Everything Baja Real Estate

---La Paz, Baja California Sur---
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Gregory Borquez
Investment Strategist & Licensed Realtor at Diamante Realtors
+1 612 228 0361
[email protected]

Everything Baja Real Estate All the FACTS about Baja Real Estate!
Financial & Legal Disclosures

What your Baja Realtor Should be doing for you
SELLERS EDITION

When you are choosing a realtor to represent you in the sale of your property, you want the best team working for you. It is not enough for a seller’s representative to just show the property and post to social media. The closing process is very different to the process in the US and Canada and is forever changing due to new laws or regulations set by the national real estate association and the government of Mexico.

Even for a highly experienced agent the sales process here in Mexico is forever presenting new variables that can either kill a deal or affect your profit.

Full Time Sales Agent

Real Estate in Baja is not an easy job and we too often see agents who are working in real estate as a second job or as a hobby. This does not always provide the best results for Sellers as the agent is limited with the amount of time they can dedicate to the sale of your property. You want to work with a realtor whose only job is to sell your property, who’s only way to earn his is to sell your house for you! These agents are usually more successful as the Baja real estate market is very competitive and it’s sink or swim.

Ask your realtor how many sales they have completed in total over their years in real estate. A strong realtor will have that exact number instantly. Others will have to step around the question and possibly ‘get back to you’. Hungry new agents can be the exception as they are driven to prove that they can sell a lot of real estate. This is how I started and now I have concluded over 130 closed sales in just three and a half years.

A strong and experienced agent will be working with a team as there are many tasks required to list a house, show it and sell it. Most strong agents will have an executive assistant who is often a licensed agent as well, working together to make sure that they are more than twice as efficient as any other agent.

Reviewing the Ownership Title/Deed

Here in Baja, every deal is different, and this is because every ownership title is different. The most common ownership titles are Escrituras, Fideicomisos and Mexican Corporation documents (also Escrituras). The closing process for these different ownership titles is different and each property has its own Capital Gains Tax liabilities and allowable deductions.

By reviewing these documents in advance, you can save yourself a lot of time and trouble during the closing process, it can even end up saving you money by having your realtor review all the documents before listing. Small little differences in square footage or wrong lot coordinates can be the difference between a 6-week closing and a painful 6 month closing. Sometimes recent construction isn’t registered on title and so the title must be ‘manifested’ or ‘adjusted’ prior to the sale. The most important step for any Seller is to have their realtor review their ownership documents with a qualified Closing Attorney. This step is very commonly overlooked, and it causes delays in the closing process and common hurdles can end up breaking a deal with a Buyer.

Capital Gains Tax Exposure

It is very important to calculate your capital gains taxes before setting a listing price. Often this is overlooked and this is the Seller’s biggest expense when selling an appreciating asset.

There are different ways for Sellers to qualify for capital gains deductions but this all depends on how the property is owned, and what immigration status the seller holds in Mexico. If in an Escritura or a Fideicomiso the Sellers will calculate their capital gains tax with the Notary. If ownership is held in a Mexican Corporation then there are many variables that the Seller needs to take into account so they can maximize their profits. The corporation’s accountant should be able to help with this. This is why it is so important that your realtor review your ownership documents beforehand to make sure you are guided correctly.

A strong agent will be able to guide you through what is needed to apply for certain deductions, and they should be able to introduce you to one or more top tier closing attorneys and/or top tier accountants to get you an accurate Capital Gains Tax estimates

Real Estate Agent & Broker who invest in their Sellers

This is a business for both the Sellers and the realtors involved in the transaction. The listing agents and the brokerages should have some skin in the game. Brokerages and listing agents should be covering all the marketing expenses, from professional photography to paid online marketing campaigns. If the brokerage and the listing agents are going to receive a handsome commission from the Seller, then it is fundamental that they be investing in the sale of your property as well.

Online marketing is by far the most successful way to market a property in today’s world, however, online does not solely mean Facebook and Instagram. While there is a younger demographic of buyers, the strongest online sources are real estate targeted websites and google itself. Make sure the brokerage you decide to work with has paid access to the important real estate websites and is marketing your property directly to potential buyers.

A strong listing agent should be able to create a marketing campaign both online and on the ground with attractive signs and brochures for your property and share accurate updates on how the marketing is going.

Pushing past the noise and focusing on the business

When there is a large sum of money being negotiated for a property, emotions will run high. It takes a strong agent to “push past the noise and focus on the business”. They must ignore the emotional aspects of any hurdle and focus on the solution. It is common for Buyers not to understand how cisterns work or how there are delays during the closing process that are due to a slow municipality or tax office, but most of these hurdles are easy to solve and sometimes just need to be reviewed in further detail to come up with a solution.

It is a real estate agent’s job to keep things calm and moving forward. If a Buyer or a Seller get to the stage of being upset, it means that the communication has broken down. A strong agent will anticipate the ups and downs of a complicated closing process and should be able to provide a solution for every issue that is presented to them. The term “aggressive agent” is not supposed to refer to an agent’s temperament, it should refer to his or her work ethic and how tenacious they are at solving problems.

The most valuable asset in a realtor is one that can dissect a problem and articulate a clear path on how to solve it efficiently. I like to live my life with a quote my mother would tell us; “There is always a solution, you are not thinking hard enough”

Written by: Gregory Borquez
Investment Strategist & Licensed Realtor with Diamante Realtors
+1 612 228 0361
[email protected]

Everything Baja Real Estate All the FACTS about Baja Real Estate!
Financial & Legal Disclosures

Maximizing your Profits when Selling your Property

Real estate inventory in Baja is limited due to current demand and we are even seeing pre-construction inventory selling out quickly. The current market has presented a great opportunity for owners with built properties who are looking to capitalize on their investments.

Over Christmas and the New Year, we saw multiple resale properties selling for full price in under 20 days and some having multiple competing offers. This is now quite common in today’s market. For those looking to capitalize on their investment, here are some quick tips to keep in mind when selling your property.

Pricing and how to set a competitive price:

When selling your property, you are looking to make the most amount of money on your investment.

There are several strategies that can work in your favor and others that can work against you and hinder the sale of your property. The Baja market is forever changing, and it is important for your agent to understand how the market is responding to the demand, as this is one of the main factors in calculating a property’s value.

To find an attractive sales price, the seller’s agent must not only assess quality of the property, space, condition, and relative value of amenities/view etc. He/she should also be encouraging their seller to assess their capital gains tax exposure before setting a price so that the seller has a clear understanding of the associated costs of selling their property.

Once this is clear, the seller’s agent should provide a list of comparable properties that have been sold in the area over the last few months, including closed and pending properties and a few active properties so that the Seller can have a full understanding of the market and where his property ‘fits’ in it.

Pricing a home above what the market is offering is one of the most common mistakes that is seen here in Baja. Having a price well above what the competition is asking, leaves the possibility that the property stays on the market for a long while with very little interest. Lowering the price after it has been listed, can affect future offers as buyers will assume that the seller is negotiable. You also don’t want to list too low and miss the chance to maximize your profits, that’s why it is so important that your agent understands the current market. Don’t be afraid to ask him/her for further information on sales and how long properties have been on the market. The ideal situation for a seller is to list their property with a strong but competitive price so that the property receives offers on it right away, perhaps even undercut the competition ever so slightly if timing is important to you.

Why not a pocket listing?

Pocket listings are just the opposite of an investment strategy! Telling your agent to not actively list your property and to just keep it in ‘his back pocket’ reduces, sometimes significantly, the sales price you could get. Competition on the open market allows for multiple offers and/or back up offers to be submitted thus driving up the sales price. A strong listing agent will motivate multiple potential buyers so that the Seller con choose the best Offer. If an agent offers you a ‘pocket’ listing, know that he/she is only interested in getting both sides of the commission (the selling and the listing side) and is not working in your best interest. It is far more lucrative to offer your property to the hundreds of agents and thousands of buyers looking in Cabo. Your final sales price will undoubtedly be higher than if only handled quietly by one agent to his small network of buyers.

Capital Gains Tax

When selling your property, you must consider your Capital Gains Tax known as “Impuesto Sobre la Renta” or ISR. On average, it is a 30% tax on the gain and is payable on any vacation property once sold. There are many ways to reduce this tax exposure, the main way is being a permanent resident and having the house be your primary residence. The gain is difference from the registered purchase price on your title (all properties in Mexico are registered in Mexican Pesos) and the equivalent in pesos of the sales price. This means that although there may be a small gain and/or no gain in USD, you must consider the exchange rate from when you purchased the property to when you sold it. It is important to consult your closing attorney to help calculate your ISR, so you know what to expect to pay before determining the sale prices for your property. I can recommend a strong closing attorney and get you a free consultation and ISR calculation if needed. At times, there are other things they can take into account, such as repairs with Facturas, depreciation etc. which can help mitigate your tax hit.

Anyone who is thinking of listing a property for sale should as soon as possible obtain an RFC and have it on TelMex and CFE bills. Once obtained and reported to utility company an RFC may appear on next bill or one after depending on timing.

The property you’re selling must be your primary residence; and you can only claim this exemption once every three years.

The primary residence deduction grants full tax exemption up to about $200,000 USD to each owner (potentially 400k exemption if a couple) in gain. To obtain this deduction, you must have lived in the house for at least 3years, it must be your principal resident, you must be a temporary or permanent resident, and you must have your CFE (electric) bill be in the same name as the name on your title. Most importantly you will need your RFC (Tax ID #) to appear beside the name. An RFC may be requested once you become a Temporary or Permanent Residence of Mexico. Ask your listing agent for a recommendation for an efficient immigration lawyer that can help you begin the process.

Strong Representation

The most important factor when trying to maximize your profits when selling your house is working with the best! Get the best advice and most knowledgeable realtor you can find! His or her experience will pay for themselves many – fold.

Working with a top agent can make all the difference when it comes to sales price, the amount of time on the market and the amount of time it takes to close the property. Here are some qualities to look for in a strong listing agent:

• Full Time Sales Agent: Real Estate Sales is not a job, it’s a lifestyle. It is important to choose a professional who only focuses on real estate sales and is not distracted by rental services or property management. These agents will be more focused on the sale of your home as their livelihood is based on the sale. And a good sale with you will bring them more clients.

• Investing in our Sellers: a sign, a listing and a photoshoot of your property is not enough! Social media is nowhere near a strong enough platform for the sale of a home in Cabo. You will need paid targeted marketing ads that interact directly with the potential buyers. A strong agent will invest in their Sellers so they can reduce the time your property is on the market.

• Team of Experts: A strong realtor does not work alone; they have a team of experts to help with the journey of selling a property. Access to top closing attorneys, top marketing teams, and other experts makes the closing process very smooth and efficient. Transparency and knowing all the steps are important and the team of experts will offer lots of knowledge.

• Time & Energy: Showings are only 20% of the sale. The Closing process can be complex and time consuming, it is easily 80% of the sale. A strong agent must know the closing process inside out. Having sales that drag out can be frustrating and it is not cost effective from an investment standpoint. It is important to check who is representing your interests and how efficient they are at completing the closing process.

• Creating urgency: You want an agent who can effectively market and promote your property, who can create urgency and who can set up your property to receive multiple offers. Be sure your agent can handle a possible bidding war and multiple offers.

Written by: Gregory C. Bórquez

The Truth about the Bank Trust, the Fideicomiso.

Foreigners must purchase property through a bank trust, where a bank is the mediator between the Mexican government verifying that you are indeed a real person and that you will not try to claim that the land you own is now American or Canadian and that you will abide by Mexican law.

Is the fideicomiso a lease? No, although the term of the trust is 50-year increments, it can be renewed indefinitely.

What will happen if I am late or miss an annual payment? You will not lose your property if you fall behind, but you will incur interest and penalties. If you sell your property, you will need to clear up the overdue balance before the sale can proceed.

What are the associated costs to opening a trust? The banks fees are a one-time fee of about $2,000 USD to create the trust and then a yearly fee of $400 USD. This is always included in your closing costs that your realtor is to provide to you.

How does the fideicomiso protect the buyer’s interests?
a) A due diligence period where all the Sellers documents must be authorized first by the Secretary of Foreign Affairs and then authorized by the representing bank. If a Sellers document is incorrect or incomplete it will be rejected until corrected.
b) A beneficiary can be named directly on the title, in case of death this appointed person will receive the property without the need of a will or testament.

For more information, please send us a message and we are happy to provide you with more information and articles about what your realtor should be disclosing to you during the purchase or sales process

What your Baja Realtor SHOULD be doing for you!

When you anticipate buying property in a foreign country, you definitely want the best team working for you. You need an excellent realtor to help you select, offer and close on your new home. And you will also need a topnotch real estate lawyer and Public Notary to do the title search, the bank trust and to prepare the closing documents for the transfer of ownership and registration at the Municipal office. It is VERY important that you are well represented when considering a purchase in a country not your own.

Realtors’ services are FREE to buyers and they can provide incredible value. A good realtor should be a key member of your “Relocation Team”. As your buyer’s agent, they represent YOU and only you. Their loyalty lies with you and your wish list and budget. Their main objective is to help and protect YOU while getting you a great deal on your property.

They will help you relocate in the easiest and best way – and will/should offer all sorts of tips about restaurants, activities, available social and sporting activities, organic foods, pharmacies/laboratories, hospitals, doctors, dentists, veterinarians, physiotherapists, tradespeople, banks, even immigration etc. And of course, they will do their best to make sure you find the best property for the best price and close effectively and efficiently.

When representing a Buyer:
Prior to any showing, your realtor should have researched the following:
- Your wish list; Finding out the Buyer’s wish list can sometime be tricky. Your realtor should find out if you are looking for a retirement property, an investment property or both! Will you be occupying it for part of the year or full time? Would you prefer maintenance free condos or do you enjoy puttering around in your garden? What is your favourite part of the house? Do you plan on entertaining friends and family? Do you like to walk to restaurants or are you happiest in big, open, rural spaces? These types of questions will help both the realtor and the buyer narrow down the needs and wish list of each individual.

- Your individual needs; In Baja California Sur there are many charming and beautiful towns with spectacular ocean views and amazing beaches to spend your days. Choosing which town to call home may not be as easy as you think as some offer the beach life with little to no infrastructure and others provide Mexican town life with necessary infrastructure such as health care, banking and of course shopping!! Your realtor should understand what you are looking for and should help you decide which town works best for you and which neighbourhood you will enjoy the most

- Explain the buying process; Buying in Mexico is different than in the USA or in Canada but it can be fairly straight forward and easy, if your realtor does their job well. Your realtor should know the buying process inside and out and should be able to explain it to you in detail. It is important that the buyer understands the need for a Fideicomiso (the bank trust), how title searches are conducted, how much earnest money is required, how escrow works in Mexico, the role of the Public Notary, the role of the closing attorney, associated closing costs and more.

- Financial disclosure; It is difficult for a non-Mexicans to obtain traditional financing in Mexico, such as a mortgage or a line of credit from a financial institution. Occasionally one comes across developers or sellers offering financing. Therefore the bulk of property purchased by non-Mexicans is purchased in cash. Knowing your budget is important for your realtor, as they will be able to narrow down and find you a good deal within your means. Asking what you intend to spend is often a difficult question for a realtor, it’s fundamental for transparency and efficiency. There are some also associated costs with purchasing a property; lawyer fees, title search fees, public registry fees and the 2% acquisition tax are variables that should be disclosed by the realtor in your conversations with him/her. A good realtor will get you, in advance, a closing cost estimate so that you are aware of all costs to be considered. Closing costs are separate to the purchase price.

-Legal disclosure; Most realtors are not lawyers, yet they must be familiar with the legal process of buying and selling property in Mexico. A realtor should be able to walk you through the legal process but any specific details should ALWAYS be checked with your closing attorney as rules are subject to change. It is fundamental that a buyer uses a closing lawyer for advice and to truly understand the legal process involved in purchasing a property. Your realtor should be able to give you one or two estimates of closing costs from one or more closing attorneys, itemized for full transparency.

-Real Estate is a very detailed oriented business and many clients ask questions about properties they are considering. Your realtor should consult each detail with you while preparing an offer. Double-checking the details is very important, making sure that every concern has been acknowledged and that the buyer is satisfied in their understanding.

-In order to not miss any such items, a good realtor may need to drive back to the property to double check details such as: will the property accommodate the desired extra casita? Will my boat fit in the parking space? Does the water pressure come out to my satisfaction? And many more, a strong agent will talk to builders and get estimates on any repairs or additions that the Buyer would like to make. All these details should be double checked before the Buyer makes an offer or during the due diligence clause in the offer.

- Contracts and fiduciary responsibilities; Trusting your realtor is crucial as they represent your best interests and the buyer’s decision is based on their professional advice. Your realtor should explain how your interests are being protected throughout the process and how they are going to structure the contracts. Structuring a sales contract is very important as a strong realtor can make sure that if worse comes worst, both buyer and seller can null and void the contracts without legal or monetary repercussions.

- Intangible Services; Relocation advice. A good realtor should be an integral part of your relocation team. He/she should be able to provide advice and suggestions as to how best to move to Baja, including suggesting places to buy and store a boat, restaurants that serve special options, advice on which immigration status to apply for, lists of tradespeople, etc. Unlike realtors in Canada or the USA where most people are looking for a larger or smaller house – a good realtor in Baja should provide lots of tips and information to people seeking to relocate here. Often buyers are new to Mexico and ask about safety, crime, health care, grocery stores, organic markets, construction methods, roofs and waterproofing, water filtration systems, septic fields, putting in a pool, landscapers, surveys, bank trusts, immigration. They should also be able to help you with (general) on immigration, car importation, health and dental care. For technical areas, always get legal advice as a realtor – no matter how good – is not qualified to answer technical questions.

When representing a seller
A seller’s agent works for the seller. To do so effectively, there are many things to be done even before a property is listed. A strong sales agent will read the complete Fideicomiso or Escritura to make sure the property and building is indeed the same one in the paperwork, that measurements are noted, that there is a lot plan or boundaries identified, that the price in pesos is stated at the exchange rate of the date purchased. They will send the Title to the lawyer in order to consult that everything is in order and that there are no liens, unpaid taxes or HOA fees not up to date.

Your realtor should be able to give you an idea if capital gains taxes are likely to be payable. And if so, he/she should refer you to an attorney or to a Public Notary to determine exactly what capital gains tax is payable. There are often items that the seller will have forgotten to include, such as immigration status/principal residence, facturas for work done, adjusted tax base, etc. which the lawyer or Notary can use to possibly reduce any capital gains tax payable. Knowing that your net result is important, be sure that your realtor is taking potential Capital Gains Tax into account when calculating a sales price.

A good sales agent is registered on the Multiple Listing Service (MLS) platforms, as this is the most important sales platform in our ‘world’. The MLS platforms also provide an extra layer of protection for both the Seller and the Buyer as all information that is posted must be reinforced by a listing or purchase agreement and the agents and brokerages are subject to fines should their listings have misleading information. It is a safe guard for both buyer and seller. Furthermore, buyers can happily surf the MLS when looking for properties in Baja. Many homes are sold by buyers identifying properties they like, while surfing from their homes in the USA or Canada.

Hopefully these tips will help you research and choose a good realtor when considering buying a home in this beautiful part of the world. It is TOO important a decision to leave to just anyone. You need a good realtor to be on your team!

Written by Gregory Bórquez

**More information about the Purchase Process available upon Request**

The La Paz Real Estate Boom of 2020

2020 has been a tough year to say the least, with Covid changing life as we know it. Baja California Sur was affected along with the rest of the world and our behaviours have changed. We closed down our cities and restricted access to our world-renowned beaches, we also implemented new rules such as mandatory masks in public places, temperature checks and lots of antibacterial gel at every business entrance. It hasn’t been an easy change, but living by the beach even if closed part of the time, has made it much more bearable.

The real estate market of La Paz never experienced the expected downturn in sales as many people had predicted, due to Covid. La Paz went through an unexpected surge of sales during the quarantine and during the re-opening of the city. This is largely due to the high quality of life that La Paz offers and the great ocean view properties that it has in its inventory. And yes, ‘sheltering in place’ is a lot more pleasant when doing it with an ocean view and fresh, warm air.

La Paz is also considerably cheaper than many other cities in Baja California Sur, it is very rare to be charged in USD and restaurant prices are inexpensive. Having tracked a couples’ spending for a few months we came to an average of $1,800 USD a month for two people which includes everything from your electricity and internet bill, gas for your car, restaurants twice a week, beach trips, household and garden help, property taxes and much more. This of course is based on a particular couple who are big foodies who enjoy traveling around Baja trying all the delicious restaurants and activities on hand.

As the USD presented a significant advantage over the Mexican peso at the start of the quarantine, we saw many people seeking to retire in La Paz all of a sudden being able to afford their dream retirement homes, because of the strength of the US dollar. These buyers were able to capitalize on the discount that the exchange rate provided while the seller received a full priced offer. This was very positive for the market as it helped a lot of sellers get strong offers and also allowed buyers to get significant discounts. This stimulated the market significantly and La Paz will continue to grow economically throughout the rest of the year. The peso continues to trade at a favourable rate of 22 to 1 USD and 17 pesos to 1 CDN dollar making purchasing Peso priced property very attractive right now for both Canadians and Americans.

Those who are seeking to invest in La Paz are able to make significantly lucrative deals as they are able to get great prices on properties with good locations and spectacular ocean views. Some of these properties will be renovated before they are rented and others are turnkey rental investments. These investments are low stress and low head ache properties where the investors can also enjoy the property for some months a year while still profiting on the rental income. What a great deal no?

As sales have soared we have seen the real estate inventory change significantly, more and more frequently when I call to book a showing the agent replies that the property has already been sold. The speed of the market can also be seen throughout the city and especially in certain desired developments.

Now that La Paz has reopened its famous oceanfront Malecón (boardwalk) and the many beautiful beaches surrounding the city, we have seen the life and joy of the city return. Although the city has reopened there are lots of new protocols in to protect its citizens and the tourists. One of the new protocols is a limited number of people are allowed at the beach. The beaches tend to fill up early and cause a bit of traffic, so get there early. Although some are upset at this limitation the city must do what is necessary in order to assure a safe environment for everyone. Re-opening safely has always been the main goal for La Paz. Masks are also mandatory in public places. While not everyone obeys, we should and we must, in order to keep La Paz open, for our pleasure and enjoyment.

As we enter the fourth quarter of 2020 we look back and see many positive aspects for those in La Paz both financially and socially. Many people were able to sell their homes for very good prices; others were able to fulfill their life long dreams of retiring to the beach despite being on a budget, others are looking to invest in a strong market while getting to spend some time in La Paz too.

It isn’t over yet… We expect a continuing strong market in 2020 and the Peso is still trading at an average of 22 Pesos to the USD, so some discounts are still available.

Gregory C Bórquez