Self Directed IRA Real Estate Purchases in Mexico – SI or NO?

ventanamagazine.com
Author: Doug Jones - 2010


Many people these days are inquiring about the possibility of using their IRA 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 - an LLC name is not allowed. If you purchase through your IRA AND use a loan, the loan must be no-recourse back to the individual. All mortgage loans in Mexico are recourse loans. Therefore, it is not possible to use a loan AND your self-directed IRA. To summarize:

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, which does not require a fideicomiso. You will then also need to meet the strict “not for personal use” requirement of the self-directed IRA.

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. 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. Feel free to contact me with any questions you may have.