Why you Benefit if you Invest in Cozumel Land Now

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Why Invest in Cozumel Land

The essence of any good investment is that it pays a nice return over some period of time. For land investments, that usually means the market price of the land increases over some reasonable period of time with relatively low carrying costs. Cozumel land fits both these criteria. First, as pointed out earlier, property prices in Cozumel are driven by real population growth, not government manipulation of the markets. There is government intervention in Mexico to be sure, but the results are different here. The governments actions have largely been to keep the pace of development slow and steady, and to at the same time protect the beauty of the island. The zoning law the went into effect in January of 2009 maintains that stance, and it is unlikely to change for a long time. (It took over three years just to get passed in the first place!) When you put this together with the fact that contract law (on which property ownership and transfer depends) is strongly and fairly enforced in Cozumel, the property market outlook for Cozumel is likely to be very stable for the foreseeable future. The local land owners know this, and that is why prices have only been slightly affected by the hurricanes of 2005 and the world economic problems. People who come here looking for bargain prices get quite a shock when they find out prices are largely the same as they were four years ago in spite of what has happened here and elsewhere in the meantime. Even land owners who may very well need cash at times will usually not lower the asking price for their land. They know they very likely can get more in the future. In this respect, land in Cozumel is a store of value, like gold.

Taxes tend to be fairly low in Cozumel, especially for vacant land. Liability laws are also very different than some other countries, such as the USA for example. If someone enters a property here, trips over a log, and gets hurt, the burden of proof is on the trespasser to show that they did everything they could to avoid the hazzard in the first place. So it is more difficult for friviless lawsuits to be filed against land owners in Cozumel, and liability insurance is less necessary. Foreign owners do have extra carrying cost for land ownership as explained below, costs for a trust or corporation to hold title to the land for them, and for various fees and special taxes. Foreigners also have to pay a lawyer and accountant to keep their VISA and trust or corporation up to date, in compliance with any changes to the law, and all taxes paid. But all of this usually amounts to only about $1200 to $2000 USD per year, which is much less than in many other places.

However like other places, costs are slowly increasing in Cozumel too. Here are some additional details about taxes related to property sales that the author posted on the www.cozumemycozumel.com website.

"There are two taxes required for sellers who sell a property in Cozumel and show a gain rather than a loss: The capital gains tax called ISR (Impuesto Sopa de la Renta) and the Cedula tax. These taxes are paid together at the time of closing at the notario's office. The Cedula tax was originally supposed to be deductable from the ISR, but that is not the way the law is actually being enforced. The ISR can be as high as 33%.

It used to be that seller was exempt from ISR if you could prove with utility receipts that you owned and lived in the house for 6 months and you could show you were in good legal standing (had a legal trust to hold title to your house, etc). Now the wait for an exemption is 5 years, and the rules are becoming stricter to get one.

Also in the past, if you had and FM3 or FM2 VISA it was possible to reduce your ISR or capital gains tax significantly from 33% to 15-20% in most cases. The formula for calculating ISR is very complex, but a number of deductions were possible, including the real estate commission. In the past year, this has started changing and is a bit of a moving target. The government is watching more closely and the notarios are not quite as flexible as they used to be in these areas. Recently, some tax attorneys have said that FM3 VISAs are no longer helpful to reduce these taxes.

For capital gains taxes, the same exemption that locals get has been applied to foreigners after 5 years of ownership---up to this point. The standard of proof for home ownership for foreigners is an FM3 or FM2 VISA with the property that is to be exempt listed as the address of the owner. However, earlier in 2009 a notice was sent out to all the notarios by the Hacienda (Mexican IRS) that foreigners may be required to pay capital gains tax anyway, if the majority of their income comes from the US or other foreign countries. It is currently an open question as to how and when this new policy will be enforced, but it is likely that it will be stricter. (Note: As of 2012, the immigration law is changing - see visas below for more information.) The tax law enforcement is now stronger than it was, but people who have followed the law are still qualifying for exemptions. So check with your attorney and/or accountant to find out the status of your own situation, if you own property in Cozumel.

Another factor is this: As time passes, it is very likely that the property value assessed for property taxes (impuestos prediales) by the Palacio will double for most properties in Cozumel . Evidently, there was a moratorium against such increases in effect for the past few years, but that is now coming to an end. This will impact both property taxes and capital gains taxes in the coming years in various ways. In the last few years, some property owners have seen moderate tax increases, but many others have not.

The allowable deductions for capital gains taxes are for improvements to the property and the real estate commission, in the case of a sale through a realtor. However, the improvements or commission must be proven with a valid factura from a licenced real estate broker and must be in the name of the home owner who is the seller. And, this factura must have the address of the property being sold. In addition, for commissions to be deductible the homeowner is now also required to put their personal Mexican Tax ID on the factura. The R.F.C. number from their FM3 or FM2 VISA is no longer sufficient by it self. This new requirement could be a problem for some people who have VISAs, but no personal Hacienda tax ID number. (It is also important to keep in mind that people involved with real estate in Cozumel who are not associated with a licensed broker cannot provide the valid factura needed as proof for the commission deduction. Ensuring this valid factura is provided is part of the value-add of an agent who is associated with a licensed broker.)

Since each property sale is different, lawyers and notarios may find exceptions to the law as it applies to the details of each seller's individual situation for capital gains. So it is currently not clear how these new policies will be applied. However, given this more strick new tax climate, it would seem to make good sense for every seller to find an accountant and a tax lawyer to provide them with professional advice and help them figure out the most favorable tax scenarios for them individually, before selling a property. The best professionals are the ones who know the intimate details of the law, the tax policies, and how they are currently being enforced.

The key thing here is to consult with tax professionals and investigate your individual capital gains tax scenarios before you list your property for sale. Once you sign contracts, the obligations of those contracts can greatly limit your options. "

If you decide to invest in Cozumel land, be sure to find a meticuous, honest lawyer and accountant to help you with your investment. Land is a real asset, and like gold, it costs something to own it. In Cozumel, also like gold, land tends to hold its value. It has for many years in the past, and should continue to for many years into the future.

Why is Now a Good Time to Invest in Cozumel Land?

It is important to note that Cozumel has very little crime because it is well protected by federal, state, and local officials. This especially applies to tourists and the 10,000 or so foreign residents who live here along side approximately 80,000 Mexicans. The Mexican and US navies as well as the US Coast Guard patrol the waters around Cozumel. US Coast Guard cutters and US Navy ships visit Cozumel frequently. Drugs are not a big problem here like many other places in Mexico, nor is drug violence, though it has been slowly increasing. The island is so well protected because Cozumel produces a lot of income for Mexico, the Mexican government does not want that to change, and the President of Mexico has a home here that he visits regularly.

Recent problems of the world economic situation, drug violence along the US/Mexico border, and the flu scare of a couple years ago have slowed the economy of Mexico and Cozumel, so land prices are flat for the time being. Some have actually gone down if the owners are desparate for money. There are probably a few more property owners more likely to sell their land now than a couple years ago. Those are the deals to look for.

Another reason this is a good time to buy land in Cozumel is that in spite of the recesson with its very slow recovery. There are also millions of so-called "baby boomers" in the US retiring, and many will choose to retire in Mexico in the next few years. This means that now is the time to buy land while prices are flat to lower---ahead of the likely surge in population that will likely come as the recovery improves. It is the time to sub-divide it into lots, and prepare it for devopment. Out of all those millions of retirees from the U.S. and Canada, only a couple hundred need to chose Cozumel as the place they want to be to make a handsome profit from reselling an improved investment property in the future. Moreover, the necessary improvements can be done easily for a relatively small cost. But like most things in Cozumel, it takes time to get done because of the slower pace of life on the island, probably a year or two for the whole process. So now is when you should be considering investing in land or other property in Cozumel because the timing is about right for the next round of growth.

Options for Living in Cozumel if you Invest in Developed Land

Renting: Some investors may want to stay in Cozumel for a while as they set up their investments. (Ah, such a problem to face...) An appartment in town with A/C can be rented for about $2-300 USD per month. A 2-3 bedroom home in town without a pool can be rented for $500-800 USD per month, and a home with a pool for about $900-1500 per month. Homes and condos on the beach rent for $1500 USD per month and up.

Owning Property in Cozumel: Contrary to many rumors, it is legal for foreigners to own property in Mexico. The property deed or title merely needs to be put into a trust, which is somewhat like a Living Trust in the USA, except that is managed by a Mexican National bank. Larger properties can be legally owned by a Mexican corporation, the stock of which can be fully owned by two or more foreigners. The most important thing for foreigners who buy property in Mexico to remember is to carefully manage their investments. Contract law is strongly enforced here in Cozumel, but as anywhere, that only works in favor of a property owner if he or she is careful to continuously monitor their investment to make sure everything about it is in 100% compliance with federal, state, and local law. (Note: In other parts of Mexico that are more than 60 kilometers (about 37 miles) from a coastline or 100 kilometers (about 62 miles) from a national border, this requirement does not apply.)

The easiest way to buy property in Mexico is with cash. Mortgages are available in Mexico, though the rates are a couple points higher than in the US. Though interestingly, there are fewer defaults in Mexico compared to many other countries, and that means residential mortgages are a good business for the bankers, which include foreign banks such as Citicorp, HSBC, and Bank of America (through its partnership with Santander). Several mortgage companies will offer loans for undeveloped land, and there are some non-mortgage loan options too, such as loans from stock you may own.

Buying a Condo or Home: Purchasing a condo or a home in Cozumel is not very different from doing so else where. You can pay cash or get a mortgage, though as mentioned above, interest rates a a couple points higher than in the US. Check out the following examples of condos, beach front homes, and the view's they provide their owners of the Carribean Sea.

The wonderful Caribbean ocean!

Spectacular views!

Solidly built homes

Late afternoon at the beach

Ah, a Cozumel sunset...

Buying Land to Build a Home: Most lots in Cozumel are relatively small, 10-15 X 20-30 meters (approx. 30-60 feet). However, that is large enough to build a nice sized home with a pool or a garden or both. Land in Cozumel varies in price depending in the location, as anywhere. For the following, keep in mind that a square meter is about 10 square feet. Rural land is $2-50 USD per sq meter, in town land is $50- 300 USD per sq meter, on or near the beach land is $300-1000+ per square meter, and in city commercial zones in Cozumel $500-1500+ per sq meter. So for example, in town you can buy a 350 sq meter lot for $40,000 to $300,000 USD depending on the neighborhood, but in a more rural area you can buy a 20,000 sq meter forested lot for about $80,000 USD, or less than $5 USD per sq meter. The problem with rural land is that most of it is in huge pieces of 50-70 hectares (250-300 acres), which have no services, and the owners do not want to subdivide these huge lots.However, this also makes the larger lots an excellent opportunity for investors because subdividing and putting in access roads is exactly the kind of improvements that will make this land more valuable.

There are, however, a few places where smaller parcels can be found, such as Mariposa Estates, a residential development on the southwestern side of Cozumel. Building costs for a turn-key finished home range from $1200-1500 USD per sq meter, or $120-150 USD per sq foot, depending on the contractor and building materials. Home construction takes about a year from architectual drawings to a finished home. Much of that time is for the permit process, which takes a few months because an environmental study is necessary to determine the impact of the "footprint" of the new construction on the forest. Here are some examples of what country living in the Cozumel forest is like.

A future forest driveway

Yes, there is electricity in the forest of Cozumel in Mariposa Estates, or you can go "off-grid" with solar and wind power.

Finished driveway and transportation to the beach!

Future home site

Future garden

Garden path with shaded flowers

Tropical hardwood in bloom

Tropical plants

A well and palapa house under construction

A different palapa house completed

A hot tub for chilly winter nights!

Ah, what a relaxing place for morning coffee...

Moving to Cozumel: Once you have the right visa (see visas below), you can move to Cozumel very easily, should you decide you want to be here on the island to manage your land investment directly. You can even bring your pets (with a valid health certificate from a vet within 10 days of your departure) and most of your belongings duty free. You can drive down with your belongings, have them shipped by truck, or by container out of Miami or Galveston. Any moving company that ships internationaly can give you the details.

Registering a Car: You can drive a US car to Cozumel and legally drive it here as long as you have a valid US driver's license and registration, and a FMT, FM3 or FM2 VISA from Mexcian Immigration (Note: The immigration law is changing - see visas below - foreigners who are Mexican residents may no longer be able to keep foreign plated cars). If you have an FM3 or FM2 you can easily get a Mexican drivers license too, and that can make it easier at traffic stops. You will have to buy Mexican liability insurance, but that costs less than $200 USD per year in most cases (rental companies provide insurance). The biggest problem is that very few parts are available in Mexico for cars built for sale in the US, so if you plan to live here for a long time, you are better off buying a car in Cozumel. The prices are much lower than in the US. A brand new small car can be purchased for less than $10,000 USD.

Options for Working in Cozumel

Jobs: If you decide to stay in Cozumel long term, you may need a job. There are not many jobs in Cozumel that pay wages US or Canadian workers are used to, except selling timeshares perhaps. But that requires a special kind of sales-oriented personality that most people don't have. And all jobs here are seasonal and depend on the number of tourists that arrive and their willingness to spend. So don't count on the local economy to make you rich. On the other hand, you can make survival wages here depending on your needs, or you can start a business on the Internet, and potentially do very well.

Starting a Business: On the internet, you could run a US company from Cozumel. Or, you can form a Mexican corporation and do business in Mexico, or both. Many people who have invested in property in Cozumel have done just that. The main advantage of having your own Mexican company is that you can then sponsor your own FM3 VISA (see visas below), and not be dependent on your employer for your visa, which you could loose along with your job. Business customs are very different here, as are tax laws and accounting practices, so if you start a Mexican business you will need a trustworthy Mexican lawyer and accountant too. But there are opportunities here to make a reasonable living with your own business in Cozumel. One business that could be profitable is hydroponics or aquaponics (raising plants and fish together). Both can be done here because there is plenty of fresh water and a need for garden fresh vegetables and fresh fish. There is also excellent medical coverage for very reasonable ratess and with a deductible of only about $600 USD per year.

VISAs and Citizenship: For many years you could move to Cozumel for a short time using a standard FMT VISA or tourist visa. The immigration office at the airport usually gives 180 day (6 month) visas as their policy. If you fly out and return just before it expires, you will get another 180 day visa when you return. So you can stay as long as you want that way, if you don't plan on working or buying real estate. If you do, then you need a FM3 VISA to enable you to legally sign documents, retire here with a retirement FM3, or work in Mexico as a non-resident. Your FM3 must be renewed annually. After 5 years, you can get a new FM3 or a FM2 VISA which makes you a resident of Mexico. After 4 more years, you can apply for Mexican citizenship. However in 2012, much of this changed.The following website has an excellent explanation of the new Mexican immigration law, as well as many other interesting topics.


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Rojo Vivo Consultores, S.A. de C.V., Cozumel, Q. Roo, Mexico