By Alvin Starkman, M.A., J.D.
We didn’t have millions in the bank when we decided to retire early and move permanently to Oaxaca. But we did have some savings and we sold our Toronto residence, which gave us the option of buying a home or building one in the state capital. We opted for the latter. On the other hand, many snowbirds and expats of reasonable means elect to rent. While the rules for foreigners buying on the coast are generally different from those inland, I’ll treat it as a non-issue, something which can be explained by a competent local notary public.
Let’s start with advantages of buying a piece of land and building on it. I’ll address readers who live in a fairly large city in the US, Canada or further abroad, where the cost of living is substantial. While it was recently reported in the media, surprisingly, that house prices in Oaxaca are higher than in almost any other Mexican city, buying a lot and building your own home is extremely affordable, more so than buying an existing one. In the state of Oaxaca you can afford to build your dream house, the mere thought of which would be pure fantasy back home. Furthermore, carrying costs are often as little as a tenth of what they would be in Toronto, New York, L.A., Tokyo, Vancouver or London. An affordable once-in-a-lifetime opportunity is the main advantage of buying a piece of land and building on it.
The issues, however, assuming you do not have the same contacts and experience as back home, include sourcing land with the view, services, neighborhood and clear title you want; finding a competent architect, project manager, and trades if you are hands-on; negotiating contractual terms which will be honored by all parties; getting the home built reasonably close to target date; and determining whether it will be your permanent residence. But there is nothing more exhilarating, once you have found the land and personnel, than working with your architect and sourcing building materials and finishes by traversing the state of Oaxaca, other regions, and of course looking at what’s available in and around Mexico City.
If you intend to be a part-timer, then I would suggest renting, or if you are attracted to the lifestyle in or around Puerto Escondido or Huatulco, then condo ownership. One must remember that Oaxaca is one of the poorest states in all of Mexico, and thus it is likely economic necessity that accounts for more home break-ins here than in First World countries. In our case, as residents in a semi-rural suburb in the city of Oaxaca, we never leave our home unoccupied if away for more than two nights, and we take precautions when out for just the evening. In fact, in private and often gated communities in the state capital, known as fraccionamientos, security is not the same as it is in the US or Canada. Medium or high-rise condos afford the best protection in Oaxaca.
Condo life has the same advantages in Oaxaca as it does back home. In addition, there is a vibrant, reliable and thriving rental market. Property managers and real estate agents are well versed in finding qualified vacationers interested in renting by the week or month. This income can easily cover carrying costs including financing through a foreign financial institution; the cost of borrowing in Mexico is prohibitive relative to that in the US and Canada.
But home ownership is over-rated by many. The rationale for the viewpoint is understandable. When moving to Mexico, be it as a permanent resident, or more importantly as a snowbird, renting can make an abundance of sense, and affords some of the advantages of condo living and home ownership.
Most expats in Oaxaca seem to be, let us say, a little older. We would soon be at a stage of life when we would begin to sell our single family dwellings with a view to cutting back on gardening and general maintenance tasks. We can sell our home, begin renting, and use the new-found liquid capital to live a little better in retirement. A Oaxacan condo rental removes those daily chores from our aging bodies. In a southern climate home rental has the added attraction of removing snow shoveling from our weekly if not daily routines a few months of the year.
I am acquainted with Americans and Canadians who rent in the city of Oaxaca 12 months a year, yet leave the unit unoccupied most of the time. It can be that affordable. An advantage is being able to do your own furnishing versus being saddled with the owner’s taste. In addition, the landlord may provide better treatment since he will not have the chore of finding tenants during slow season while at the same time having to honor the annual snowbird’s agreed upon dates.
But the main advantage of rental versus home ownership relates to what happens in the case of the latter when you decide to sell your Mexican residence, whether you bought it or built it. Current law states that when a foreigner sells real estate, the tax due and payable is 25% of the sale price, not of the capital gain. Yes, it sounds rather unreasonable. As a consequence, perhaps the most important aspect of negotiations between purchaser and vendor is haggling not over the sale price, but rather the sum that is disclosed to the authorities in the transfer documents. If you buy, and do not plan to become a Mexican citizen, make sure that you have a long term plan which enables the value of your property to appreciate substantially, thus enabling you to profit as values increase, despite your tax liability.
Alvin Starkman owns and operates Mezcal Educational Excursions of Oaxaca.