Many Americans and Canadians considering retiring or investing south of the border often wonder whether there are any actual advantages to property taxes in Mexico. What are they like and are there any actual benefits to putting my hard-earned money there? Before getting into that you need to answer three questions:
- Do you like paying high property taxes?
- Do you like high insurance premiums?
- Is the high cost of living putting a burden on your retirement plans?
You should have answered no to the first two questions. You could relieve some strenous annual expenses by moving to Mexico. If you didn’t have to forfeit a large portion of your income to property taxes and housing costs, you would have more money to spend on other things like traveling or savings.
Low Percentage Property Taxes
So, what are property taxes like in Mexico? Well, first things first. They are called predial and they are usually paid annually. When you purchase a property in Mexico you pay several advanced fees that greatly reduce your annual tax bill. This is a good thing. It reduces your annual tax percentage to 0.1% based on the sale value of the property. Tax laws access the previous year’s valuation of your home in the United States. This makes you pay a prorated property tax amount. From then on you pay a tax bill that is levied on the value on your property’s assessment annually.
In America, property taxes go from as low as 0.27% and climb all the way up to an astonishing 2.4% in certain states. Approximately 25 states pay 1% and above on taxes on their home’s assessed value. Hence, it’s quite understandable why American has more than 14 billion USD in unpaid property taxes a year.
United States vs. Mexico
Let’s do some simple math. On a $250,000 USD property in the United States, using 1.3% as an average levied tax, you would potentially pay $3,250 USD annually for property taxes. After five years, if the tax rate and the property’s assessment stay the same, you will have paid $16,250 USD. In ten years, that amount could reach well over $32,000 USD. This is only if your property doesn’t get assessed at a higher value.
Now let’s compare property taxes in Mexico. When closing on a property, the cost to the buyer can reach up to 4% of the purchase price, and another 27,800 pesos or an equivalent to $1,500 USD. Part of the closing cost includes a 2% property tax transfer fee and $1,350 USD to set up the bank trust fund. Let’s again use an average purchase price of $250,000 USD. This, by the way, gets you a pretty nice home in Playa del Carmen or Tulum. For the purpose of the comparison, let’s say the final closing cost is $11,350 USD and the annual tax bill is $250 USD. These two figures added together (including five years of taxes at $250 USD) and divided by 5 years equals $2,520 USD annually. After five years, the annual tax bill due is a mere $250 USD.
An Affordable Life
As far as insurance premiums go, that all depends on how much liability protection and replacement costs you want to be responsible for. We would estimate an average annual premium of around $600 USD plus or minus a few dollars. In comparing the two estimated annual property expenses, after five years, your Mexico home will cost you very little in taxes and insurance. This alone will provide more disposable income to do whatever you see fit. The cost of living doesn’t always have to be burdened with the high cost of a property. Forfeit a little more cash up front but gain a lot on the back end. Combine all this with Mexico’s general affordability and the peso to dollar exchange rate and your retirement or investment couldn’t look any better.
And remember, at Top Mexico Real Estate…we make it happen!