With the use of a real estate trust you will be able to separate your personal assets from your investments, which helps you effectively protect your assets.
This contract allows you to include multiple beneficiaries, establish specific conditions for the management or disposition of the properties and have professional management of the asset through a trustee.
Without a doubt, having this document when investing in any real estate development It's an excellent idea.
If you want to know more about how this type of trust works, what it is for and how you can use it when investing in a real estate project, take note of the following information.
What is a real estate trust?
A real estate trust it is a contract through which a person (called the trustor or settlor) transfers the property to another (called the fiduciary), with the aim that the latter manages the property for a specific period of time for the benefit of a third party.
In this document, that third party is established as trustee or beneficiary. and is the one who will obtain the trust assets in the future.
Under the law, any natural or legal person may possess fiduciary rights, which is why They can participate in project financing and appear as owners of a fraction of the works.
You can also formalize a trust through a fiduciary institution or financial entity, which They are credit institutions in charge of managing properties contained in the contract, as well as compliance with its conditions and clauses.
What is a real estate trust for?
A real estate trust in Mexico It serves to protect and manage real estate safely, based on the country's legislation.
Also, it is useful for the development of a real estate project under specific purposes and clear conditions for all parties involved.
For foreigners, the trust is mandatory to acquire certain assets in restricted areas such as beaches and borders.
It should be noted that the trust agreement may represent a disadvantage if its costs and processing complicate the property purchasing process.
Example of real estate trust
Some companies have some capital, but it's not enough to invest in large projects, which often require billions of dollars in investment. With a trust you can build larger capital.
For example, a company can put together a project with the capital they have available, find a legal entity (trustee) and transfer ownership to it to manage it. The benefits of this contract will be available to the people who invested in the project (trustees).
On other occasions, Companies (trustors) build and manage the assets (trustees) through financial entities (fiduciaries) who monitor the beneficiary's compliance.
So month by month, they pay the beneficiaries all the income or sales obtained from the assets and, once they are sold, Profits are distributed along with the surplus value from sales to the investors listed in the contract.
Advantages of real estate trusts
It is normal that when investing in real estate, you want to analyze the different benefits of the trust that allow you to make better decisions. Therefore, we list the most relevant advantages:
- Allows the beneficiary to obtain income directly: especially if the investment trust is intended to generate income.
- It offers greater security to the parties: It can protect the trust property from potential legal issues for the settlor, so the beneficiary can receive their earnings without any burden.
- It can be used to diversify investments in the real estate market: as it allows multiple investors to develop, manage and acquire high-value products.
- Guarantees the trustee's fulfillment of financial obligations: Escrow trusts allow the transfer of property as security for debt payment.
- Streamline future investments: It is a procedure that is carried out only once and there is no need to renew it.
- It enables the negotiation of fiduciary rights: Owners can buy and sell their rights at any time.
- It provides greater legal certainty to the parties: By having legal regulation, any conflict can be resolved quickly.
- Separate the investment of the trust's assets from personal investments: In this way, the trustor's possible debts will not affect the assets included in the contract.
- It can be used in the management of common areas: It is a useful document to ensure proper management of funds in real estate projects that include condominiums.
- It is cheaper than other legal forms, such as limited liability companies or corporations.
- Generate economic returns through investments in the real estate business.
- It provides security to investors and facilitates investment collection.
¿How a real estate trust works?
The operation of this contract depends on the fulfillment of several steps, from its constitution to its completion, in addition to various legal and administrative conditions that remain in force over time:
- Incorporation process: During this stage, the contract is drafted, with a detailed description of the property, the rights and obligations of the parties, administration deadlines, accountability rules, and terms and conditions.
- Transfer of property: Once the document is signed, the trustor transfers ownership to the legal entity for administration.
- The public record is made: before the SAT (Tax Administration Service) and the RPPC (Public Registry of Property and Commerce). And if it's for foreigners, it must be registered with the SRE (Ministry of Foreign Affairs).
- Legal and administrative operation: Once the document is established, it must comply with the applicable legal conditions, such as the payment of property taxes or income from operations in the sector.
- Durability and finish: Depending on the purpose for which it was created, the contract may have a fixed or indefinite duration. Thus, its termination may be due to the fulfillment of the objective, a decision by the parties, or the end of the term.
- Settlement of the document: Once the contract is terminated, the trustee must liquidate the assets, which involves the delivery of the property and the distribution of the proceeds.
How much does a real estate trust cost?
The cost of this legal tool is close to $105,000 MXN and varies depending on several factors, including the cost of the property, the trustee's fees, the length of the contract, and notary and registration fees.
- Incorporation fees: Depending on the trustee's fees and the complexity of the contract, the cost can vary between $30,000 and $50,000 MXN.
- Administration fees: Trustees charge an annual fee for document administration. This fee ranges from $20,000 to $40,000 MXN and is based on the cost of the asset and the services provided.
- Notary fees: To establish a trust, a notary public is required, and fees are charged based on their own fees. Added to this is the cost of the Public Property Registry. These additional costs range between $10,000 and $20,000 MXN.
- Legal and financial advisory fees: The cost of these services is subject to the professional's fees. However, they can range from $10,000 to $30,000 MXN.
In addition, financial institutions charge annual management fees of 1 and 2.5% on the value of the assets managed.
Because costs may vary, It is advisable to request advice from a team of advisors to obtain a specific quote.
Manage your contract with a team of real estate experts
A good real estate investment requires documents that facilitate safe and legal management, that help protect it according to the objectives of each investor.
At Proyectos 253 we know that a real estate trust It is not just an option, but a strategy that will help you strengthen your assets. If you're interested in investing in real estate, contact us; we'll be happy to assist you.
