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The Lure Of Mexican Real Estate

Why San Diegans are looking south to invest in property

Why are San Diegans so interested in owning property in Baja California? In recent months this column has looked at issues surrounding Mexican real estate, including the regulations behind a purchase and the use of trusts to own property near the coast. Value is only one reason San Diegans are looking south for their real estate investment, and value is a good place to start.

What would you expect to pay in San Diego for a 1,500-square-foot, three-bedroom, two-bath condominium sitting on a high hill with a 180-degree view of the Pacific Ocean, Downtown San Diego, much of East County and Tijuana? $1 million is a good starting point.

In Tijuana, such condos start at about $150,000, which includes secured private parking with 24-hour security service.

What would you expect to pay for a three-bedroom, two-bath house with a yard just steps from the Pacific Ocean? In San Diego, prices are in the millions. Just south of the border, starting from the shores of Tijuana to Ensenada, houses like this are available for $250,000 to $500,000, depending on size and location.

Soaring real estate prices in San Diego are helping surge interest in Baja property. It is possible for a San Diegan to sell a 1950s, 1,200-square-foot home for more than $500,000 and purchase a larger home with ocean views for half that price.

Yet the move is not for everyone.

Families with school-age children face challenges that include the logistics of getting to and from school in San Diego. With border crossing times unpredictable, a much earlier start to the commute is mandatory, cutting into sleep time. It also raises questions about the eligibility of students to attend public schools without being in a family that contributes local property taxes.

The Baja lifestyle works best for empty-nesters and retired folks who have no need to make a daily trek across the border. Yet it also attracts working people priced out of the San Diego housing market or who just want greater value for their dollar.

Those commuting to jobs in San Diego have grown skilled at dealing with border congestion by adjusting their commute times and using the fast pass SENTRI system. They also live with the reality of unpredictable delays.

Still, such inconveniences are worth the benefits that come with the change of pace living in Mexico delivers.

A San Diego businesswoman who lives at the Rosamar housing development south of Rosarito moved there after spending 11 days in the neighborhood vacationing with friends. I had never felt better than after our 11 days in Mexico, she says. We loved the people; we loved the music; I particularly loved the pace, a stop and smell the roses pace. We loved the food and we loved the place.

Before buying in 1994, she and her husband talked to others living in Rosamar and made sure to closely follow Mexico’s real estate laws.

The importance of strict adherence to the established system of purchasing property in Mexico is borne out in a letter to The Connection from a resident of Cabo San Lucas at the southernmost point of Baja California Sur. In that instance, a number of individuals were defrauded by Americans acting as agents in Mexico who steered about $750,000 of property purchase deposits into unsecured escrow accounts.

In this instance, the mistake was not having the escrows handled by a bank chosen to act as the trustee of the property purchased under a fideicomiso. Absent the bank acting in such capacity, the chosen U.S. title insurance company could have assisted. At a minimum the Mexican attorney, or notario, should handle the escrow.

The accused Cabo San Lucas agents took advantage of their client's lack of knowledge of Mexican law, fooling them into believing the broker's office was a bonafide escrow company in addition to a real estate brokerage.

I thought I knew all the risks of buying in Mexico don't buy in Ejido lands, don't let the seller get any funds until capital gains taxes are paid, beware of underreported transfer values, don't buy stock in companies holding real estate without paying attention to capital gains tax issues, be aware that real estate agents are not licensed and that a U.S. company name means nothing, wrote the man. I did not know, however, that Mexican escrow agents are not bonded.

The roles and responsibilities of those licensed to be involved in a Mexican real estate transaction will be the topic of a future column. In the meantime, play it safe and work with a banker, attorney and title insurance company. Beachfront living or sweeping views is a worthy reward for your efforts.

Patrick Osio Jr. can be reached at patrick@transbordercommunications.com