A friend of mine here in Mexico, Doug Jones just wrote quite an interesting article regarding Self Directing IRA s. I thought it would be good reading for you interested in Mexico real estate and options available for your purchases.
I have been receiving many inquiries recently about using your self-directed IRA to purchase real estate in Mexico. Can it be done? You can purchase with your IRA if it is strictly income producing property and no personal use (no leeway on this), and if it is in the interior of Mexico where no fideicomiso/bank trust is required for foreign nationals to purchase property in Mexico. The problem of purchasing using a self-directed IRA is when a fideicomiso is required. By Mexican law, all foreign nationals purchasing in the restricted zone in Mexico require a fideicomiso. The restricted zone is 100 kilometers from the Mexico border, and 50 kilometers from the ocean. This means that a foreign national (i.e. US and Canadian citizens) needs a fideicomiso/bank trust unless they purchase in the interior of Mexico – areas like Lake Chapala/Ajijic, San Miguel de Allende etc. All lenders who are doing loans in Mexico require a fideicomiso EVERYWHERE in Mexico. This is a lender requirement, not a Mexico government requirement.
To purchase real estate property through your self-directed IRA, the property must be in the name of the LLC that is set up. When purchasing with a loan in Mexico, title MUST be taken in individual names. Taking title in an LLC name is not allowed. Therefore, it is not possible to use a loan AND your self-directed IRA.
Additionally, all USDollar residential mortgage lenders in Mexico will not do loans on investment property – loans can be done only for vacation/second homes. People may choose to rent out their homes in the future, but again, this is personal use/rental of your property would be at cross-purpose with the requirements of the IRA purchase. With the self-directed IRA, the property MUST be an income producing property and zero personal use (not even one day) is allowed. The IRS is monitoring this very closely for self-directed IRA’s.
- Bottom line, there is no way to purchase a property in Mexico with both your IRA AND a mortgage loan in the restricted zone of Mexico (which is where most US and Canadian citizens choose to purchase).
- You cannot purchase property with 100% cash from your self-directed IRA in the restricted zone because this requires a fideicomiso. To my knowledge, there are no fideicomiso/trust companies (banks primarily) that will allow the beneficiary of the trust to be in the name of the LLC/IRA – a requirement of the IRS when using self-directed IRA’s to purchase property – the property cannot be in the name of the individual which is how the fideicomiso needs to be created.
- Your only option to use your self-directed IRA to purchase real estate in Mexico is to purchase in the interior with 100% cash. This is the only transaction in Mexico that won’t require a fideicomiso. You will then also need to meet the strict income property/not for personal use requirements of the self-directed IRA.
As Doug states, “If you are interested in purchasing in Mexico and cannot use your self-directed IRA, I can do a loan for you with 25% down plus your closing costs. Interest rates currently start at 6% and interest IS tax deductible on US tax returns as a second home, and possibly as a rental property for Canadians. We have all the reliable USDollar loan programs available in Mexico. We can also pre-approve you for a loan BEFORE you write a contract if you prefer.”