The Dangers of "Soft Closes" In Mexico Real Estate!

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Bill:

Hey everybody, my name is Bill Cole. I'm with MoXi Mortgage and I'm here with Carl. Hey Carl, how are you doing today?

Carl:

Hey, I'm doing great. I'm Carl Cardarelli, also with MoXi Global Mortgage. How you doing Bill?

Bill:

Hanging in there. Hanging in there. I kind of wanted to talk a little bit today. We talked about some short sales and stuff in Mexico, not short sales but short closes or soft closes as they call it, and I've been through it a little bit. Have you ever done it on your own?

Carl:

I've had clients that have gotten involved in that. There's a lot of issues that come about it. One client actually did a soft close, came in with cash, she got into the purchasing the property. They had issues later on with the builder, with lawsuits with the state, and now she can't even live in her property. She's stuck with the property that she paid and it's honestly, it's been gone going for about a year. Stuff like that is where a lot of stuff that I see and hear come about from doing those soft closes, which I don't know what the percentages of how many soft closes are being done, but stuff like that happens.

Bill:

Yeah, I went through it myself. I actually wasn't doing a loan. It was before I met, came on board with MoXi and I was doing a lower loan limit. I was like two 50 purchase, but I went into Cabo, my wife and I, and she loved it and we decided we were going to go ahead and pull the trigger and buy ourselves a condo. We found the perfect condo and what we came about is the condo was about 95% done and we didn't like... Some of the finishes and stuff we wanted them to change. So we negotiated the deal where they were going to do some of the finishes and redo some of the countertops and things and that was great. The condo regime, which is basically, I guess the regime is more of their government documents saying it's okay for them to sell.

The condo wasn't done yet, and our agent said, "Well, it's supposed to be done in about two months, so that would be good. We could get ready to close and it would probably take them about a month or so to do the remodel on the property." We waited and a couple months went by, the regime still wasn't done and we kept talking to our agent and a few more months went by and we're into November now and we started this thing in March and they still did not have the regime done. Finally, by the end of November, they got the condo regime done. Well, during that time they hadn't even worked on doing any of the repairs. The agent kept trying to get me to do a soft close where basically they wanted me to sign off everything, give them 90% of the money, and they would finish the stuff later. While I was already into this thing like seven months longer than they were supposed to have this thing done.

And I said, "Absolutely not. I'm not doing that." And it got to the point where the agent told me that she wasn't making enough money on this transaction and wasn't going to help me out any further. To make a long story short, I didn't soft close them. I held their feet to the fire, they finally got this stuff done and a year later they finally got it done so I could close my transaction. I just can't imagine what our customers would feel like if they didn't have the background that I have. I've been a lender in the States and a real estate broker since 1996, so even though I didn't know a whole lot about Mexico, I still had a little bit of idea of how this thing should go down. I think it's great that MoXie with their legal teams and things and us as their mortgage advisors can help them through some of these issues they may be dealing with.

Carl:

It's pretty crazy to hear Bill. I mean, you hear a lot of stories like that that happened where they almost, they basically arms stringing you where you, you're stuck and you have to come in and if you're able to figure out or wiggle your way out of it, then you might be able to figure out a solution. But in some of those cases, if they're telling you that you have to do that from a legal standpoint, you don't really have any representation, no help. Nice thing about being with MoXi least you have a team that's there at your best interest making sure everything kind of goes smoothly and we're not going to close a soft close, we're just not going to do that.

Bill:

Yeah, I like that. And there's other issues that can happen in Mexico. Luckily as Mexico moves into the 21st century, things are getting better, but having a legal team on their side, a company such as MoXi to help them through the process of getting a loan and making sure that whatever they buy they can truly own, it's not a Ejido property, neither their issues. We just had one recently where the client had gone into contract and we started ordering title work and found out that the person who signed the contract, the seller didn't own the property, she actually was making payments to somebody else who truly owned the property. We caught that. My client put up a hundred thousand dollars and luckily we were able to get this thing straightened out for her. It's always great to have somebody on your side. I just can't imagine the general public being able to do this on their own and not have something happen.

Carl:

Yeah, I agree. It's crazy. You don't realize how common that is with situations like that and having a team, again, like I state, being there by your side, being able to help and answer and going through some of those issues that... When people buy property in Mexico, they don't really realize some of those things can come up and with experience and having that ability to foresee some of the issues to protect our client, and it's a great way to have that protection on your side.

Bill:

All the buyers down there, a lot of American citizens, there's some Canadians, but we work just with our Americans will really appreciate the fact that we can keep them from getting into a situation. I always tee some of my clients that don't jump over a dime to pick up a penny. Some of them want to try to do this on their own and that's great, but make sure they have legal representation, whether they're using MoXi or trying to pay cash. Want to make sure our clients understand they need to have that representation. Some of the properties down there are Ejido properties, which basically Mexican land grant and unless the titles were checked out, they could end up losing that property and we don't want that happening.

But what a beautiful country to buy properties in down there. Beachfront properties for less than a million dollars. You can get beach view properties for 300,000/400,000. Here in the states like we're in here in California. What would that cost them four to $6 million or more to have something like that. It's just a great opportunity for them to get down there and buy a property with financing available instead of having to pay cash. There's some clients that could well pay cash, but this opportunity now, especially with Airbnb, they might be able to buy two properties. What a great opportunity. What do you think there, Carl?

Carl:

I agree. There's so much opportunity in Mexico to buy and being able to leverage. A lot of people don't realize that there is financing and MoXi Global is a great way of being able to do that and leverage that. It gives them, like you say, another opportunity to even buy more properties, especially from an Airbnb side of it. Not only they have the protection and that team inside in terms of being able to help them on the legal side and make the closing a little bit more easier for them because a lot of times they go in and they don't have anyone there to really represent them and tell them what to watch out for or what to look for. It's nice to have that.

Bill:

Yeah, absolutely. Now what area do you work in, Carl? Do you hang around Cabo or, I know we all kind of have our little special places we like to work, but we can do loans all through Mexico, but where's your specialty?

Carl:

I really like Porto Vitória. I don't know. For me, I like the area. I like the tropical side of it. Combo's nice too. It's just a completely different area, but PV is something where I kind gravitate to. But you're right, we all can do loans pretty much in Mexico long as we're able to have the legal title transfer. What about you? What's your favorite places to-

Bill:

I own in Cabo, so I really like the Cabo area. The main thing is I can get there in two hours. I can hop on a plane here in LA and be in Cabo in a couple hours. I also really love that area over in Quintana Roo. I'm a scuba diver, so I've spent many hours underwater in Cozumel, so I love that whole area. What's cool about Mexico is there's so much diversity, different areas, Cabo's more of that desert region and then you can get over into the Cozumel area. It's right on the water, but it's kind of jungle on the water. Then you got the interior of Mexico, it's the mountains. It's just a awesome country to explore and there's so many areas in Mexico I haven't even been to yet that I just can't... Being able to lend there, every time I see somebody show me a house that they want to buy in a different area, say, "Oh, I got to go there." It's just awesome. That's kind of my point of it.

Carl:

You see so many people retiring now going into Mexico and buying and living there and just getting away from all the hoopla that's in the states and just with all the different things that you can do. It's so inexpensive to live and there's so many great things, places to go, places to see whether you're fishing or whether you're relaxing or whether you're just wanting to get away from the hustle and bustle. It's a great place to be.

Bill:

Yeah, absolutely. I can't wait to retire down there. That's why when I came on board with MoXi and thing, what a great way to retire and not retire. I can go down to Mexico and sit down there and be with everybody I want to work with and do my job and still live the dream in paradise. That's my idea. I'm getting probably in the next three, four years, I'm hoping to be full-time down there. I've got my temporary residency already and my RFC, so I'm ready to go. And a lot of my clients we talked to... Because I've been through it's kind of nice. I can tell them what I've been through and how to circumvent the problems. It's always good to know somebody who's already been through it and help you so you don't make the same mistakes that other people have made when trying to buy in

Carl:

Mexico. People don't realize the differences of just living in kind of a dream area where you're just relaxing, peaceful. Your mind, your whole body and spirit changes when you're in that type of environment. Once someone makes that decision and move forward and do that, I think they realize how great it is. And getting a loan, we're selling dreams, we're selling happiness in terms of buying their homes that they've always wanted to live and be in.

Bill:

The hardest thing I've had to get used to down there is what I call the manana effect. Mexico, it's so laid back, but that is totally different than what it is here in the States. You try to get somebody to come fix something. "Oh yeah, I'll be there tomorrow." Well what tomorrow? Other than that, the people are so kind and generous down there. I can't tell you just walking the streets of Cabo, I've walked by some homes and people are out on their porch step eating tamales and they invite me in. They don't even know who I am. It's like, "Oh, señor. Hey. Tamales."

And oh, it's fantastic. I love the people, love the culture. There's a few things where Americans have to get used to and one of them is the manana in effect. Manana is not tomorrow. Manana is maybe someday, but that's okay. Once you understand that, then you can cover your basis to get it done. But anyhow, I can't wait to retire down there and all our clients that are calling us, I think they have the same dream we do and that's what we're here to do is help them live that dream.

Carl:

And what about Bill, when you have people say, "Hey, what... Is it safe to live there? Do you feel comfortable? Are you scared?" What are some of the things that you come across when people ask questions like that to you?

Bill:

Yeah, I'll tell you a little story. When the first time I took my wife down there, I didn't know what she was going to think of Mexico. I really didn't. I was a little concerned that she was going to feel unsafe and this was my shot to... It's always been my dream to be able to retire in Mexico, and I've been going down there since 1978. I saw Cabo when it was all dirt roads and a little fishing village with some broken down [foreign language 00:13:25] sitting on the beach and now we have this great tourist destination down there.

I took my wife down there and amazing. She picked right up on the culture, she felt safe, and that same trip we decided we were going to buy in Mexico. So it didn't take long. You stay out of the rough areas, you don't get involved with stuff you shouldn't, and it's perfectly safe. To be honest with you, I feel safer walking down the streets of Cabo San Lucas than I do some of the streets here in Orange County, California. Yeah, I have no problems with it. As far as I'm concerned. It's just as safe as here in California.

Carl:

What about questions from clients, the fees, the pricing a little bit higher than what I see in the States. Can you talk a little bit more about that and some of the issues that you might come across with people have their expectation of what they think comparing it to rates in the States versus rates in buying in Mexico?

Bill:

Yeah, no, I get that because I'm also a lender here in the States and we hear that from Americans, but we're all spoiled rotten. We've got the number one economy in the world, obviously the safest for investors to invest in properties here in the United States. A hundred years or so of data, knowing what clients are going to perform, what properties are going to be able to be resold in case there's a default on the loan. We don't have that stuff in Mexico and a lot of the money for financing these properties in Mexico are coming from the United States. Obviously there's a little bit more risk in involved with buying in Mexico. Yeah, rates are a little bit higher. You typically see that two to 3% spread difference between what they are in the states and what they are in Mexico. But one thing I can point out over the last several years, we've seen anywhere from a 12 to 18% appreciation in Mexico on properties.

I actually posted a post that I got from, I think it was the Mexico Daily News, and they were talking about that where areas like Cabo, Tulum, La Paz, Mexico City, all the big tourist areas were 16 to 18% appreciation over the last two years. And they appears that this next year is going to be the same or higher and even in some of the poorer areas in Mexico, it was still over 12%. Yeah, you're going to pay a little bit higher interest rate, but look at all the equity you're going to build in. I did some breakdowns just to see, because I had some clients and I showed them the numbers. I said, "Look, if you buy now, and let's say you pay 10 or 11% interest rate and you're buying the property at let's say 500,000," and I did the calculations with the acquisition prices and the new prices and showed them how much money they were going to make versus if they waited a couple years in anticipation that rates might drop, the cost was outrageous.

It was still, if you waited two years because of the cost of the new home you're going to buy, it was costing them over a hundred thousand dollars more money just to buy that, just to try to save a point or two on the interest rate. I do that with all my clients. I can sit down and pencil it out and show them, here's what it's worth today, here's what the rates, here's what your payments are going to look like. If you wait, here's what it's going to look like. And it always costs them thousands and thousands of dollars more to wait. Why not live the dream now? Let's get them out there and get them going.

Carl:

Oh, I agree. I agree with you. And then the other advantage that you have, and I think we're the only ones that do it, is we offer a 1098 at the end of the year, which people don't realize how much of a benefit that actually has if they're looking to use that as a write-off.

Bill:

Yeah, absolutely. And because of the treaty between the United States and Mexico, there's no double taxation. If they're earning money on that rental income in Mexico, they're not going to pay it twice back here in the States. And these are things they can talk to their accountant about because we're not accountants, but this is what we've been shown. It's a great opportunity, again, to look at the value you're going to buy, the lifestyle you can live, the Airbnb to help somebody pay it. The write-offs you've got back here in the States. Yeah, it's a win-win for everybody.

Carl:

Yeah. It's a big benefit having that on top of it, knowing you can do that. It's a big plus. Well, Bill, do you have any more questions that you have on your end?

Bill:

No, I think that's great, and if our clients have any questions, they can jump in and call MoXi and get ahold of any of us at any time. We'll be more than happy just to chat with them to answer any of their questions, and hopefully earn their business and get them living the dream like we are.

Carl:

Living the dream. That's what I hear!