Post by Admin on Aug 30, 2014 10:39:29 GMT
Key attractions of owning property in Mexico are the very affordable ongoing costs of property ownership here. In particular, low property taxes and low building and maintenance costs help you keep your costs under control.
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 the asset’s lifetime.
This article highlights some of the costs which make up the TCO of property in Mexico, including some of the less apparent costs.
Closing costs – which include lawyers and notary fees, sales taxes and any permits that may be required to secure the asset – are always a significant cost which must be priced in to your TCO, whichever country you purchase property in; it’s part of the overall investment.
Once you have purchased your Mexican property, there are a number of costs which may not be immediately apparent, but which should be taken into account when you calculate your budget.
Property Service Fees – If you purchase a condominium, apartment or penthouse, or a property which is part of gated community, you will need to contribute the ongoing maintenance fees which pay for the amenities 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 the security guards at the gate. 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 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 pool may need re-tiling. 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 likely need to increase – 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 coast or 35km (20 miles) of a land border, Mexican Law requires that the land be held in a Trust. This is due to Mexico’s constitution prohibiting foreigner’s direct ownership of land near borders and the sea; however, the Land Trust which is set up when you purchase the property ensures that the asset becomes yours in all but name. Land Trusts are usually set up through a local bank: all banks in Mexico have a department dedicated to servicing Land Trusts for foreign property owners. There is an initial fee, plus an ongoing yearly fee for a Land Trust. The exact fees vary depending on the value of the property transaction, but can range from between US$500 and US$2,000 per year. Even at the lower range of the fee scale, this is a significant ongoing cost which you need to take into account when you purchase land or property near the sea or a land border in Mexico.
Electricity – To the surprise of many foreigners, electricity costs are relatively high in Mexico. In some countries, the more KWH you consume each billing period, the less you are charged per unit. In Mexico, the reverse is true, and there is a double-penalty built-in to ‘excessive’ consumption. To keep your electricity bill low in Mexico you must remain within an ‘allowance’ of energy consumption every sixty days (the billing cycle). The allowances vary by state and region, and 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. Go over your allowance and two things happen: first, your unit cost increases for the entire amount consumed, not just the amount above the excess; second – and this is the real penalty – the generous government subsidy, which shown as a specific amount subtracted from your bill, vanishes, leaving you to settle the entire “true” cost of the electricity. That final amount can add up to ten times or more what the subsidized amount would have been. As churlish as this may appear, it may be considered an “eco-friendly” pricing policy: consume less and the formula keeps your bill quite low; consume an excess and you pay a significant financial penalty.
Drinking Water Supply – In the USA, Canada and western Europe, millions of people are accustomed to having potable water piped into their homes, ready for consumption straight from the tap. Good quality hotels and resorts in Mexico purify their water systems so that guests may enjoy the same luxury. When you take possession of your home in Mexico, you need to know that they water supply probably isn’t 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. The most frequently purchased dispenser is a twenty liter bottle which rests in a cradle designed to tilt, or turned up-side-down into a water dispenser or electric-powered cooler/heater – the type you see in offices around the world. When energy costs increased last year, the price of these purified water bottles increased by about 30%. Today, a vessel containing twenty liters of drinking water will cost you between $20 and $35 pesos (US$1.50 – US$2.60), depending upon where you are situated in Mexico, and whether you pick it up yourself or have it delivered. When you compare that to the price of potable water piped into your home in Phoenix, Calgary, London or Paris, the price of drinking water in Mexico is relatively high.
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 are away. Vacant and unkempt properties are a particular favorite of burglars in these lands and, in any event, it makes good sense to have someone looking after the property in your absence. 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 quite reasonable, perhaps US$50-$75 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 sales agent are the same person and sometimes they are not. In any event, there are two separate fees: the management fees and the sales commission. These are in addition to the property’s utility bills and, when required, maintenance costs. If you plan to rent your Mexican property, you’ll probably come to realize that you won’t make much profit once all of the operational costs are subtracted from the rental income; however the rental income will cover the costs of keeping and maintaining your home in Mexico, and will provide you with ‘free’ use of the home when you want to live in it. And, of course, as the owner you may enjoy the capital appreciation of a well looked-after asset over the course of years.
Selling Fees – One day, you may want to sell your Mexican property. Sales agents’ fees in Mexico usually start at 4% and can be as much as 8% of the selling costs. The average is about 6.5% and you will need to add Mexican sales tax (currently 16%) to those fees as well–this means that when tax is added to an 8% commission on the sale of your house, your actual commission rate is 9.2%.
We publish comprehensive information about buying and renting property in Mexico, as well information about Mexican Realty Agents, Real Estate Developments, House Maintenance, Home Security and more on our guides to Real Estate in Mexico.
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 the asset’s lifetime.
This article highlights some of the costs which make up the TCO of property in Mexico, including some of the less apparent costs.
Closing costs – which include lawyers and notary fees, sales taxes and any permits that may be required to secure the asset – are always a significant cost which must be priced in to your TCO, whichever country you purchase property in; it’s part of the overall investment.
Once you have purchased your Mexican property, there are a number of costs which may not be immediately apparent, but which should be taken into account when you calculate your budget.
Property Service Fees – If you purchase a condominium, apartment or penthouse, or a property which is part of gated community, you will need to contribute the ongoing maintenance fees which pay for the amenities 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 the security guards at the gate. 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 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 pool may need re-tiling. 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 likely need to increase – 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 coast or 35km (20 miles) of a land border, Mexican Law requires that the land be held in a Trust. This is due to Mexico’s constitution prohibiting foreigner’s direct ownership of land near borders and the sea; however, the Land Trust which is set up when you purchase the property ensures that the asset becomes yours in all but name. Land Trusts are usually set up through a local bank: all banks in Mexico have a department dedicated to servicing Land Trusts for foreign property owners. There is an initial fee, plus an ongoing yearly fee for a Land Trust. The exact fees vary depending on the value of the property transaction, but can range from between US$500 and US$2,000 per year. Even at the lower range of the fee scale, this is a significant ongoing cost which you need to take into account when you purchase land or property near the sea or a land border in Mexico.
Electricity – To the surprise of many foreigners, electricity costs are relatively high in Mexico. In some countries, the more KWH you consume each billing period, the less you are charged per unit. In Mexico, the reverse is true, and there is a double-penalty built-in to ‘excessive’ consumption. To keep your electricity bill low in Mexico you must remain within an ‘allowance’ of energy consumption every sixty days (the billing cycle). The allowances vary by state and region, and 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. Go over your allowance and two things happen: first, your unit cost increases for the entire amount consumed, not just the amount above the excess; second – and this is the real penalty – the generous government subsidy, which shown as a specific amount subtracted from your bill, vanishes, leaving you to settle the entire “true” cost of the electricity. That final amount can add up to ten times or more what the subsidized amount would have been. As churlish as this may appear, it may be considered an “eco-friendly” pricing policy: consume less and the formula keeps your bill quite low; consume an excess and you pay a significant financial penalty.
Drinking Water Supply – In the USA, Canada and western Europe, millions of people are accustomed to having potable water piped into their homes, ready for consumption straight from the tap. Good quality hotels and resorts in Mexico purify their water systems so that guests may enjoy the same luxury. When you take possession of your home in Mexico, you need to know that they water supply probably isn’t 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. The most frequently purchased dispenser is a twenty liter bottle which rests in a cradle designed to tilt, or turned up-side-down into a water dispenser or electric-powered cooler/heater – the type you see in offices around the world. When energy costs increased last year, the price of these purified water bottles increased by about 30%. Today, a vessel containing twenty liters of drinking water will cost you between $20 and $35 pesos (US$1.50 – US$2.60), depending upon where you are situated in Mexico, and whether you pick it up yourself or have it delivered. When you compare that to the price of potable water piped into your home in Phoenix, Calgary, London or Paris, the price of drinking water in Mexico is relatively high.
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 are away. Vacant and unkempt properties are a particular favorite of burglars in these lands and, in any event, it makes good sense to have someone looking after the property in your absence. 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 quite reasonable, perhaps US$50-$75 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 sales agent are the same person and sometimes they are not. In any event, there are two separate fees: the management fees and the sales commission. These are in addition to the property’s utility bills and, when required, maintenance costs. If you plan to rent your Mexican property, you’ll probably come to realize that you won’t make much profit once all of the operational costs are subtracted from the rental income; however the rental income will cover the costs of keeping and maintaining your home in Mexico, and will provide you with ‘free’ use of the home when you want to live in it. And, of course, as the owner you may enjoy the capital appreciation of a well looked-after asset over the course of years.
Selling Fees – One day, you may want to sell your Mexican property. Sales agents’ fees in Mexico usually start at 4% and can be as much as 8% of the selling costs. The average is about 6.5% and you will need to add Mexican sales tax (currently 16%) to those fees as well–this means that when tax is added to an 8% commission on the sale of your house, your actual commission rate is 9.2%.
We publish comprehensive information about buying and renting property in Mexico, as well information about Mexican Realty Agents, Real Estate Developments, House Maintenance, Home Security and more on our guides to Real Estate in Mexico.