Riding out the storm

Connie Hearn is the founder of Dallas-based Advanced Mortgage, one of the first US-based brokers to specialize in mortgages for the Mexican market. Inside México talked with Connie about what to expect in the Mexican real estate market in 2009.

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• As the escrow flies south

Inside México: How is the current economic situation affecting the Mexican real estate market?

Connie Hearn: People are buying in Mexico not in spite of, but because of the economic difficulties. We’re seeing more Americans and Canadians financing in Mexico. There are two basic segments: first, people who see long-term value in retiring here and are looking for a way to stretch their savings. Then there’s the second home market, which has tended to purchase with cash, often based on the equity of their homes in the US. Now that home values are much lower, there’s less equity, and they have to turn to financing. But they still want to buy; that hasn’t changed.

IM: So you’re not expecting a dip?

CH: I believe the Mexican market will have healthy sales in 2009. I don’t think we’ll see as much construction; for a while, construction projects were sprouting up everywhere, all over Mexico. Some of those have been funded, some have been put on hold. But from what we see there is a healthy stream of people looking to buy in 2009, and they’re taking the steps they need to get qualified for financing. When we talk to other friends and colleagues in the business, they’re seeing the same thing. This market is not going to stop. Being a lender in the US right now—now that’s a challenge! But Mexico has always had strict underwriting standards; it hasn’t had the same kind of credit quality problems. I talked to the folks at GE Money and they have not had one single loan default since they introduced the Mexican mortgage product three years ago.

IM: Are there particular local markets that you see moving one way or the other in 2009?

CH: Well, Los Cabos was so hot for so long, there was no way it could do anything but go down a little, and that’s what we saw in 2008. But there are markets that are growing, where prices are still very good: Mazatlan is one of them, and we’re also seeing growth in Puerto Aventuras [on the Mayan Riviera]. The Mexican government is investing a lot in the infrastructure of Tulum, which makes it attractive.

IM: Do your clients fit a particular profile?

CH: A good percentage of our Mexican mortgage clients are self-employed; we don’t see a lot of “W-2” people. They are entrepreneurs who have successful businesses in the States and are willing to invest in Mexico over the long term. Most of them currently use the Mexican house as a second home, but once they’re retired plan to spend most or all of their time there. We’re also seeing more cash-out loans for people who had already bought a house in Mexico for cash. They want to take liquidity out of the house, maybe to reinvest in the US stock market. Some of them just want to have cash on hand. One gentleman took a large sum out, 50 percent, and used it to buy his house in the US. I’ve been telling clients about it for a long time, that they had this option to access the equity in their Mexican home, but it’s only in the last three or four months that we’re really seeing them take advantage.

IM: What advice do you give to people who want to buy in Mexico?

CH: First of all, educate yourself on the process, and get familiar with the way things are done in Mexico, including the fideicomiso structure. Once you’re comfortable, find a reputable realtor and seller. Understand that there is no verbal agreement in Mexico; the contract is exactly what’s on paper, so make sure you get absolutely everything in writing. If you need financing, get a good mortgage broker with experience in Mexico. Ask them how many Mexican loans they’ve closed. Also, realize that this is a time-consuming process. In the US, you can buy a home in two or three weeks; in Mexico, it could take several months.