This article was published in the 2007-2008 Collectors’ edition of
BajaTRAVELER®
Copyright BajaTRAVELER® Magazine

Mexico’s New Real Estate Boom

Result of Attractive Financing Options for North
Americans
by James H. Roberson III

Mexico’s key resort destinations and local economies offering full ownership for
second and vacation home opportunities to foreigners will flourish with new
investment in the nation’s number one industry: tourism.

Baja California, Mexico, January 2, 2007--Financing on residential resort real
estate in Mexico has came a long way since the first known mortgage became available,
and when five U.S. mortgage companies in years' past ceased financing Mexican resort
real estate for North Americans. Today, however, U.S-style mortgages on Mexico real
estate are becoming commonplace. North Americans have been snatching up property
since foreign ownership laws were enacted by way of a fideicomiso or bank trust, which
allows foreigners to own property in Mexico’s restricted zones; and since the passage of
NAFTA (North American Free Trade Agreement). In 2006 alone, more liquidity was
provided to purchase Mexican resort real estate than in the last decade. All cash and
short-term seller/developer financing will eventually become a thing of the past. This is
due to: 1) equity appreciation reversal on U.S. real estate, 2) new wide-spread mortgage
availability in Mexico, 3) Mexico’s resort real estate boom cycle, 4) Mexico’s proximity
to the U.S. and Canada, and, 5) the dollar’s stretch in Mexico.
Financing for Mexican resort real estate has been around for a little more than a
decade. Several banks and mortgage companies have seen the potential to finance
property in Mexico. Factors that prevented most of these operations from succeeding in
Mexico were rising U.S. real estate values and historically low interest rates.
Today, U.S. real estate values have for the most part flattened out or are below
historical appreciation levels. The U.S. real estate boom years allowed North American’s
to purchase their resort homes in Mexico by pulling cash from their newly gained equity
through refinancing and through HELOC’s (Home Equity Line of Credit) at 40-year
historically low interest rates. North Americans either paid all cash or made very large
down payments and financed the balance with low-cost, no qualifying developer
financing. North Americans did not have to look to a Mexico mortgage to finance their
purchase. This factor was responsible for the volume levels that most U.S. banks and
mortgage companies experienced during the last decade, prompting most of them to
cease financing in Mexico.
U.S. mortgage-style financing will soon become the standard financial tool North
Americans will use in Mexico. Many are holding a lot of equity wealth south of the
border. “It is estimated that Americans have one to three billion U.S. dollars in equity in
Mexico,” said Bruce D. Greenberg, President/Chief Appraiser, Bruce D. Greenberg,
Inc./Montaña Verde with offices in the U.S. and Mexico, on a recent relationship
manager’s conference call with eMexicoMortgage.com . The estimate is a broad range
because purchase activity records in Mexico aren’t readily available to the general public.
In general, most North Americans who bought property south of the border took
the run-up price appreciation on their U.S. homes and positioned it in Mexico. This was a
smart move because price appreciation is on the rise on sought after resort beach front
residential homes and condos. This effect can be two fold because a developer who
financed their buyers could recoup their investment almost immediately whereby the
buyer refinances the developer’s loan. Refinancing will significantly reduce the North
Americans overall monthly loan costs, by about 34%, assuming a developer loan at 12%
with a 15-year term is refinanced.
The buyers who paid all cash using their U.S. home equity can recoup that equity
by tapping their Mexico home equity. Americans will not have the luxury to tap any U.S.
home equity until the next boom cycle arises, since real estate values have leveled off.
The equity that can be tapped now is the new found equity in Mexico.
A wide array of financing programs are available for the purchase, refinance,
cash-out refinance and lot/construction for Mexico resort residential real estate. Rates for
these mortgages in the late 1990’s and early 2000’s were higher than mortgages on U.S.
real estate. Still today the rates on Mexico resort real estate are slightly higher than on
U.S. real estate. Once the Mexico mortgage securitization flood gate opens, rates on
Mexico resort real estate for North Americans will be priced competitively to Mexico’s
immediate northern neighbor. Down payments as low as twenty percent are available on
a purchase, and up to eighty percent of the home’s value may be refinanced when only
the principal balance of the loan is being paid off. A cash-out refinance of up to fifty
percent of the home’s value with a maximum loan amount of U.S. $1,000,000 is
available. It is rumored that a cash-out refinance will be available at up to seventy
percent of the homes value and a maximum loan amount has not been set, but is rumored
to be between U.S. $500,000 to U.S.$750,000. There are hybrid fixed rates amortized
over twenty- or thirty-year terms and fully amortized thirty-year fixed rate mortgages.
Traditional fifteen-, twenty-, and thirty-year mortgages are also available.
The U.S. real estate boom has left the U.S. and has crossed the U.S./Mexico
border, creating a Mexico resort real estate boom land rush. It comes at no better time,
since Baby Boomers (largest segment of the U.S. population, born from 1946-1964) are
headed for retirement starting in 2011 and are slated to invest in their futures by
purchasing second and/or vacation homes to be used fulltime in their retirement years.
They will start to invest now during their highest earning years and take advantage of
Mexico’s current resort real estate prices. Another economic advantage in Mexico is the
strength of the U.S. dollar. Medical, dental, and household services come with an
automatic discount. Not to mention that food and staple products are readily available at
an affordable price. Just as in the U.S., you will find in many resort destinations in
Mexico your local Home Depot, Wal-Mart, Costco and other similar retail outlets.
If you have thought about investing in your future by owing a piece of paradise
for you and your family to enjoy, you are at the right place at the right time. You have
the opportunity to invest in and finance a second or vacation home in Mexico. Contact a
Mexico resort real estate professional today.

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