of credit (HELOC) a second mortgage on your property or properties, or a retirement fund to name a few. The primary perk to this is the interest rate will most likely be preferable to that of a Mexican bank, and you will qualify for cash incentives that are offered by developers if you decide to buy pre-construction.
Find an Investment Partner or Partners
When you purchase your Puerto Vallarta home, the vacation property component and the popular location may spark interest among friends and colleagues. This way, you and your investment partners can pursue higher-value property or spend less on your investment. This, of course, is only relevant for those looking to share a house full-time with their investment partner/s or those who are interested in a part-time second home.
Seek developer-based financing
If you are prepared to pay a large portion of the property investment up front, most developers will offer payment plans with installments over the course of the construction period, which can be several months or even years. Once the construction is completed and the property can be deeded, you can supplement this with a mortgage as well.
3. Find the Right Property
Now that you’re acquainted with the legal aspects, and have secured your financing, it’s time to start your search for the perfect Puerto Vallarta property. Here are some key considerations:
Choose Your Real Estate Agent
Working with a reputable real estate brokerage and professional agents is essential. They can guide you through the buying process, provide expert advice, and help you find the right property that aligns with your best interests. Ensure your agent is certified with AMPI, as well, which is the regulatory body for Mexico’s real estate practice.
Subscribe to Flex: PV's Multi-listing Service
As a first step, your AMPI agent will meet with you to get a thorough understanding of your ideal price range and detailed search criteria. They will create a subscription for you in Puerto Vallarta’s multi-listing service, Flex MLS, so you can browse listings at your leisure, and receive customized notifications as properties that meet your search criteria become available. It is also a great way to familiarize yourself with the market, and you can utilize the interactive map provided to view the locations of listings.
Familiarize Yourself with Puerto Vallarta
Puerto Vallarta offers a diverse range of neighborhoods, from the bustling “El Centro” or “Zona Romantica” to the serene coastal areas of Riviera Nayarit. Consider your lifestyle and preferences when choosing the ideal location for your new home. Learning the nuances of each region can be daunting, especially from abroad. Taniel Chemsian, an established broker and agent with over 16 years of experience, recommends you try staying briefly in different areas to see which ones you like the most.
Study Property Values and Market Trends
Another aspect to consider when it comes to your preferred location and your investment goals is the current property values based on the local market. A reputable real estate agent can provide valuable insights into the Puerto Vallarta real estate market, helping you make an informed decision on the purchase of your Puerto Vallarta home that meets your short-term needs as well as your long-term goals. If you are interested in an investment property, check out our article on how to Maximize Your Investment Returns on Your Puerto Vallarta Property Purchase.
4. Understand the Buying Process
Once you’ve found your dream home, it’s time to navigate the buying process. Here’s an overview of the steps involved:
Making an Offer
Talk to your agent when you’re ready to make an offer. Embrace the sense of urgency in getting that offer on the table, as Puerto Vallarta’s real estate market is highly competitive. The first offer will be an Offer to Purchase Agreement, which is a legally binding contract. The Spanish portion is legally binding, but it will include a supplementary English translation as well. Make sure to review it thoroughly, and don’t hesitate to ask your agent questions about the details prior to signing. You may expect a series of counteroffers in the negotiation process until a final purchase price, a realistic timeline, and all contingencies are agreed upon by the seller and the buyer.
Contingency Period
You can expect some standard contingencies to apply, such as the seller providing legal documents to the buyer for their verification and review, and a home inspection. Your real estate agent will help you arrange this. Once the inspection is complete and approved by the buyer, and all contingencies in the Purchase Agreement are met, the buyer will choose to remove the contingencies and will be expected to make a deposit in an escrow account. Keep in mind, that some properties may have their own unique contingencies, such as inclusions or construction requests, that could potentially alter the timeline of this process.
Escrow
In order to formally reserve the property throughout the course of the transaction, the buyer will usually make a deposit that equals 10% of the property’s purchase price in an escrow account. This account serves as a non-bias intermediary that will hold onto these funds and distribute them to the seller on closing day. Both the buyer and the seller may face penalties for defaulting on the purchase agreement. Any penalties the buyer is subject to will be paid to the seller and/or additional parties involved in the transaction directly through the escrow deposit.
Closing Costs
The seller is expected to pay the broker commissions and the capital gains taxes. The buyer pays for everything else including but not limited to the escrow account fee, the notary fee, the home inspection, trust fees, and the property acquisition tax. The costs can add up to about 6% of the purchase price. If the buyer is purchasing with a mortgage and/or mortgage broker, there are additional costs associated with this that equate to an additional 4% of the purchase price.
Closing Day
The closing process in Mexico may differ from what you’re accustomed to in the United States or other countries. It typically involves the use of a notary public, or notario publico, and the completion of various legal and financial documents. In Mexico, a notary public serves a formal legal role and manages the details of the tax calculations. In some cases, you may need to grant power of attorney to a trusted individual to facilitate the purchase process, especially if you’re not physically present during key stages of the transaction. Many people choose to assign this responsibility to their real estate agent. After the deed is officially transferred, your Puerto Vallarta home is now yours. The seller will have a grace period after closing to transfer utilities and other services to you.
5. Additional Considerations
As you finalize your Puerto Vallarta property purchase, keep these factors in mind:
Exchange Rates
Exchange rates can impact the purchase price and financing options. Monitor exchange rates and consult with financial experts if needed to make informed decisions. You can find the official FIX exchange rate of the day at the Banxico site.
Rental Income
If you’re considering your new home as an investment property, explore the potential for rental income. Puerto Vallarta’s popularity as a tourist destination can provide an attractive income from vacation rentals. Some agents may offer a rental revenue analysis for you. You can also find this on websites such as Naya Homes’ Free Revenue Calculator Tool and AirDNA, a platform that draws the data from vacation rentals on Airbnb and VRBO with comparable features and locations to determine daily average rates and occupancy rates you may expect. As an extra perk, if you can estimate the transaction and operating costs, and plug in the purchase price, the site will show you your capitalization rate as well.
Furnishing
Don’t make costly mistakes when it comes to furniture. Talk to homeowners who are from the area or have been here a while to see where they are purchasing their furniture. Most people find it more cost-effective to import furniture from Guadalajara. Another option to consider is seeking a carpenter to custom-make some of your furniture items. Keep in mind that anything that is built into the infrastructure of your property as a ‘permanent fixture’ may be tax-deductible from your capital gains tax should you decide to sell your property in the future.
Common Misconceptions
It’s common to encounter misconceptions about the real estate process in Mexico. Seek accurate information and consult with professionals to avoid misunderstandings. Purchasing your Puerto Vallarta home is an exciting venture, but it requires careful planning and consideration of various factors, from property taxes to legal requirements. By understanding Mexican laws, working with reputable professionals, and conducting thorough research, you can navigate the process with confidence and ensure you’re making decisions based on the right information.
Whether you’re looking for a vacation home, a second residence, or an investment property, Puerto Vallarta offers a world of opportunities for those who wish to call this coastal city their own.
About Dyani Leal
Dyani Leal’s upbeat energy and life experience brings a unique perspective to her clients in Puerto Vallarta. Originally from the United States, Dyani embarked on an expatriate journey to Latin America in 2008. After spending a decade in Nicaragua, she now resides in Puerto Vallarta with her loving husband and two children.
Born in New York City and raised in Philadelphia, Dyani brings a wealth of insight into urban economies and market dynamics. Her fluency in Spanish and deep understanding of Latin American culture further enhance her cross-cultural acumen. Drawing on these perspectives, Dyani offers sound consultation on investment opportunities and invaluable insights into the local housing market.
As a member of AMPI, the regulatory body for Mexico’s real estate practice, and affiliated associations in the US and Canada, including the National Association for Realtors and CREA, Dyani ensures the highest professional standards in her work.
Whether clients are looking to sell their property, relocate to Mexico, purchase a vacation home, or identify a profitable investment opportunity, Dyani is a trusted and authentic advisor, guiding them toward achieving their desired outcomes.
