Tips and Tricks for buying property in San Miguel de Allende

[TRANSCRIPTION]

Greg Gunter:

We’ve got some great tips on being able to buy luxury real estate in San Miguel de Allende. There’s some little ins and outs that you need to know, but that’s what we’re here. We’ll educate you about the whole process.

Maya:

Hi, viewers. Welcome back to another video. I am Maya, your interview host for Berkshire Hathaway HomeServices here in San Miguel de Allende in Central Mexico. Today we’re interviewing Greg Gunter. He’s the broker and co-owner along with his business partner, Alma of the [inaudible 00:00:26] Berkshire Hathaway HomeServices office here in San Miguel de Allende in Mexico. Welcome, Greg.

Greg Gunter:

Good morning, Maya. It’s a gorgeous day out there. Let’s have some fun with the viewers today.

Maya:

Yes. It’s a gorgeous day and today’s topic is very interesting. Today we’ll be talking about investing in luxury real estate. Greg will share with us some tips and tricks for buying property here in San Miguel de Allende. So Greg, why don’t we start by telling our viewers briefly, what’s the appeal of San Miguel de Allende as a real estate investment location?

Greg Gunter:

It’s always nice to invest where you love to be. That’s the fun thing about the appeal of San Miguel de Allende. You can buy a rental property in Chicago or Miami or someplace that might get you a great rental return but not so much fun to visit. So if you were to buy something here that was really more of a rental property, that’s the wonderful thing is it’s a great place to come and visit and write off your trip. But a lot of our buyers are actually buying to come and spend some time here.

Sometimes they move here full time. Many clients move here and they spend a third or a half a year here and then they’re back up in the US. And the appeal about that from an investment perspective is that you’re investing in a market that appreciates very well. So we’re like the coastal properties of the United States. You’ll always get really good appreciation. We’re a kind of Rust Belt or Bible Belt prices, but we have the appreciation of coastal markets. So that’s really the biggest appeal of San Miguel de Allende as a real estate investment location.

Maya:

And Greg, let’s share with viewers why they should invest specifically in luxury real estate.

Greg Gunter:

We really cover the full range in San Miguel, I have to be honest with you, but we probably have, in the United States, only 7% of the market is the luxury market. And here in San Miguel de Allende, it’s about 16% of our market that we consider to be the luxury level market. The benefits of especially the luxury market, they tend to be in better locations, they’re more expensive, obviously, which means they tend to be in better locations, so they appreciate a lot more.

Our appreciation in San Miguel de Allende can range from about 20% in Centro in good years to peripheral neighborhoods that are further away and not walking distance that might only appreciate 2% a year, for instance. So that’s a tenfold difference depending on the location for the appreciation. And the luxury market tends to be in those better locations. So that’s part of the reason for that difference.

Talking about the potential returns and stability of luxury real estate here in San Miguel de Allende, again, I just talked about the returns. In good years, we can have a double-digit easily into the 20% market. Let me share, viewers, with you a specific statistic. Okay? I just resold a home that I had sold 42 months prior. Okay? I just sold about three months ago. I had sold it to the sellers. I was representing the sellers previously three and a half years ago.

These new buyers of mine just bought it 42 months later at a 52% appreciation. Okay? In 42 months it had appreciated 52%. This is a central home, so great location. Remember, of those 42 months, 12 of those months were a COVID year and we were decimated during COVID down here in San Miguel. Nobody wanted to buy anything, so we couldn’t give properties away during COVID.

So that’s a great appreciation. That’s one antidote example of the great appreciation even with one bad year of COVID. So again, that’s the luxury real estate market. That was a 1.25, no, $1.275 million home in Centro. That’ll give you kind of a feel for that appreciation. And if we wanted to highlight why San Miguel de Allende is such an attractive location for such investments, again, it’s we’ve been named a number one city in the world five times by Condé Nast Traveler and four times by Travel + Leisure, and we’re a UNESCO World Heritage site.

We’re only two hours away from Houston and Dallas from the United States, or a three-hour direct flight from LA for instance, or San Francisco. So that’s really why we’re such an attractive location for these investments. We’re easy to get to. It’s easy to get back to family and business if you need to.

We’re in the middle of Mexico, so the weather’s phenomenal. That’s another great reason why it’s attractive, but the investment return is really good. So this is a great market to be looking at luxury real estate as opposed to, for instance, coastal markets where you’re just buying a condo. That’s a whole different market. San Miguel is much more of an upscale market that appeals to that upper demographic.

Maya:

Yeah, it totally is. Thank you so much for sharing. And why don’t we help our audience, Greg, understand the San Miguel de Allende real estate market better. Could you bring us up to date in that regard?

Greg Gunter:

Sure. So San Miguel, we are driven a lot by the United States, where a lot of the buyers here are American and Canadians. So we follow the United States trends and the US, the real estate market has been down for all of 2023, ironically, mostly because of the mortgage rates there. Nobody wants to sell a home and buy a new one because they’re going to be paying triple the mortgage.

Down here, no one has a mortgage. Everyone tends to buy all cash. But nonetheless, that overall mood for a depressed real estate market sort of works its way down to San Miguel as well. So we have had a slow market for the last year. All of 2023 was a slow market. We anticipate that it will pick up a bit more in 2024. There is more enthusiasm and more optimism in the residential real estate market at least.

So as long as you don’t have a lot of money in the office market, let’s hope you don’t have any money in your office REIT because that’s not going to work very well. But there is a lot more optimism in the residential market, and so we know that that’s going to overlap here into the San Miguel de Allende luxury real estate market as well.

If we were to highlight some of the key trends and factors influencing the market, again, it’s a positive post COVID market here that is seeing some really good appreciation. So that’s the wonderful thing. We didn’t have the wild fluctuation that markets like Tucson and Boise had in the United States that tripled in value and now they’re realizing the biggest drops in value there in those particular markets. We never have that kind of dramatic up and down effect here in San Miguel de Allende.

We will have down markets like last year, and all that meant here was simply that the negotiating range was a little bit higher. If for instance, the negotiating range for a central property would’ve been 2% in 2022 and 2023, it was probably more like four to five percent. So that’s kind of the way that our market is affected by when it slows down in the United States.

If I were to share some examples of luxury properties in the area, gosh, I can give you the full range. At the very top of the market, let’s talk, at the very top of the market just to give you a sense, especially for you coastal viewers that are coming from California. I have the most expensive listing in the entire city at $7 million. It’s actually 6.995. And it’s the most expensive city or most expensive listing in the city because it’s a Starchitect home.

It’s a Ricardo Legorreta home. He’s famous. He’s like a Frank Lloyd Wright of Mexico, for instance. So he’s a very famous architect. Another of his listing or his homes is for sale in the Beverly Hills area in California, and it’s 52 million. I have one listed here for 7 million. So that’ll kind of give you a feel for the comparison and rates. That’s an ultra luxury.

So that’s at the very high end of the market. However, it’s very easy to find a property in the… our luxury market starts at about 500. So it’s very easy to find homes in the 500 to million and a half range here that are just phenomenal. They will provide triple to quintuple the value of homes coming from the coast, especially from California, New York, for instance. Sometimes Florida. Florida will be about triple the value. And the difference is that everything here is handcrafted.

Nothing comes from a box. It’s all handcrafted. So the quality of the home that you get here in San Miguel de Allende is far outstrips the quality of a home that you get coming from Home Depot and everything comes from a box in California. I’ve seen a $4 million, I had a friend that has a $4 million tract home in Irvine, California, a tract home.

Everything’s plastic and fake and it’s amazing, fake stone and the stucco is not real. And $4 million will buy you a phenomenal, we almost never sell $4 million homes in San Miguel de Allende. I just sold a $3.2 million listing and it was the fifth-highest home sale in recorded history in San Miguel de Allende. So that’ll give you a feel for the values here. We seldom have homes that top three million or three and a half million dollars.

Maya:

Yeah, there’s so much value when investing in San Miguel de Allende.

Greg Gunter:

That’s right.

Maya:

And well viewers, listen up, we’re going to ask Greg to share some tips for investing in luxury real estate. So go ahead, Greg. We are all ears.

Greg Gunter:

Okay. Well, it’s really important to do thorough research and to really understand the market here in San Miguel de Allende. And the reason I say that is because we have no real MLS here like in the United States. And what that means is then you also have no Trulia, no Redfin, no Zillow, none of those tools are around to give you, we don’t even have a county clerk and recorder’s office to go down and research the owner of a property or what they paid for it.

That’s not possible here in Mexico. So it’s really critical that you work with a licensed realtor that has a lot of long history in the market. They can tell you what a home used to be worth, what it’s sold for before. I just shared the comparison, for instance, the home that appreciated 52% in 42 months. I shared that with my buyers. I told them the history so they knew exactly what they were getting into.

They knew they were buying a property that was going to appreciate dramatically and that was really important to them of course. So make sure that you work with a realtor that has a lot of good history of the market and hopefully of the properties as well so they can tell you a little bit more history about it. If we were to talk about the significance of location or property type, the old rule in the United States is location, location, location.

Everybody’s heard that. It’s kind of old news by now, but I have to tell you that’s probably triplely true in San Miguel de Allende because values can change dramatically from one, literally from one block to the other. It’s that dramatic. Location is really critical. I mentioned a little earlier in today’s interview that appreciation rates can be as much as 10 times difference between neighborhoods.

The basic rule is the closer you are to the heart of town, which is our town square, and here it’s called the Jardin, the better your appreciation, the better you’ll be able to rent it for, the higher your occupancy rate will be for renting it. So it’s that kind of walking distance equation that sort of gives you the better appreciation. That’s the significance of the location.

The closer you are to the Jardin, the town square, the better. Property type wise, things like, factors like a single level living home. In other words, a home where you can primarily live on one level where the master suite is down on the main level with a living dining, that’s a good resale factor for instance as well. So you’ll get better appreciation and better resale for that type of property.

If we were going to highlight the importance of professional advice and consultation, again, it kind of gets back to that realtor. The realtor, a well-connected and a licensed realtor with a lot of good history is going to have great connections to refer you to. So as a buyer, you’re going to want to work with the best legal team and the best Notario in town. And of course you’re not going to know that. So that will be a referral that comes from your realtor.

You’re also going to want to have a Will, so you’re going to want to have a good legal team that will help you from that standpoint. You’re going to need a property inspection. You won’t know who to hire for a property inspection. So again, that’s why it’s good to work with a realtor that has a good database of property inspectors. I have a list, for instance, of about five different property inspectors that I use because we can be a busy market, so they’re not always available.

So I kind of work my way down the list from the best to the lower down the list depending on who’s available. So all of those referrals will come from your realtors. So it’s really important that you have a good realtor that can provide that kind of consultation. Tax advice is also extremely important, both, well, really more from a seller’s perspective.

You want to lower your capital gains tax as much as you can, and your realtor can help you do that through their legal team. So you want to work with a realtor that has a really good legal team with great expertise and assisting with capital gains tax, for instance.

Maya:

Yeah. That’s-

Greg Gunter:

Now, if we discuss financial considerations like budgeting and financing options and return on investment, I talked about appreciation, I really didn’t talk about return on investment. But if you have a rental home here, we can offer low double-digit ROIs for rental properties here. I’ve had properties that have as much as a 14% ROI. We have a condo complex here that occasionally has resales in it that have a lock off unit.

And because you’re buying the equivalent of two rental units in one, those can offer up to a 14% ROI. A good value and a good neighborhood that’s walking distance that will offer a high occupancy and a better nightly rate can also offer a double-digit, might be closer to 10 or 11 percent, something like that. A more expensive home, it’s going to be a little bit lower of an ROI, but you’re certainly going to be better than a mutual fund.

So that’s the wonderful thing about our market. We get 3 million visitors in the good years. Pre COVID, we get a ton of visitors that come. And so the rental opportunities for your property are tremendous from an ROI standpoint. Let’s touch base real quick on financing. Everyone seems to think that you can only buy homes in Mexico all cash, and that’s not true. We now have a new option.

We’ve always had Mexican banks that would lend money, but at what we would think of as Americans, is a usurious rate. It’s extremely high. Mexican bank loans for mortgages can run 14 to 15 percent. We now have a good lending option here in town that’s regulated by both the Mexican government and the American government, and they raise a lot of their funds from United States equity pools.

So they can buy down the rate to less than the federal funds rate in Mexico. That still means that in today’s mortgage market, and today is, by the way, for those of you viewers that aren’t aware of the date, were in January of 2024, the Mexican mortgage rate from this company that I’m talking about would run about ten and a half percent. So as you can see, there’re going to be about 300 basis points more than a loan in the United States.

But it’s a good option if for instance, you knew that you were going to have a cash coming in from a sale of a property or you had an inheritance coming in a year or something like that, that’s a good opportunity to be able to secure a property. You can get a short-term rental, I mean, a short-term mortgage that could be like a bridge loan for instance, and maybe pay it off in a year or two years.

So it doesn’t really matter that the interest rate is a little bit higher because that’s a good way to secure a property. So all of those are really good tips. I’d love to chat with you personally about more of those though, because there’s a lot of good personal insight that could turn this into a two-hour video and we don’t want to do that. So give us a call if you have any questions.

Maya:

Yes, of course. Well, thanks Greg. I think our viewers will find those tips extremely, extremely valuable. And now that you touched on the legal aspect, why don’t we give our viewers some insight into navigating the legalities and paperwork of buying a home here in San Miguel de Allende?

Greg Gunter:

Sure. One of the first things to know, and I don’t think we’ve mentioned this in this podcast yet, is that you own your home fee simple here in San Miguel de Allende. You own it. Your name is on the title, your name is on the deed, so you own it outright. Unlike coastal areas, when you buy a condo or a home on the coast in Cabo San Lucas or Puerto Vallarta or Mazatlan or [inaudible 00:18:00] or any of those places, even Tijuana and Sonata, those places you don’t actually own the home. It’s through a bank trust is how you hold ownership of the property.

Here, it’s fee simple ownership, so you get a deed with your name on it. It’s important to know that closings here are done with what’s called a Notario, and they are the equivalent of a title company and a closing company rolled into one entity. So the Notario does all of the title search for you. Now, even then, if you wanted, you could still get title insurance, but hardly anyone, I’ve never had anyone do that.

I mean, I’ve had one client in my 12 years of doing business here that thought he wanted to get title insurance and the title company did the search and they said, “Oh, there was a sale that occurred in 1964 that was missing a signature. It’s not really completely valid. We are going to accept that from the title policy.” And he goes, “Why would I buy title insurance if they’re going to accept it?”

So you can get title insurance here if you want it, but the Notario is the same thing as getting title insurance because he is required by law, by federal law because it’s a federally appointed position, he’s required by law to ensure that you are receiving a property that is free and clear of any liens or encumbrances and has a clear chain of title. So that’s the job of the Notario. If I were to share some tips on how to navigate the paperwork and bureaucratic processes, again, it’s work with a really good realtor.

You want to make sure upfront, very early on before you put money into escrow, that you do a no lien certificate search. So for instance, within the first 72 hours when I work with a client, we demonstrate to the buyer that there’s no liens against the property, that it’s free and clear and it’s a completely safe property to buy. They know that from me and all of my team way before money goes into escrow. So those are important aspects to understand when you’re navigating the bureaucratic process here.

Another somewhat bureaucratic process is what’s called the SRE permit to purchase property as a foreigner here. Work with a good team that will make sure that that happens in a timely manner because that has to happen before closing. And now that we’re post COVID, those offices haven’t restructured the way that they were pre COVID, and that process takes a lot longer than it used to. So you want to make sure that you’re working with a realtor and a legal team that’s on top of that, and they get that done quickly enough to make sure you can close in our pretty standard 30 day closing timeframe.

And lastly, we might highlight the importance of hiring a local real estate lawyer, or really more importantly, again, I hate to reiterate this, but it’s the most important thing, hire a very proficient and educated and experienced realtor, someone that’s licensed. Remember, not everybody here is licensed, so you want to hire someone that’s licensed and preferably with a franchise that has a good reputation. So they will then in turn, put you in touch with the best legal team.

So they will be the ones that put you in touch with the legal team that are representing you for the closing process. They work with the Notario, they assist with doing the title search. They will do all of the legal paperwork. They can do the Will for you. They process that SRE permit that I talked about. All of that is controlled through the legal team. So really critical to have a great legal team. And that referral, of course, is going to come from your realtor. Your realtor that works with Warren Buffett is one of the best ones to work with.

Maya:

Of course. Wow. Greg, thank you so much. What a great, great conversation. We talked about, well, first, why it’s a good idea to invest here in San Miguel de Allende in luxury real estate. And also you helped us better understand the San Miguel de Allende real estate market and share some really, really great tips for investing in luxury real estate.

And well also, it’s really important how you walked us through the legalities and paperwork involved in the whole process. Remember viewers, there are both benefits and challenges of investing in San Miguel de Allende luxury real estate market, but Greg has covered them both. You can give us a call. We’ll be happy to explore this more in depth with a [inaudible 00:22:39] call, isn’t right, Greg?

Greg Gunter:

Sure, of course we’d love to. A lot of this is a little bit complicated enough where it’s also always helpful to do something like that face-to-face. And I always love to schedule Zoom calls with clients. They can kind of meet me personally. We’re in Mexico and you’re up in the United States or Canada so it’s always kind of nice to make that introduction with your realtor, whether it’s me or one of my team members, face-to-face through a Zoom call. We can walk you through all those kind of questions that you might have and get you a better comfort level with introducing you to the process here.

Maya:

Exactly. So feel free to reach out. And viewers, I would like to encourage you to like, share and subscribe for more real estate investment content. We release videos like this on a weekly basis, so if that’s something you are interested in, please hit that subscribe button. And well, thank you again, Greg, for this great conversation.

Greg Gunter:

Great to chat with you again, Maya. Fantastic. Always, always enjoy it. Hey team, subscribe to the channel. Make sure that you catch these videos. I’m going to see you again next week. We’ve got a better topic next week. You’re going to love it. Take care, team. Bye-bye.

Maya:

Until next week, Greg. Bye-bye.