The Mexican Peso is at an historic low against the US Dollar these days. I can’t explain exactly why it is where it is but in doing some very limited research, it seems that it has something to do with the very low price of oil (one of Mexico’s biggest exports), the Greek bailout, the central bank keeping interest rates in the US low, and a myriad of other reasons that, quite frankly, I don’t understand completely. One common factor that I found was that it was NOT because the Mexican economy is in decline (quite the contrary) and has nothing to do with Mexico being a bad or unsafe investment for Americans and Canadians.
Regardless of why the Peso is where it is against the Dollar, the simple fact is that you can buy more Pesos for your Dollar now than you could a year ago and prior. While prices do seem to go up in some areas (mostly tourist areas) to compensate for the change, a great many prices, especially the set prices in “regular” stores and services (not tourist items and services), have remained unchanged or have changed very little. This means that something that is sold at 15 Pesos used to cost you around $1.25, but it now costs you less than 97¢. That might not seem like much at that price, but start adding zeros to the end and you can see how much you can really save these days.
Normally condo rentals and beachfront hotel rentals are paid in Dollars and those that do accept Pesos usually have them priced in Dollars and converted – in fact, most who price in Dollars and accept Pesos or vice versa do not usually offer “fair” exchange rates. The smaller “off the beaten path” hotels will most likely have their prices in Pesos and it could make them super cheap, if you don’t mind being “off the beaten path”.
It is very common to see signs in stores around town showing exchange rates at from 12 to 14 Pesos for 1 Dollar these days. You pay with one Dollar and they credit it as 12 to 14 Pesos towards the service or merchandise. Those stores are making a double profit – the sale of their “stuff” and the profit by turning your Dollars into more Pesos than they credited you with. In those cases, it is almost always better to use Pesos.
The banks at this time will give you somewhere between 15 and 16, and the Casa de Cambio locations are usually between 14.5 and 15. With all the new tax regulations and anti-money laundering laws, it is no longer allowed to just walk into any bank and exchange Dollars for Pesos. You can use your Credit or Debit card at an ATM (sometimes your bank will charge a foreign transaction fee), or if you have an account, you can deposit Dollars and withdraw Pesos. If you don’t have an account, you will need to use the Casas de Cambio. There are several of them around town and they are usually open 7 days a week for pretty long hours. Most of the rates that they pay are pretty similar so hunting around for the best one is probably not worth the gas you will use doing it.
Knowing when to use Pesos and when to use Dollars really isn’t too difficult. It just takes some common sense and maybe a quick calculation in your head and the savings can really make it worthwhile.
How is this advantageous when buying Real Estate?
Buying Real Estate on Sandy Beach in Rocky Point is almost always done in Dollars. So, you ask, how can the exchange rate help me when the prices are listed in Dollars, and I am paying in Dollars? Good question. You actually won’t save anything (other than maybe some savings for work being done or buying furnishings) on the price when you buy, but it can add up to some huge savings down the road when you sell. Let me explain:
In Mexico, even if a condo (or house, or land, etc) is purchased in Dollars, it will be recorded in Pesos. The Peso is the National currency of Mexico and anything recorded at the Public Registry will be recorded in Pesos. Think of trying to buy a house in Phoenix using Chinese Renminbi (actually, many Chinese have and are making purchases). You would have to convert the currency into US Dollars. That conversion would happen at the current conversion rate offered by the financial institution performing the transaction.
Same goes for buying with Dollars in Mexico. The savings can come down the road when you sell. Since the current exchange rate is historically high, most believe that it will eventually settle back down to the more “normal” 10 to 12 Pesos per Dollar. Suppose that you buy a condo today for $200,000. That would be converted to Pesos at 15.5 or so, making your recorded purchase (base) $3,100,000 Pesos. Now consider that a couple years down the road, you decide to sell the condo. Let’s say that the exchange rate at that time is 10 to 1. Your $3,100,000 Peso base is now worth $310,000 in Dollars. That means that you could sell your condo for $310,000 without showing any net gain. And, since the capital gains tax in Mexico is 35%, you would be saving $38,500 in taxes ($310,000 – $200,000 = $110,000 x 35% = $38,500). You can see how advantageous it can be to buy, even when priced in Dollars. Of course, this is an over simplified example but it really is how things work. But, don’t forget that Uncle Sam in the USA might want a piece, even if you didn’t owe anything in Mexico.
With tourism way up, the Home Port progressing, and all the new projects on the horizon, the prices continue to go up in our little city by the sea. It will be more likely than not that future Sellers will be seeing profits, and by buying when the Peso is so low against the Dollar, you very well may offset some of your future taxes. We have other strategies as well so, if this peaked your interest, feel free to contact me for more detailed information.
Finally, since we live in a society awash with lawyers and disclaimers, let me say that I don’t know what the future will bring. I am not an attorney. I am not an accountant. And, I don’t have a crystal ball. One thing that I do know is that in my personal life, I am trying to take full advantage of this situation. Hope you do to.
This article is brought to you by the Sonoran Resorts Sales Team, www.sonoranresorts.mx, Jim Ringquist, Director of Sales and Marketing.