Monday, May 26, 2008

Buying Real Estate in Mexico

Once upon a time, I was between apartments in San Francisco. The shared housing scene was tight and I could not find a place to live. Some friends of means had a huge loft space up on Bush St., borderline between Pacific Heights and Japantown. They would be spending the next several months in their place in SoHo, NYC—would I be interested in house sitting their enormous, elegant loft for several months while they were away?

Of course I accepted, and greatly enjoyed spending the fall of '85 in that gorgeous spot. I've lived in many places both splendid and dismal since, but I've always wondered if I'd get another crack at “loft living”.

Here we are, almost 23 years later, and I'm sitting in a new construction modern boxy townhouse in urban Oaxaca—my wife and I just bought this joint, having finalized the deal last week. The place is big and rather sparse, but has stylish modern touches and just enough classic Mexican elegance (a nice inner courtyard with sliding glass doors on three sides!). Best of all, there is rooftop access with a safety wall that we plan on developing into another living space with garden, hammock, yoga area and perhaps even a Tiki bar.

Certainly this is a more rough and tumble neighborhood than the Pacific Heights/Japantown locale, but it's a more private street with less traffic than Bush St. in San Francisco; there is a hum & vitality here that is hard to match. This place is in point of fact the loft living I used to imagine for myself, located in the splendid cultural mecca that is the city of Oaxaca.

Oaxaca is the seat of a vibrant indigenous culture. The Zapotec and Mixtec peoples (among others) having been hanging around for several thousand years so far. Art is alive here, the markets burst with a wild array of local crafts–pottery, carvings, masks, weaving, paintings and more. There are galleries featuring a wide array of styles and sensibilities, and many outstanding museums.

To be a Oaxacan painter of note is a mark of honor and dignity. The respect and stature earned by the greats is traditionally paid back to the native village with the construction of parks, schools and museums as a natural gesture of thanks and community service.

The city was also the scene of a year of revolt in 2006, as a teacher strike widened to a general strike against the corrupt state government. Roving goon squads working for the Governor shot several demonstrators, and indeed killed Brad Will, a journalist from the United States. Ultimately, the federal government sent in forces to quell the rebellion and support the Ulises Ruiz, the Governor.

The feds paid lip service to protecting the people and keeping the peace, but no one was fooled by the rhetoric. It is a testament to the energy, strength and resourcefulness of the people of Oaxaca that the city has quickly sprung back from these dark days with a somewhat booming economy and cultural life. No one knows what lay ahead politically for Oaxaca. The teacher strike is a long standing tradition in Oaxaca. My understanding is that the government would usually throw them a bone, an inadequate pay increase. It was the new Governor Ulises who decided in '06 that the teacher strike needed to be crushed. As I write this in late May, the teacher strike for the year is on again in the Zocalo (town square), and who knows what will happen this time. Has Ulises learned anything? I doubt it.

I will say I feel easily as safe here, if not safer, than I did living in Oakland.

IN any case, having spent several months in Oaxaca in '97, Serena and I always knew we would return, but this adventure and commitment is far and away beyond what we could have imagined for ourselves, yet here we are. For us, this is a perfect environment for our shared adventure in creating a freelance, Bohemian life for ourselves and our little family. It's not lost on us that our expenditure of about $200,000 U.S. For this new house is less than half of what it would have run in Portland, Oregon where we most recently lived. I won't even speculate on what it would run in the Oakland where we had lived for many years, let alone San Francisco or New York.

As we are about to spend our third night in the new place, it's the perfect time to reflect on the whole experience of buying real estate in Mexico. Last week, we went to our Notario's office downtown to sign the final papers with the seller, and then it was off to the bank to fork over the bucks. Actually, it was earlier that morning we met our selling agent at the house for a final inspection, to see that our requests had been met before headed to the Notario's to seal the deal. Standing in the kitchen with my wife Serena, talking to our agent Luz, I slid into a crystalline mental acuity, a timeless hyper-awareness of the moment. Part of me was at a remove, observing the scene, commenting “Steve, here you are buying a house in Oaxaca, Mexico. How do you like that, motherfucker!?” Quite a bit, thought I! I felt intensely alive, delighted, surprised and a bit alarmed.

Where Serena and I are concerned, I am fond of saying that I believe I won the relationship lottery. We are truly simpatico—strikingly different people with many shared values and tastes, we have a shared sense of mission and routinely accomplish amazing stuff together. So it was no surprise to me to be standing next to this remarkable woman at the Notario's office that morning, buying a house in lovely Oaxaca de Juarez.

Time now for a brief breakdown of what it takes to buy a house in Mexico, and some of the differences with buying in the U.S.

Some folks reading this will wonder what we are doing in the office of a Notary buying a house. In Mexico, real estate deals are handled by a Notario. This is a very different position that a Notary in the U.S., the Notario in Mexico is more like a lawyer specializing in real estate transactions. They handle the title search and legal transfer of title, and the write up the buyer/seller agreement. I understand that the money usually changes hands in the Notarios office too, but more on that later.

We started the process of looking for a place in late February, having rented for about half a year, we knew we wanted to stay and were ready to begin the search. Our first step was to contact a great agency in Oaxaca, Tierra Oaxaca, run by a husband and wife team of Todd and Silvia. They showed us a number of outstanding properties both in Oaxaca and in the “campo”, the outlying villages. In fact, we offered on one place in Colonia (neighborhood) San Felipe del Agua, but got outbid, and consequently did not get the place.

Mexico has no equivalent of the Multiple Listing Service, so it soon became apparent to us that each Realtor has their contacts and listings that are finite. To get a true sense of the market, it is necessary to work with more than one Realtor. It's worth noting that Todd and Silvia have the commendable ambition to open up the Oaxaca market to the practice of sharing information among agents for the benefit of buyers, sellers and agents alike.

We went ahead and talked to several agents and saw many properties. Although some had great features, it was clear to us that the house we ultimately bought fulfilled the most of our requirements for living and work space (as we both freelance from home) and the location had both urban amenities and proximity to the kids' school.

The agent we bought from, Luz, is a world class character, an appealing combination of utter charm and charisma along with an intent hard sell approach that would do any used car salesmen proud. The first place she showed us was up on a dramatic hill in the fast developing Colonia Loma Linda. We dubbed this joint the Rock Star house. We loved it. It was a sparkling new mansion on a hill, tricked out with beautiful finishes. We lusted after it. The siting of the house and the view were spectacular. Now, this would be a 1.25 million dollar house in Oakland CA, where we lived for a long time. Here, they wanted about 270K for it. It was 70,000 dollars above our stated budget, but we actually tried a lowball offer on it.

No go. Sellers here in Oaxaca would rather sit on a property and wait for their price than sell low, it appears. I would say it's a mild buyer's market here. There are more sellers for sure than buyers, but it's not like the current downturn in the U.S., prices are still climbing here. This urban area is growing fast and the demand for housing is driving prices up. It's expensive by Mexican standards in Oaxaca, which is ironic as this is one of the poorest states in Mexico. But a growing population and a strong & growing ex-patriot population keeps prices headed up with a tight supply of land and houses.

No rock star house for us, we are relieved. We did not come here to live beyond our means. We spend a few more weeks looking around and we go back to our modern boxy loft with Luz several times. She is pressuring us to sign all along, but we hold her off. Finally, deciding this is the best place for us, we lodge a lowball offer and are rebuffed. Ultimately we get the price down from 2.3 million pesos to 2.1 million, but we were trying to get it for 1.85. Switching strategies, we asked for a safety barrier and staircase to the rooftop at the 2.1 million price, and the developer agreed! This will make it possible for us to create a rooftop garden/oasis in our urban townhouse.

Faced with a provisional verbal agreement, it was incumbent on us to execute a series of moves to seal the deal in the unfamiliar Mexican market.

We needed to repair to the offices of the Notario of our choosing to write up the Compra/Venta agreement (choosing a Notario—ask around for recommendations from Mexican friends and acquaintances), and we needed to put down some earnest money on the house.

Turns out in Mexico, for new construction, one is expected to plunk down a large chunk of earnest money. We take the plunge and agree to pay half up front, with the balance to be paid when the house is finished.

Any further negotiation that needs to take place happens at this point. The Notario wrote up a boiler place compra/venta agreement. We looked it over, showed it to friends, and reconvened at the Notarios office with the seller and gave a list of things we wanted to add to the agreement. As our seller is a decent man doing quality work, he had no problem with our additions.

The truly hilarioius and indeed hair raising part, the guy wants the down payment “En effectiveo”, also know as cash. How else can he avoid reporting the income??? So, away we go the the bank with him. We withdraw one million pesos in cash and hand it to him, a literal bag of cash. He stuffs it in his backpack and heads down the street with it. He made it home alive, as we soon see him again.

It's worth mentioning that our sales agent, Luz, had helped us open an account at Scotiabank, making it possible to transfer funds from the U.S. for the deal. To open a Mexican bank account, you need two Mexicans to vouch for you, and our agent and seller did just that. Without them greasing the wheels, it could have taken months to open an account. Luz marched right in, jumped the line and got the manager to give us VIP service. It's rather embarrassing to do this, but on the other hand that's just how stuff gets done here.

I need to mention also—as foreign nationals, we were required to apply for a permit to buy property in Mexico. As part of the permit, you agree to adhere to Mexican law in any legal dispute surrounding your property, you waive the right to bring any legal action under U.S. Law. This permit ran us four hundred bucks each, plus another hundred each for the Notario to handle the paperwork and application process for us.

The Mexican love of bureaucracy reared it's silly assed head here. My name on my six month tourist visa was listed without my middle initial. I had to jump through a few hoops, file some forms, pay a forty dollar fee and visit the immigration office two or three times and act contrite to update my visa with an added “J” for my middle name! Then I was able to successfully apply for a permit to buy property in Mexico.

Once we'd gotten the agreement done and paid the earnest money, it was just a matter of waiting for the house to be finished. “It will be done next week” stretched out to about five weeks, but indeed we felt it was done in good time. For sure, we had a couple meetings at the house making lists of things that needed attention for the house to be truly done. Naturally we had more leverage to get details fixed before we pay the balance!

Then, a couple more trips to the Notario for a provisional title document (The real deal, the Escritura, follows after a few months of red tape). We pay the balance (another huge bag of cash!), we pay the Notario the wild fee of a few hundred bucks, and we own our new casa in Mexico.

Oh—one more thing, there is a transfer tax. It is tradition to flat out lie about the value of the house, usually listing the value of the land alone, having done this we figure we will be hit with about a $1500.00 tax bill.

Now the next part of the adventure—who know's what it's gonna take to set up a phone line in new construction here, let the Byzantine process begin!