A key attraction of owning property in Mexico is the affordable ongoing costs of property ownership here. In particular, low property taxes and low building and maintenance costs help to keep your the long-term costs in check, that is particularly useful for retirees on fixed budgets.
What is ‘Total Cost of Ownership’?
Total Cost of Ownership (TCO) is a moniker that describes a financial estimate used to express the total direct and indirect costs of owning something over time. This article highlights the principal costs which make up the ‘TCO’ of residential property in Mexico, including some of the less apparent and sometimes overlooked costs associated with buying and owning property here.
Up-front property purchase costs
Before the exchange of a property can take place, buyers will have some up-front costs to budget for; for example:
If you don’t live in Mexico yet, or if you live here and plan to move to a different region in Mexico, you will need to budget for transportation and accommodation costs to visit the place(s) you are exploring for property purchase. We strongly recommend that you never purchase property in Mexico “sight-unseen;” it’s wise to always visit the location and locale, and the properties (or building site) that you are interested in buying, in-person.
While these are not common in Mexico, some buyers may choose to hire a professional building surveyor to inspect the property before they make an offer to ascertain the state of the current build and costs that might be required to ‘make-good’ any dilapidation, and to ensure that there are no severe structural faults (for example, that might have been caused by earthquakes or natural land subsidence) that could be expensive to deal with, or perhaps even impossible to rectify without reconstruction. Surveys are more commonly undertaken on older properties, but any buyer can hire a surveyor to check any building if they wish to do so and if the seller objects to a surveyor’s visit, then that might be a warning sign to the buyer.
Property valuation reports
Some sellers will hire a professional property assessor to undertake a study of the property and its neighborhood and produce a property valuation report. In Spanish, these are called an Avaluo and they cost between US$200-$300 to get commissioned by an experienced professional. Buyers are advised to do their own research and not take these reports as Gospel. (They are commissioned by the seller, after all.) Some buyers might commission their own valuation report; this is not a common practice, but not impossible if the seller is willing to allow an independent assessor to visit the property.
Property purchase closing costs
‘Closing costs’ is a term that describes the fees and charges that buyers need to pay when they complete a legal property transfer. Once a buyer has made an offer and had that offer accepted, a contract will be drawn up to begin the property exchange procedure, and the assignment of closing costs will usually be documented in the contract to avoid misunderstanding between the parties. These usually include how and who will pay costs such as Notary Public fees, sales taxes and any other charges that may be required to secure the property’s legal transfer. Closing costs vary; as a rule of thumb they may range between 5% and 10% of the property’s sales value. This should be priced in to your TCO as they’re part of the overall investment.
Ongoing property costs in Mexico
When you have taken possession of your Mexican property, there are a range of costs which may not be immediately apparent, but that ought to be taken into account when you calculate your budget. These include:
In Mexico, the annual property tax is known as the Predial. It’s pay-able by property owners once a year at your local Municipality. Some regions send a bill, others don’t but all run local ad campaigns reminding property owners to pay. Rates vary depending on the state, the area, and the size of your home. Typically, your property tax bill in Mexico will equate to a small few hundred dollars per year and could be less than US$100 a year if your home is small and in a rural area. You can learn more about property taxes in our Mexico Cost of Living Guide
Property service fees
If you purchase a condominium, apartment, penthouse, or a property which is part of a gated community, you will need to contribute the ongoing maintenance and service fees which pay for the amenities and and services provided at the property. These services may include a swimming pool, gym, club house, golf course, gardens and other common areas, sports facilities (e.g. tennis courts) as well as services like watering the lawns, lighting the common areas and paying for gate security/access if this exists on-site.
If you buy the property from new, the annual services may start out quite low, because everything is new and very little maintenance is required. In due course, buildings will need maintenance and repairs done to them, and sometimes the owners may be asked for a lump sum to pay for a major project—for example, the swimming pool may need major repair or maintenance.
Co-operative ownership of spaces and services is a great way to enjoy facilities; for example, the cost of running a swimming pool between twenty owners is far less than maintaining your own, and it’s also more environmentally friendly as the resources are shared across a defined community. However, when you buy into a shared community, be sure you understand what the maintenance and service fees are, and be realistic about their (highly) likely need to increase over time, especially if you buy into the project when the building is brand-new.
Land trust fees
If you are not a Mexican citizen and plan to buy property within 50km (~30 miles) of the Mexican coast or 100km (~60 miles) of one of Mexico’s land borders, the law requires that the land be held in a Trust, known as a Fideicomiso. (This is due to Mexico’s constitution prohibiting foreigner’s direct ownership of land near borders and the sea.)
The Trust that is set up when you purchase property through it ensures that the asset becomes yours in all but name. Trusts are usually set up through a local bank, and all banks in Mexico have a department dedicated to servicing Trusts for foreign property owners. Trusts carry an initial set-up fee, plus an ongoing yearly fee to maintain.
The exact fees vary depending on the value of the property transaction, but set-up costs are around US$1,000 and ongoing Trust fees can range from between US$500 and US$2,000 per year. Even at the lower range of the fee scale, this is a recurring cost that you need to take into account when you purchase land or property near the sea or a land border in Mexico.
If you purchase land or property inland of these distance limits, there is no obligation to set-up a trust and you may own the property in your own name. (Some owners choose to place the property into a Trust anyway, for estate planning purposes.)
Electricity supply to your home
To the surprise of many foreigners, electricity costs can be high in Mexico relative to local earnings, although if you keep your consumption in check, electricity can conversely be quite inexpensive here.
To keep your electricity bill low in Mexico you must remain within a subsidized ‘allowance’ of energy consumption every sixty days (the billing cycle). The allowances vary by state and region, and local climate is taken into consideration; for example, if your home is situated in a hot climate zone, there is a higher subsidy (allowance) during the hot months, to help you cool your home.
If you exceed your subsidized allowance, two things happen: first, your unit cost increases for the entire amount consumed, not just the amount above the excess; second, the generous government subsidy is withdrawn —shown as a specific credit subtracted from your bill— leaving you to settle the entire so-termed “true” cost of the electricity.
The use of a modern ceiling fan consumes a low amount of energy; however, air conditioning units consume a lot of electric and these will usually cause a property to exceed its ‘subsidized’ kilowatts usage limit if used liberally, and you’ll need to budget for this during the hotter months of the year. You can learn more about electricity prices in our Mexico Cost of Living Guide.
Drinking water supply
If you live somewhere like the US or Canada, you’ll be accustomed to having potable water piped directly to your home, ready for human consumption straight from the tap.
Good quality hotels and resorts in Mexico purify their water systems so that guests may enjoy the same arrangement. When you take possession of your home in Mexico, the water supply might or might not be fit to drink straight from the tap. It’s a moot point: some people say it’s perfectly drinkable, others say no.
The truth is that it probably depends upon where your home is situated. Many factors affect this issue: the supply itself, but more often the pipes which transport it to your tap. In any event, most foreigners (and many Mexicans) buy bottled water.
A vessel containing twenty liters of drinking water will cost you between $15 and $40 pesos (US$1.60-$2.60), depending upon where you are situated in Mexico, and whether you pick it up yourself or have it delivered. This can add around US$300-$400 a year to a household budget for two people. You can learn more about water systems in Mexico here on Mexperience.
Property management fees
If you won’t be staying full-time at your home in Mexico, you’ll need to hire someone to manage the property for you while you’re away. Vacant properties are a favorite target for burglars and, in any event, it makes good sense to have someone looking after the property in your absence not only to mitigate burglaries, but to ensure the property is kept clean and checked after heavy storms, hurricanes, or earthquakes.
The precise fees will depend upon how much work the property manager needs to do. If the property will be left vacant, and simply needs the post, bills, a bit of cleaning undertaken and routine checks made after storms, etc., the cost could be limited, perhaps US$75-$100 a month. If you plan to rent out your property then property management fees will increase to reflect the extra services the property manager undertakes such as reception of your guests and providing a local point of contact should they need anything or something goes awry during their stay.
You’ll also have to pay agency commissions if a renter is found on your behalf. Sometimes the property manager and the realty agent are the same person and sometimes they are not. In any event, there are two separate fees to account for: the management fees and the rental fee commission.
Home insurance coverage
Sometimes overlooked, but vitally important to protect what is likely your most valuable physical asset in Mexico, is home owner’s insurance.
If your home is on or near the coast, storms, winds and flooding are key risks; elsewhere, risks from earthquakes and volcanic activity as well as flooding from any nearby rivers and lakes need to be mitigated with an adequate home insurance policy to ensure that you are not left with huge bills (or substantial loss of your investment) should unforeseen events take a toll on your property.
Our detailed guide to insuring your home in Mexico explains what you need to know and key considerations you should take into account when choosing an insurance policy.
Property sales fees
One day, you or your heirs will probably want to sell your Mexican property. We mentioned the cost of commissioning a sales valuation report earlier, and there are a range of other costs and fees that sellers need to take into account when they decide to sell their residential property, including the agency costs if a realty agent is retained to market the property. Our article about the costs and taxes of selling property in Mexico explains these in detail.
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