There are number of common risks areas to look out for and the following list is my no means exhaustive. 

The agents are not licensed or bonded. Many agents, though members of the local MLS, do not know the market very well. Some do not know or even care if properties they are selling have title problems.  If you send a down payment to an agent, the agent could disappear with your money. This has happened before.  Even if it is a U.S. name franchise, if there is a problem, they will likely claim it is a different entity in Mexico. 

Escrow agents are not bonded. It has been known for Escrow agents to empty out their escrow account and flee.  You are well advised to use a U.S. escrow. Fidelity Title in New York and Stewart Title in Houston offer escrow services. They will hold your money in a U.S. account until funds are to be disbursed based on the terms of your offer. Many Mexican escrow agents or real estate agents have U.S. accounts, but they can easily transfer funds into associated Mexican accounts. 

A large percentage of the properties have title problems. You need to get title insurance. Even if you ask for title insurance and pay for it, you might not ever receive a policy. It is possible for a seller to sell a "promise to make a promise" and you'd never know you are getting a property with title problems. The escrow agents are recommended by the real estate agents, and have every incentive to make sure your cash gets disbursed.

The closing process is complicated and expensive. Foreigners buying near the coast or border have to obtain a foreign investment permit, and are required to hold title through a bank trust (Fideicomiso. There is an annual fee for the services of the trustee, about $300-500 per year. The amount of the annual fee is set in your trust documents so make sure your closing agent shops around. There is a big transfer tax. Expect to pay at least US$7,000 in closing fees which is non recoverable when you sell.

If you have any title problems it can take years to get it cleared. Make sure you hire an attorney to help you get clean title.  Ask the seller if they have U.S. title insurance and if they have their Fideicomiso. If the seller doesn't have a Fideicomiso, there is a reason why, usually some title problem.  If the seller has a Fideicomiso, that is not a guarantee that they have clean title. 

Don’t underreport transfer values. People used to under-report values so the seller could pay less capital gains tax, and buyer could pay less transfer tax.  But the government has caught on. If you do this, or allow the seller to do this, you will find yourself liable for the seller's capital gains. If the seller doesn't pay their capital gains, for any reason, you have to pay it. So you have to modify the contract to state that the seller doesn't get any money until they pay their capital gains taxes. You need an attorney to do that for you. 

There is a rich history of re-socializing property. Watch out for Ejidos (communal farming land). In case of any dispute, the agrarian judge always rules in favor of the Ejido. In the Puenta Banda story in Ensenada, there were rumors of corruption, maps being redrawn, etc.

The court system is slow, inefficient, and sometimes corrupt. If you get in a dispute don't expect any recourse in the courts without paying and waiting. Be aware that if anyone steals money from you the prosecutors will not do anything unless you pay them to investigate. 

It is risky to use developer financing or any Mexican financing. Typical contracts state that the developer keeps title until you pay everything off. If they go bankrupt in the meantime, you can lose everything. With bank financing, it can take years to get liens removed after you have made your last payment. 

Hire an attorney in advance. You are spending $7000+ on closing costs. An extra $1000 for an attorney is a worthwhile investment. Just make sure they are competent. Ensure your attorney examines the commitment for title insurance before any funds get distributed to the seller. Put that requirement in the Offer.

Make sure you have a good escrow agent who verifies that condo association fees are current, utility bills are current, and property taxes are current.

Some people put title in corporations to avoid the bank fee and because they feel more secure having a title instead of having title in a trust. A foreigner can set up a Mexican corporation. You only need two shareholders and one can be a U.S. LLC. You cannot live in a house that is owned by your Mexican corporation.  There is ambiguity in the law as to whether you can own residential rental real estate in a Mexican corporation if you don’t live in it. 

Many people in Mexico view income tax as optional, and nobody likes to give receipts. If you rent your property, you need official receipts “Facturas” if you are going to take itemized deductions (which you have to do if you use a Mexican company to hold title to your property). If you pay tax as an individual, there is a blind deduction option to paying income tax, which is easier. You need to get a Mexican tax ID or the renter is supposed to withhold the tax for you and submit it to the government. 

Foreigners need government and bank permission to rent out property held in Fideicomisos.  There is a $400 fee to get the government (SRE) permission plus whatever an attorney will charge.  Do this before getting your Fideicomiso otherwise you will have to pay an attorney to modify your Fideicomiso. 

If you stay 183 days, you are a Mexican resident for tax purposes and subject to Mexican income tax on your worldwide income.

If you do have income in Mexico, you are supposed to pay estimated taxes every month. It is a nuisance, and the tax hurts your cash flow.  You don’t get the deductions you get in the U.S.  Tax is based on gross rent. - Article Continued Below -