Using 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 administration or disposal of the properties, and to have professional management of the asset through a trustee.
Without a doubt, having this document when investing in any real estate development That's an excellent idea.
If you want to learn more about how this type of trust works, what it's 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's a contract through which a person (called the settlor or trustor) transfers ownership to another (called the trustee), with the objective that the latter manages the property for a certain 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's assets in the future.
According to the law, any natural or legal person may possess fiduciary rights, therefore They can participate in project financing and be listed 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 responsible for managing the properties that are included in the contract, as well as compliance with its conditions and clauses.
What is the purpose of a real estate trust?
A real estate trust in Mexico It serves to protect and manage real estate. safely, based on the laws of the country.
It is also useful for the development of a real estate project under specific purposes and clear conditions for all parties involved.
For foreigners, a trust is mandatory to acquire certain assets in restricted areas such as beaches and borders.
It should be noted that the trust agreement can represent a disadvantage if its costs and processing complicate the property purchase process.
Example of a real estate trust
Some companies have some capital but it is not enough to invest in large projects, which usually require billions of dollars in investment. With a trust, they can build a 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 for management. The benefits of this contract will be obtained by the people who invested in the project (trustees).
On other occasions, Companies (trustors) build and manage the assets (trusted assets) through financial entities (trustees) who monitor the beneficiary's compliance.
Therefore, month by month, they pay the beneficiaries all the income or sales obtained from the assets, and once they are sold, The profits are distributed along with the capital gain from the sales to the investors listed in the contract.
Advantages of a real estate trust
It's normal that when investing in real estate, you want to analyze the various benefits of the trust that allow you to make better decisions. Therefore, we have listed the most relevant advantages:
- It 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 problems of the settlor, so the beneficiary can receive their earnings without any encumbrance.
- It can be used to diversify investments in the real estate market: because it allows multiple investors to develop, manage, and acquire high-value products.
- It guarantees the trustee the fulfillment of financial obligations: Guarantee trusts allow the transfer of property as collateral for debt repayment.
- Streamline future investments: It is a one-time procedure 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: Because there is legal regulation, any conflict can be resolved quickly.
- Separate the trust's assets from personal investments: In this way, the possible debts of the trustor will not affect the assets listed in the contract.
- It can be used in the management of common areas: It is a useful document to ensure the proper management of funds in real estate projects that include condominiums.
- It is cheaper than other legal options., such as limited liability companies or public limited companies.
- Generate economic returns through investments in the real estate business.
- It provides security to investors and facilitates investment fundraising.
¿How a real estate trust works?
The functioning of this contract depends on the completion 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 the detailed description of the property, the rights and obligations of the parties, administration periods, accountability rules, terms and conditions.
- Property transfer: Once the document is signed, the settlor 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 in the case of 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 applicable legal requirements, such as paying property taxes or income from transactions in the sector.
- Durability and completion: Depending on its purpose, a contract can have a fixed or indefinite duration. Therefore, its termination can be due to the fulfillment of the objective, a decision by the parties, or the expiration of the term.
- Document settlement: Once the contract is terminated, the trustee must liquidate the assets, which involves handing over the goods and distributing the income.
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. These include the cost of the property, the trustee's fees, the length of the contract, and notary and registration expenses.
- Incorporation fees: Depending on the trustee's fees and the complexity of the contract, the cost may vary between $30,000 and $50,000 MXN.
- Administration fees: The trustees charge an annual fee for managing the document. This fee ranges from $20,000 to $40,000 MXN and is subject to the cost of the asset and services provided.
- Notary fees: To establish a trust, a notary public is required, and their fees are charged according to their rates. In addition, there is the cost of registering the property with the Public Registry. These extra costs range between 10,000 and 20,000 MXN.
- Legal and financial advisory expenses: The cost of these services depends on the professional's fees. However, they can range between 10,000 and 30,000 MXN.
In addition, financial institutions charge annual administration fees of 1 and 2.5% on the value of the assets managed.
Because costs may vary, It is advisable to seek consulting services from a team of advisors. to obtain a specific quote.
Manage your contract with a team of experts in the real estate sector
A good investment in real estate requires documents that facilitate safe and legal handling., that help protect it according to each investor's objectives.
At Projects 253 we know that a real estate trust It's not just an option, it's a strategy which will help you strengthen your wealth. If you are interested in investing in real estate, contact us; we would be happy to assist you.
