#1178 – The Expat Files: Selling Property in Latin America, Taxes, and Political Frustrations

Automatically transcribed from the original recording; names and wording may contain errors.

[00:00] You know, with most gringos and expats, we'll have a plan B in Latin America. Eventually, I'd say 80 to 90% of them end up buying some land or a house or some property or a business. And that process is easy enough as long as you have a decent lawyer because, you know, here in Latin America, there are no title companies or title insurance. It's your lawyer who will investigate the history of your property to make sure it's legal, the taxes have been paid up, and there's no liens against it. Easy enough to buy stuff down here, you just put it in your lawyer's hands. Even if you go through a real estate agent like Sentry 21, yep, they got them down here too. And there's RE-MAX. You still should get a hold of your own lawyer to review the contracts. But when it comes to when you want to sell your property, it's a completely different thing. Let's take the example of a gringo or expat owning property in Mexico and now

[00:47] wanting to sell said property. Man, I'll tell you, it's really convoluted. To explain the problems and how difficult it is, long time listener Greg sent me an Yucatan news site outlining how an expat gringo company has popped up called Plano.Earth. They're trying to use blockchain technology, you know, the basis of cryptocurrencies and DeFi and all that, to try to untangle the ever more crazy process of selling a home or property in Mexico. I know, I know, right now you're probably thinking, how bad could it be? Well, pay attention. So let's outline the present problem of trying to sell a property in Mexico with an actual case study that's thoroughly confusing. And even if you are very fluent in Spanish, it's bound to make you crazy if you ever had to go through it yourself. And if you got your plan to be going down here, you just might.

[01:35] By the way, I'm getting most of this info from an article that has the title, expats create a blockchain company called Plano that has plans to streamline the complicated process of selling your home in Mexico. And I'll paraphrase here. It starts off, in 2009, Brent bought a home in Meridia Centro, Meridia, Mexico. The house was a small ruin that sat on one of Meridia's typical long lots. He paid 60,000 US dollars for it. Alongside his partner in the coming years, they renovated and tripled the size of the home, greatly increasing its value in the process. Fast forward 12 years and then late 2021 last year, the couple decided it was time for a change so they put the house up for sale. So Brent went about figuring out what documents he needed to gather to get himself organized to sell the place. Meanwhile, his real estate agent said he should relax until he closed a deal

[02:24] with a buyer. But Brent had heard stories from other gringos about how it took months and months to close and that when they did, they received huge tax bills on the capital gain. The biggest question of all was how much would he be expected to pay in capital gains? Today, the renovated property is worth about 10 times what they paid. On paper, that's a huge gain. But factoring in the cost of renovation, it wasn't so much. But how and who would work this all out? Would the government do it? Could they be trusted to get it right? And what capital gains would he eventually owe? From researching online, Brent couldn't tell what his capital gains would be. Depending on what he read, the answer was anywhere from 10,000 to 100,000 US dollars. The unknowns made it pretty scary. All the advice he read online said he should seek a professional

[03:09] in the real estate business to figure out his assessment. So he tried. His first stop was, again, his real estate agent. But with recent rulings being changed, even the realtor didn't know. They said you wouldn't really know until the deal was done. Then the government would present you with a tax bill. Nice, huh? Then Brent tried contacting lawyers. They all wanted to work with him, but said only after he got a firm offer from a buyer. That too seemed very odd. He still had no idea what the true capital gains would be before the sale. It was a big unknown. The situation was extra complicated because Brent had renovated. In such cases, sellers need to demonstrate the cost of their renovations so that they can be deducted from the gain in a property value. But in order to do that, the government wants facturas.

[03:56] You know, official sales records for materials bought and labor done. Problem was, Brent did not have any official invoices or facturas. He renovated the place in 2009 before the introduction of electronic facturas that you could submit online. So then how was he supposed to prove the expenditures? Turns out, closing on the sale of a house or property has always been a chore for sellers. Sellers need to gather a lot of paperwork. In Mexico, this means finding a lawyer to assist with the gathering of that paperwork. And from there, both the seller and the buyer need a notario to actually execute the deal and record the new ownership property with various government agencies. A notario is a notary. Unlike in the States, in Latin America, not every lawyer is a notary. So what are the fees you pay when you sell a place in Mexico?

[04:46] Well, both your lawyer and your notario incur a cost to the seller of between 2 and 4 percent of the overall value. That, in combination with the real estate agent fee of 5 to 6 percent. Again, paid by the seller, it could add up to a hefty sum, up to 10 percent of the sale price. On the buyer side, there is government property taxes, based on the value of the property and ranges between 2 and 6 percent in Mexico. However, recent changes in the law that came into effect in early 2022 are making it harder still to close on a property. In a decent period of time and with any efficiency. For example, new state laws in Yucatan and elsewhere require each sale to be registered at its appraised value. And most properties are not evaluated or appraised at the present market rate in the government files.

[05:33] The government is also tightening the process around what they call the Plano Catastral, the document you receive from the municipality showing the official boundaries of your land and property. Many of those documents are very old and don't meet the new standards. Which means in many cases, since they're updating the system, the municipality will send surveyors to your home and reassess your boundaries. And you'll pay for that too. And they're not going to come tomorrow or even next week. After all, it's the land of manana time. So expect extra costs and delays. What makes things worse and even more complicated is that the new rules around appraisals are catching sellers off guard. Before the new rule went into effect in 2022, the value recorded with the government previously was often much lower than the actual amount that changed hands. For example, longtime Meridia real estate agent Keith Heatkey

[06:21] had clients recently who bought their house for $400,000 US dollars. But on paper, the registered value in the municipality was only $200,000. Now that they're going to sell it for $500,000, their capital gains is $300,000, even though their house only appreciated $100,000 since they purchased it. Easily costing them an extra $50,000 to $75,000 capital gain tax assessment in the process. Why is that? Well, because in Mexico, there are two tax options when you sell your home. After itemizing any allowable deductions, you will pay 35% of the net profit or capital gains to the Mexican government. Yep, you heard right. 35%. Or you can elect to pay a straight 25% of the gross amount of the sale without using any deductions.

[07:07] Are you getting this? If you sell a home or property in Mexico, you either pay 35% of the capital gain or 25% of the gross sale price. Your choice. Some choice, huh? In any event, and in regards to the previous case, the seller now faces a tax bill of close to $100,000 just because of the much lower recorded value of the property at the time of the previous purchase. Bottom line, with a new law requiring recording of all property at full value, sellers are unaware that they may be in a situation where huge additional taxes do. However, they almost never find that out before they reach a deal with the buyer. They find out and get that sticker shock a few days before the closing when there's no time to do anything about it. The effect being that recently, many sellers are forced to pull out of a deal

[07:53] at the very last minute to give them time to try to reassess their situation and hopefully reduce their tax liabilities, if that's even possible. Those conditions are creating strains on law firms and real estate agencies who now advise their agents to schedule closings at least three months out. Even suggesting four and five months out would be more of a sure thing. Yikes. Wow, imagine that. Selling your place and not closing for four or five months. Hell, who knows what could happen to either of the parties in four or five months. Things could change and scuttle the deal in a hurry. Who knows, one or more could be dead, divorced or without a job or dead broke. That's reason 2,426 why it's not a good idea to move to Mexico or at least don't buy and sell property there.

[08:40] Then, the article states, Mexican real estate agents are saying their clients are very frustrated and angry with the situation. You think? They don't understand what the long delay is all about, but there's no use fretting or trying to get things pushed up. It's just not going to happen. When you deal with government and new layers of bureaucracy, it is what it is. That's not all. To make matters worse, there are problems with buying a property using an uncomplicated plain vanilla trust called a Fide Comisos in Spanish. I always have trouble with that word. Fide Comiso. Something like that. Anyway, in the old days of five or six years ago, when a seller owned their property with a trust, Fide Comiso, it was a simple matter to just transfer the trust to the new buyer. That's part of what using a trust is all about, making it easy to transfer property.

[09:26] Well, as of late in Mexico anyway, not so. With the new laws in effect now, banks are demanding that the old Fide Comiso, the trust, is to be voided and a new one created for the buyer. And instead of taking the usual four weeks to complete at the cost of around a thousand bucks, the trust, the Fide Comiso, is now taking up to six months to produce, costing up to $4,000 with the cost being split between the buyer and seller. So, with all the additional new costs and frustrations mounting, many professional property flippers in Mexico are considering leaving the business, which probably is a good thing. Everything has its unintended positive consequences, too. Yep, that's right, property flippers. They're all over the place in Mexico. But only, guess where, where the gringos have flooded in.

[10:12] Yep, that's what you get when the gringos start piling in. By the way, that's something you almost never see off the gringo tourist trail, property flippers. Why would they be anywhere else but on the gringo tourist trail, since flipping properties only pays and only makes sense. In a market where you've got green, starry eyed gringos continuously piling in. The thing is, most fresh green gringos have FOMO on the brain. You know what that is, right? Fear of missing out. FOMO. F-O-M-O. Anyway, back to Brent and the house he's put up for sale. Four months after realizing he needed to get himself organized, he was still working on that problem. That paperwork, land survey, and capital gains problem. It was so tedious and complicated, that's when he decided after talking with friends in the real estate industry to come up with a brand new kind of real estate business model.

[10:58] He calls Plano, P-L-A-N-O, means plan in English, with the goal of making it easier to buy and sell real estate, hoping to cut the four to six month process in half. His company Plano wants to drive the cost down too by creating an assembly line for getting the documents created, signed, and recorded. Using, as mentioned in the beginning of this rant, the blockchain process. Delivering all those services online with a web app, cutting out lawyers and a number of other intermediaries to save sellers money and time. Once again, isn't it funny it takes a gringo to come up with an idea like that? You long-time listeners have heard me say this many times. Gringos who end up getting into business down here almost never would have predicted which business they ended up in. Most often, businesses are created by gringos who find a niche,

[11:47] or they recognize something is lacking in the market, or there's a definite demand for something they need themselves, and they turn that need into a business. Alright, so that was an example of how difficult it is to sell a place in Mexico. What about other Latin American countries? Well, it's pretty much the same, regarding the fact that the municipalities are trying to bring all the property values up to present market value. They're woefully behind on that process. The only places in Latin America where they're even nearly up to present market value is in the big cities. In the medium and small towns and out in the boonies, it'll take years. For example, a friend of mine bought a house in Guatemala for $130,000. In a really nice, somewhat older, gated, guarded subdivision, about five minutes off the Pan American highway on the road to El Salvador,

[12:33] he bought the place from an old, retired Latino couple. And when the buyer's lawyer went down to the municipality to find out what the tax assessments were going to be, he found out when they took out the permit to build a property about 25 years earlier. The recorded value of the place was around $12,000 US dollars, way below market value, even back then, 25 years ago. But people inscribed the lowest price possible. Now, my gringle buddy who bought the property wanted to keep that assessment at $12,000 because that's the basis they used to calculate yearly property taxes, which for him were around $120 a year. Yep, $120 a year. Here's the problem though. My gringle buddy bought the place around three years ago, right before COVID. When he sells it, if he sells it or if he dies and it has to be sold by his estate,

[13:21] there'll be a capital gains tax due to someone somewhere down the line. However, unlike Mexico with its 35% capital gains tax, Guatemala's is only 10%. And your lawyer, if you have a decent one, will help you get those deductions to offset the capital gain. And those facturas, you know, to drop the basis even farther down, those legit receipts for improvements and work done. If you have a good lawyer, he can help you out with those too. Oh, and another thing, because Guatemala's way off the tourist trail and many other Latin American countries are too, lawyers know how to bend the laws to the limit. For example, if you look up the individual income tax for Guatemalans on the internet, you'll see it ranges from 5% to 25%. Yet, I don't know of a single Guatemalan, even a professional making big bucks, who pays more than 5%.

[14:10] How is that possible? You tell me. This is Latin America, you know, but we're talking about Latin America off the gringo tourist trail. It's a place where you might face gringo prices on occasion if you don't know any better, because obviously you'll stick out like a Thor thumb, but the governments themselves are not out to gouge gringos. Not intentionally anyway. There's just not enough of us to go around. Not worth the effort. All right, yank in the wheel a bit here. You might remember in a show a month or two ago, I asked for some listener comments on things like choice of topics. Am I repeating myself too much? You know, just general comments critique of the show. Am I going too far off topic? Am I going off the rails? Well, maybe it's intentional or not. After all, I've been doing the show for about 12 years now and lots of new listeners have come on.

[14:56] Anyway, since I asked for a little feedback, man, I've been getting it. Let's start with this one from longtime listener Ruth. She says, Johnny, love the podcast. Been listening since approximately 2012, 2013. I'm a big fan. Yes, you can repeat yourself, but things change. So I always appreciate the updates that go along with the topics. What I don't care for much, though, is when you read those long, long letters from other people. Your rants are far more interesting. Personally, I'd love to hear about great vacation spots you've stayed at and recommend. That would be fun to hear. Meanwhile, she says, I thought you'd enjoy reading this Wall Street Journal article I've attached. I guess after reading it myself, I've heard it all now. Signed, Ruth. Well, thanks for that, Ruth. And I will put the great vacation spots I recommend

[15:43] on my to-do list. All right. So she attached this Wall Street Journal article. And after having a look at it myself, it really is. Reason 5226, why it's time to get the hell out of Dodge while you still can't. So what's it all about? Well, it talks about how now that the lockdowns are over and people are returning to their regular jobs, going into town, commuting in. It points out that at the height of the pandemic, pets enjoyed almost constant cuddling, playtime, and petting because their owners spent so much time at home. And now that life has returned to almost normal. Pets are freaking out, having massive psychological issues due to separation anxiety. As a result, thousands and thousands of pets are now on pet anti-anxiety medication. Others are turning up in droves to pet spot treatment centers

[16:29] with pet meds and online pet pharmacies saying prescriptions filled for anxiety medications for pets have shot up 26% since 2019, the start of the COVID lockdowns. The online pet store reports that they've filled prescriptions for more pet anti-anxiety meds in the past year than in the entire past decade. Pet owners are even buying human-sized dummies who they clothe with their own personal effects than it's placed in a chair or sofa as a substitute to help soothe the pet's anxieties. Let's not forget those tens of thousands of Zoom calls each day from the owners at the office to their distraught, psychologically fragile pet back home. Pretty sad, Ruth. It's beyond sad. No wonder most Latin Americans think those gringos are more than a little touched in the head.

[17:17] In fact, I think if I translated this story into Spanish, printed copies, and handed it to average Latin Americans on the street, they'd think I was lying. They'd think I was making it up. By the way, when I was in university back in Chicago, a lady friend of mine who lived alone had a Doberman. When she graduated college and got a day job, the Doberman started blocking her exit in the morning, wouldn't let her out. Yep, the dog had a severe case of separation anxiety. She'd have to trick it every day or she couldn't get out. It would get pissed and start to growl. No doggy psychologists or doggy psych meds back then. So she had to get rid of it. It was her fault. Come on, you don't have a big dog like that in a small Chicago apartment. Some might say it was the dog who should have got rid of her. Speaking of dogs, I don't know if you heard this or not. But according to nutritional experts

[18:04] at the University of Michigan, who created a standardized way of assessing the nutritional impact of almost 6,000 foods, according to that study, every hot dog you eat shortens your life by 36 minutes. That means my brother, you know, the stem cell poster child, should have died 46 years ago. Yeah, he'll be glad to hear that. All right, speaking of very long, maybe too long emails. Sorry about that, Ruth. I just have to read this one. Well, it's not that long. It's all about a particular listener and his wife, getting out of Dodge, moving to Latin America, and there are reasons why. This one comes from Renny, R-E-N-N-E, from Kalamazoo, Michigan. Wow, Kalamazoo, I've been there. Used to be the home of Epiphone guitars,

[18:50] the cheaper line of Gibson guitars. They were in Kalamazoo till 1970, then they went to Japan and China, Taiwan. That's when the quality took a dive too. The ones pre-70 made in the States are much better. By the way, you probably don't know this, but every single Gibson guitar is made in the US, as opposed to the other expensive, iconic brand named Fender, they're made all over the world. Anyway, Renny from Kalamazoo Zoo says, Johnny, I got a girl in Kalamazoo. She's my wife of 31 years, and we're soon to be out of Dodge, finalizing the details now in a move to Antigua, Guatemala. We were, however, planning to move to Nicaragua, but changed our minds. Our friends live there in San Juan del Sur. We've been there a few times and liked it. It was going to be our plan B based mostly on the fact that we have American friends there, and that's a kind of functioning network to lean on.

[19:37] Both my wife and I speak very bad Spanish, a two or a three out of 10. In the last year or so, our friends are saying that the blush is off the rose for Nicaragua, although San Juan del Sur is a nice place to live and out of range of the terrible politics and happenings in the capital of Managua. It's still unsettling to know that there's sort of a dictator in control that journalists and college activists have been disappearing. The independent press outlets have been shut down, opposition party members have been jailed or have gone underground, and protests and gatherings in the capital are met, often with brutal force. The writing's been on the wall for a long time and my friends in San Juan del Sur say they no longer recommend Nicaragua as a viable plan B. They recommend against visiting Managua, the capital, 150 miles away, although they still recommend San Juan del Sur

[20:25] because it's little affected by the bad government politics centered in Managua. Basically, the farther you get away from Managua, the less people care about politics. Still, we don't want to live in a place that's ruled by a dictator. You probably know that Ortega changed the constitution a while back, eliminating term limits, allowing him to run for president forever. And since he's pretty much outlawed all the opposing political parties, he's president for life. And when he dies, the vice president steps in. That's his wife. It's a family affair the dynasty will carry on. Now for my list of why I want out of Dodge starting with Anthony Falsi, the Benedict Arnold of American public health. You might think it's a good thing that he's announced his exit from the scene this year to pursue the next chapter of his career, he says, which I think we'll start with telling the warden

[21:10] what size orange jumpsuit he'll be needing. That's what would happen if life were fair. Look at the media icons today who should be fitted with orange jumpsuits too. The Bushes, the Clintons, Justin Trudeau, the big wigshead Pfizer, Schwab, Obama, Jesse Jackson, Selinski, Putin, Trump, Biden and son, Nancy Pelosi, Maxine Waterhead, Al Sharpton, occasional cortex and the rest of Congress. Let's not forget Gates, Soros and Bezos. In fact, everyone who lives and breathes the air in Washington DC should be fitted for orange jumpsuits. Ask yourself, Washington DC, the wealthiest metro area in the USA, and they don't produce a single physical item or product sold on the shelves of any store in America. Those good folks in DC systematically wrecked

[21:57] and looted the rest of America while continuously sticking it to the working classes. And the result? The idiot masses ask for more. They want more government, more laws, more agencies and regs. Life ain't fair, definitely. Can't fix it at the ballot box either. So it's time the wife and I voted with our feet. Admittedly, Johnny, I'm a bit more political than my wife. You heard my aforementioned list of grievances. Why I want out. As for the wife, her number one reason is a bit simpler. She wants out of Dodge because she hates the weather in Kalamazoo Zoo Zoo. Signed, Renee. All right, Renee, thanks for that. But I have to warn you, no matter where you move in Latin America, especially if you're on or near the gringo tourist trail, you'll never be able to get away completely

[22:43] from American politics. You've always heard me say gringos bring their bad habits down with them. Well, they brought two horrible habits with them. One's called Democrats Abroad and the other one's called Republicans Overseas. Wherever you find gringos in expats, you'll find those two useless idiotic clubs. In fact, the Cuenca Ecuador chapter of Democrats Abroad has 1,500 registered members. Enough to make a halfway intelligent person nauseous. In fact, in the 2016 presidential election, I don't know about 2020, but in 2016, anyway, I remember that the Democrat Abroad's representative in Washington DC was none other than Bernie Sanders's brother, Larry Sanders. I bet he shed a few tears and lost all confidence in the system that night. That's when Hillary threw Bernie under the bus, remember?

[23:32] Oh, and by the way, one little piece of advice for all you youngsters out there. I think young people should be encouraged to become an economist or work for government in any capacity. Where else can you be wrong 100% of the time and still make a pretty good living? All right, now some news from the Latin American fads. That are fading away department. I'm happy to report that the ass crack pant fad is fading fast. It's amazing a year and a half ago at the height of the lockdowns. It seems like every work and construction crew around had at least two guys with ass crack pants. It was very big with the unskilled worker crowd and motorcyclists. But now you could be walking around all day in the big city and not see a single guy with his pants at half mass. But why did it disappear so subtly? I'm kind of thinking that the bosses

[24:18] were generally older guys over 40 and don't put up with that crap. They put out the word no more that vulgar ass crack pants stuff on the job. Especially since some of the jobs, painting, roofing, tiling, appliance repair, et cetera, involve working in houses and apartments owned by older ladies and gentlemen who complain and think it's vulgar. One Latina mother I know said her teenage kid tried it. She wouldn't let him or his friends in the house till they buckled up. Could be the reason why so many guys have straightened up is because they got lectures from their own mothers and grannies. Anyway, here in Latin America these days, only the lowest of the low and the stupidest of retards seemed to be clinging on to that fad, which is, thank God, fading away. All right, now for fad number two that's fading fast. Vaping, yes, vaping, V-A-P-I-N-G.

[25:04] Just a year or so ago, right in the middle of the lockdown, vaping was huge. Everywhere you went, you'd see those big clouds of artificial smoke bellowing from people's mouths. The girls, just as much as the guys. I remember being at an all-inclusive resort around that time. I counted 11 people in the pool, vaping. But now, these days, the fads practically over. You could walk around for hours and see just one, maybe two vapers. And those vape stores, there used to be two or three of them in every big mall. And you'd stumble on one every couple of blocks in a commercial area too. They and their clients seem nowhere to be found. Now, I don't know if you're seeing the same phenomena up in the States or not. I kind of think you are. Now, the third despicable fad, masking, has been reduced by 98,

[25:50] maybe 99% in the last couple of months here in Latin America. Of course, there are still those dunder-headed stragglers. Sometimes it's a family affair. For example, just yesterday, I was sitting in a nice outdoor cafe with a lot of foot traffic strolling by. I'd say for every person with a mask, there would be 50 with a brain. Sometimes there'd be a family with matching malignant mask syndrome. Meanwhile, I'm thinking, how do you translate shit for brains into Spanish? Oddly enough, though, sometimes you'll walk into a bank or a pharmacy and all the workers are wearing masks. Not that they want to, it's just company policy. But the clients aren't wearing them. Is that the definition of a lunacy or what? Oops, look at the time. We're getting toward the end. I want to remind you about my Expat Insider Seminar. It starts Friday, November 4, 2022.

[26:37] Now, as this show first goes out on Sunday, September 11. That means you've only got four more days to get in on the early bird discounts and get $500 off the regular price. After September 15, we're back to normal pricing. You'll find the agenda and all the sign-up info at expatplanb.com. That's expatplanb.com.