After 12 years of vacationing in Los Cabos, my husband and I seriously started looking at buying a house in Cabo. What followed was a fairly quick search process, a fairly long closing process, and an adventure in renovation and construction. The output is my comprehensive guide to buying a house in Cabo. In this guide, I’ll share everything I learned about the area, the legalities of buying in Mexico, how to finance a home in Mexico, what to expect between offer acceptance and closing, and what the heck to do once you own the place. If you’re looking to buy a house in Cabo, this is the post for you.
Where to Buy Real Estate in Los Cabos
Los Cabos is an area on the southern tip of the Baja California peninsula in the state of Baja California Sur. It is made up of two cities, Cabo San Lucas and San Jose del Cabo, and the 20-mile “corridor” between the cities.
You will usually see real estate broken down in a few areas. Within Cabo San Lucas, there are several hot areas, including Pedregal, on the northwestern edge of the city, and Medano Beach, the main tourist beach in the city.
San Jose is the older, more colonial of the 2 cities, with older resorts and a lot of condo complexes.
My favorite area in Los Cabos is actually the corridor. You have easy access to both San Lucas and San José del Cabo, but without a lot of crowds. There are several amazing hidden neighborhoods in the corridor, including Cabo Colorado and Cerro Colorado. I have done long-term rentals in both neighborhoods and would move there if I had $3-$10 million to put toward a house…but that’s not the price range I was looking at, even for luxury homes in Cabo. They both feature a nearly private beach, simply because of the geography that it’s hard to get to these areas without specifically going to a house in the area. They are convenient to grocery stores, restaurants, and the hospital, but far enough from the highway that you don’t get road noise. They are in a gated community and I think they are the best-kept secret in the Mexican real estate market if you’re looking in the Los Cabos region.
A more prestigious area in the corridor is Palmilla, a neighborhood of mansions clinging to the cliffs and overlooking the ocean. It is beautiful there, but houses are close together and you are paying a lot for the name and reputation of the area.
After looking at several neighborhoods and homes in Los Cabos, I turned my attention to some of the more outlying areas, including East Cape (northeast of San Jose del Cabo) and the Todos Santos / Pescadero area (an hour north of Cabo San Lucas).
Spoiler alert: we loved Pescadero and Todos Santos more than anything else in the Los Cabos area, and that’s where we bought our new home. More on that later.
East Cape is known for good kite surfing, with stronger winds than you’ll find in other areas nearby. It is where all the locals go for weekend camping trips and to be in nature, so you know it’s got something good going on.
It’s also a lot more rural than Los Cabos, which has exploded in recent years into a full-fledged international tourist destination, and with rural life comes dirt roads, lack of infrastructure, and fewer amenities. That was actually exactly what we were looking for, but it’s something to be mindful of as you evaluate what your priorities are.
Todos Santos and Pescadero
North of Cabo San Lucas, you find Pescadero, and 15 km past that, Todos Santos. Pescadero is primarily an agricultural and surfing community, with a strong farm-to-table feel and few hotels. There are a lot of expats in the area, but they mostly own or rent long term. It is just hard enough to get to that it doesn’t attract too many tourists, and locals would prefer that it stays that way. It has beautiful beaches, large lots, and – for better or worse – a lot of new development, especially in the Cerritos neighborhood.
Todos Santos is a “pueblo mágico,” an adorable colonial town with cobblestone streets, boutiques, and a very boho chic vibe. Visitors here come for wellness retreats, creative escapes, and amenities without the hustle and bustle of Cabo.
In my search, I also learned that the Pacific side, where Todos and Pescadero reside, are ~10 degrees cooler in summer than Los Cabos, making it a lot more pleasant to be there in July and August than Cabo itself.
How to Buy Property in Cabo as a Foreigner
According to Mexican law, a foreign buyer that is not a Mexican resident cannot own land outright that is within 50 km of the coast or 100 km to a national border. That said, there is a straightforward way that Americans and other expats buy property in this restricted zone, which the government established rather than amend the Mexican constitution. This is called a fideicomiso, or bank trust. Most properties you would look at buying are already owned through a fideicomiso, and you would transfer the fideicomiso to your own name rather than establish a new one.
Fideicomisos are 50-year bank trusts, where an established bank puts the property in a trust that you wholly own and manage. You establish the trustees (yourself and any other owners) and your beneficiaries (in the event of your death). You pay a yearly fee to the bank to maintain your fideicomiso, and at the 50-year mark, you renew it for another 50 years.
If you purchase a property that is in a fideicomiso with time left on it, it’s even better for you – you don’t pay the setup fees of a fideicomiso, and you just take over the annual payments.
Setting up a new fideicomiso costs about $2000 USD, and – more importantly – if you switch from one bank to another for the fideicomiso during the sales process, you will have to pay a 4% sales tax rather than a 2% tax. This can be a lot of money for really no benefit, provided that the current fideicomiso is with a reputable bank.
To transfer the fideicomiso from the old owners to ourselves was $880 USD. The annual fee is $580 and our fideicomiso is held at Banorte.
Due Diligence When Buying a House in Cabo
When you find the perfect home and get an offer accepted in Mexico, you will enter due diligence. During this period, your real estate agent and team should help with the following:
- A survey of the property, to confirm that the boundary of the property is recorded and listed correctly
- A home inspection
- A title search, to confirm with the local government the ownership and rights to the property
Before these three things get underway, you will choose a third party escrow service and pay to set up escrow service for the property. We used Secure Title Latin America on the recommendation of our agent, and their escrow service fee was $700 USD. They provided instructions for us to wire the $700 + the 10% earnest money fee, and provided prompt confirmation of the funds when they were received.
Your contract with the seller should lay out the conditions of the diligence period. For ours, we had 30 days to complete diligence, with the ability to back out at any time during that period, for any reason, without losing any money (except the $700 to open the escrow account). All we had to do was notify the sellers in writing if we were going to cancel the sale during that initial 30 days.
This part was a bit nerve-wracking for me, but our agent reassured us multiple times that the escrow company would not release the earnest money without receiving our signed document releasing the due diligence and inspection contingency, and indeed they did not release the money until receiving that document.
We had to extend our diligence period several times, on mutual agreement with the sellers, because there were some issues with the title having been recorded incorrectly. The sellers had to track down the original physical copy of the title and provide it to the government to be recorded so that we could proceed with the sale. This slowed down our closing process by about 6 weeks.
Your agent should be able to recommend someone for the home inspection. In the Pescadero area, we worked with Ulysses Santillana at Arco Home Inspections. He was able to get us in quickly and provided a comprehensive, written inspection document for us to evaluate. He also answered follow up questions promptly. In early 2022, he charged $400. The survey cost $400 and the title search cost $450. All-in, our escrow set up and diligence costs totaled $1,950.
Minimizing Capital Gains on Property in Mexico
Just as in the US, you pay capital gains taxes on the appreciation of any real estate at the time of the sale in Mexico. To lower your capital gains, you can do a “manifestation,” or what in the US we would call “stepping up your basis.”
The way capital gains is calculated is to take your purchase price on the property, and deduct that from the price you sell it at. You pay taxes on that difference. So, if you bought a property for $100,000 and sold it for $250,000, you would pay taxes on the $150,000 in appreciation that you gained.
But, let’s say that you made some improvements to the home during the time you lived there. The improvements have to be big ones, like remodeling the home or making an addition. You can then add the costs of those improvements to your original purchase price, thus reducing the amount that you have to pay taxes. If you made $75,000 in improvements on the hypothetical house, you can document that and then only pay taxes on the remaining $75,000 in appreciation.
This can materially lower your capital gains, so most sellers go through this process if they have any improvements they can claim. You can claim these improvements in one of two ways – either you keep all the receipts, called “facturas” in Spanish, and add those up, or you work with a property appraiser to re-manifest the property and assess the value of the improvements. The manifestation may be able to net you more improvement value, so it is typically the way people go when selling a house.
This process took our sellers a long time, and it caused our closing date to be pushed out multiple times. The manifestation has to be recorded with the government before the closing can proceed, so it was a chokepoint in our timeline. However, we understood that it made the difference between them selling to us below their asking price and not, so we were happy to wait.
Capital gains in Mexico are calculated as 25% of the gross sales value of the transaction without any deductions, or on a sliding scale of 1.92% to 35% on the value of the gain after deductions. Residential gains over $250,000 pesos are subject to the 35% tax rate if you take deductions, so you are likely to be at the 35% rate. Mexperience has an excellent article for more on Mexican capital gains and ways to lower them.
The Role of a Notary
In a real estate transaction in Mexico, the notary, or notario publico, is the most important public official you will work with. This person is not like a notary in the US – they are a licensed attorney, and they are responsible for approving the sale and any deductions, coordinating with the bank, and recording the sale with the public registry.
Notaries are in short supply, and getting a closing date depends mainly on their schedule. Pack your patience and recognize that there’s little to nothing you can do to move up the close date.
Notaries are also one of the higher-cost line items in your closing process. Ours cost $4,250. On top of that, we paid $1,550 for an appraisal, a certificate of no lien, a certificate of property tax, and a letter from the water company required for the sale. The majority of this cost was the appraisal.
If you can’t be there in person for the closing, you can sign a power of attorney to let someone else, usually an attorney on staff with your real estate agent, act on your behalf at the closing while you stay in your home country. I actually intended to go to Mexico for the closing, but we got our date with very little notice, and I wasn’t able to get travel organized in time.
On a previous visit, my husband and I had both signed powers of attorney in the event that we would not be there for the closing, so we used those and the closing could move ahead with no delay.
We paid $1,850 to our real estate office for their help with the closing process.
Recording the Sale
The notary is responsible for filing the sale documents with the government. For Los Cabos, that is in Los Cabos. For Pescadero and Todos Santos, it is in La Paz. This process usually takes a few months, and the sale is not considered officially final until the documents are received and confirmed by the government. Your real estate agent should notify you when the documents have been recorded, and provide you with the original copies for your records.
The registration process cost $3,440 during our sale.
How Long Does it Take to Buy a Home in Cabo?
We started searching in earnest on a trip in early December 2021. I viewed several properties to start to get a feel for things. We planned to visit more during a late December trip, but we got snowed in and had to cancel. We viewed the house we eventually bought via FaceTime during this time, but weren’t too impressed with it and didn’t move forward.
I went on a scouting trip in January 2022 after identifying several high-potential houses. I was working with a real estate agent in Cabo, and a different one in Pescadero. Though both agents tried to get us to work with them across both cities, I’m glad we didn’t do that. There are a lot of differences in the markets, and someone who is an expert in one region does not necessarily have the relationships and knowledge that are necessary to get you the best deal in another market.
We made an offer in January 2022, the day I viewed our house in person. We went through a couple of weeks of negotiation on price, and went under contract January 20.
We did not close until August 11, almost 7 months after going under contract!
How to Finance a Second Home in Mexico
Contrary to popular belief, there are some financing options for Americans looking to buy a home in Cabo. We explored several options before landing on a pledged asset line of credit.
The main ways of financing a home in Mexico are:
- HELOC – If you own your primary home in the United States, you may be able to take out a home equity line of credit and borrow against the equity you have in your current home. This wasn’t a great option for us because we had recently bought our primary home and haven’t built up much equity in it yet.
- Personal line of credit – Some banks will offer a personal line of credit that can help you buy a second home.
- Pledged asset line of credit – This is the option we used. We evaluated options at Wells Fargo and Schwab (we went with the pledged asset line at Schwab). The way a pledged asset line works, you put money into an account at your bank or brokerage, which you can invest in equities. You can borrow up to 70% of the value of the equities and up to 90% of the value of any cash you leave in the account, so your money can continue to work for you while you borrow against it.
- Traditional mortgage – We found 2 companies offering traditional mortgages for homes in Mexico. They were Cross Border Investments and MoXi. For US citizens, rates at Cross Border Investments in 2022 (before any rate hikes started in the US) were 10.75% on a 25-year fixed rate mortgage with 40% down…so it’s significantly more than you’ll play for a US home loan.
If you have a temporary resident visa or a permanent resident visa in Mexico, there are other loans available to you through any Mexican bank, as well as through MoXi and Cross Border Investments. Those loans have better terms, but most Americans buying a home in Cabo don’t have residency already established.
What to Do After You Close
When you finish buying a house in Cabo, you definitely need a margarita – but you’ve still got some logistics to take care of as you ease into home ownership!
Depending on your location, you may need to take over utility payments. Utilities cannot be changed from the old owner to you until your sale has been recorded, so they will remain in the old owner’s name for the first few months of your ownership. They also cannot be changed over to someone who is not a resident of Mexico, so one owner will likely need to establish residency shortly after making your purchase.
The utilities will take payment from anyone, though, so you can pay even if they aren’t in your name.
In our area of Pescadero, we have CFE for electricity and SAPA for water. We do not have trash service.
The second thing we needed to figure out was our property tax payment. For us in the La Paz municipality, you can look up your tax ID on this website. You will need information from your closing documents and ideally, the most recent tax payment from the previous owner.
I personally found it super confusing to look up my number and figure out when I needed to pay taxes and how much. You have to choose the type of property you have, but nowhere on your papers does it tell you what your designation is. The choices are urban, suburban, rustic, and special. Through process of elimination, I learned that my property is “rustic.”
I had enough confusion that I would recommend clarifying with your notario during closing what taxes have been paid and to what point. In the US, we split tax payments between old and new owners, but in Mexico, you get a discount if you pay your property taxes up front for the year, so many homeowners will have already paid the taxes for the year and you won’t need to take over until the following year.
My Biggest Tips for Buying a House in Cabo
I learned a lot during our home buying process. One of my biggest tips is to find a real estate professional you trust, because this person will be an important guide as you learn the ins and outs of buying real estate in a foreign country.
My second tip is to be patient. The home buying process takes a long time in Mexico, even after you find the perfect property. And with as much demand as there is right now from prospective buyers, it’s hard to find a home that works for you that is also in your price range. There are affordable homes, but you may need to be flexible in your location. We personally wanted to find a spot that felt like Cabo did 15 years ago, when we first started vacationing there. That’s why we went north, where the pace of life is slower, the cost of living is lower, and there is still a sense of place rather than it being a generic vacation spot. Will it become that eventually? I hope not, but it might. With a hot housing market, an expanding international airport, warm weather, and easy access from the west coast of the US, it’s hard to see how Cabo doesn’t continue to draw visitors and buyers for a long time.
My third and last tip is to make sure you view properties in person. We did a virtual tour of the home we eventually bought, and based on that call, I had ruled it out. I only visited it because I had a free day in my house-hunting schedule, and I didn’t want to waste any time. I called up that real estate agent and asked if I could view it in person. I was stunned when I actually walked through it. The videos and photos didn’t do it justice, and I made an offer the same day.
Conversely, I had seen photos and done a virtual tour of a different home and had decided that was the one for us; again, without having seen it in person. We put a contingent offer on that house sight-unseen, stating that we could back out if we visited it and changed our minds. I did visit it, and I did change my mind. Since I got fooled both ways on virtual tours, I now counsel anyone to be sure you spend the time to go view something in person (if you are planning to use the house yourself). If you are buying purely for an investment property, seeing it in person wouldn’t be as critical. For us, though, we were looking for a house we could spend several months a year and eventually live in full time. Having a house that works for our family was crucial.
So there you have it – everything I learned about buying a vacation home in Cabo. I’ll create another series of posts outlining our learnings on doing construction on our house in Pescadero. Spoiler alert: there are a lot of learnings!! And if you’re interested in checking out our home, we rent Casa Colibri, which we feel is the best beachfront villa in Pescadero.