Real Estate Without Borders Episode Summary: "Trump's Tariffs Hit Mexico & Canada - Which Country is Better to Invest In?" Release Date: February 1, 2025
Host: Dave Hutchinson
Guest: Daniel Fosh

Introduction

In this engaging episode of "Real Estate Without Borders," host Dave Hutchinson and expert investor Daniel Fosh delve into a heated debate: Mexico versus Canada—which country presents a better real estate investment opportunity for American investors, especially in light of recent economic and political developments. The discussion is framed against the backdrop of potential impacts from Trump's tariffs on these neighboring nations.

Diversification and Market Concerns

The conversation kicks off with a focus on the motivation behind international investments. Daniel Fosh highlights a compelling statistic:

Daniel Fosh (00:34): "Over 60% of international investors cite diversification and higher returns as the top motivations for investing abroad."

The hosts express concerns over the US market's current volatility, particularly due to heavy reliance on major tech companies and uncertainties in the AI sector. Daniel points out:

Daniel Fosh (02:11): "The US market seems to be ripping, like, running so hot. Right. You can't help but think I might want to manage a little bit of downside risk here."

This sets the stage for exploring international alternatives to mitigate potential risks, emphasizing the importance of diversification.

Mexico as an Investment Destination

Dave Hutchinson champions Mexico as a prime investment location, drawing from his firsthand experience and client base. He shares insights about his active involvement in Tulum, Playa del Carmen, and Cancun:

Dave Hutchinson (03:18): "I think it's a great investment for Americans. Most of my clients that invest here are American. I would say like 95% of my clients are American investors looking to diversify outside of America and they end up landing on Mexico."

Key advantages discussed include:

• Strong US Dollar: The favorable exchange rate (USD to MXN) provides American investors with discounts on property purchases.

• Flexible Payment Options: Developers in Mexico, particularly in Tulum, often accept cryptocurrency or cash, with some even allowing full crypto payments. This flexibility extends to down payment structures, enabling investors to:

  Dave Hutchinson (06:23): "A lot of the developers are pretty flexible down here because [...] you can get possession of the property and pay the remaining 70% back over a year and a half in monthly installments with zero percent interest."

• Low Carrying Costs: Property taxes and insurance in Mexico are notably affordable, with taxes under $1,000 annually and home insurance capped at $1,500.

• Emerging Market Potential: Tulum is highlighted as a burgeoning hotspot with new infrastructure developments like an international airport and train station enhancing its appeal.

Legal Structure and Property Ownership in Mexico

A significant portion of the discussion addresses the legal framework for foreign property ownership in Mexico, specifically within coastal regions:

Dave Hutchinson (08:36): "You own through a fido camiso, which is a Trust account."

Key Points:

• FIDEICOMISO (Mexican Trust): Foreigners cannot own property directly within 50 kilometers of the coastline. Instead, ownership is facilitated through a Trust account held by a Mexican bank, with the foreign investor as the sole beneficiary.

• Trust Terms: These Trusts have a 50-year term with the option for extension and necessitate an annual fee ranging from $1,500 to $2,500 USD.

• Security and Stability: Dave reassures listeners about the reliability of major Mexican banks (e.g., BBVA, Santander Intercam), noting that even if a bank fails, investors can transfer their Trust to another institution seamlessly.

• Ownership Clarity: Investors retain ownership of the property through the Trust, with no need for Mexican citizens to be on the title.

Challenges of Investing in Mexico

Despite the numerous advantages, investing in Mexico is not without its challenges:

• Resale Difficulties: The absence of a comprehensive MLS system in regions like Quintana Roo complicates the resale process. Properties often rely on local realtors or WhatsApp groups for listings, making it harder to reach a broader market.

Daniel Fosh (14:02): "It's like getting your property known to the public is difficult. You're heavily relying on local realtors to put it on their websites."

• Emerging Market Risks: Tulum lacks historical real estate data, compelling investors to reference established markets like Cancun and Playa del Carmen for trends and projections.

Canada as an Investment Destination

Shifting focus to Canada, Daniel Fosh presents a contrasting landscape, highlighting both opportunities and inherent challenges:

Daniel Fosh (23:11): "In Canada, we have the fastest growing population in the Western world for the past three years."

Key Highlights:

• Housing Shortage: Canada faces a significant housing deficit, with national vacancy rates as low as 2%, compared to the US's 6-7%. This scarcity drives rental price growth and offers robust returns for real estate investors.

• Population Growth through Immigration: Canada sustains its population growth primarily through international students and temporary foreign workers, compensating for its low birth rate.

• Investment Opportunities: Daniel suggests focusing on multifamily housing and investing in rural areas with emerging economic activities, such as new mining and infrastructure projects in regions like Northern Ontario, Saskatchewan, Quebec, and Alberta.

Political Stability and Risks

Political dynamics play a crucial role in shaping investment climates in both countries:

• Mexico: While operational stability in real estate is achieved through Trusts, concerns about cartel influence linger. However, Daniel downplays these fears for typical investors, emphasizing that organized crime's impact is minimal for property ownership in safe regions.

• Canada: Daniel raises alarms about potential political instability under leaders like Trudeau, whose policies have previously led to decreased foreign investments. He references insights from Mark Carney regarding shifts in Canada's economic policies that might deter future investments.

Daniel Fosh (21:03): "Canada has not really seen a ton of investment in their country as a result of political shifts, whereas before."

Despite these concerns, Canada remains a stable and secure environment for real estate investments, particularly in sectors addressing housing shortages.

Currency Considerations

Currency strength significantly affects investment returns:

• Canadian Dollar (CAD) vs. US Dollar (USD): The CAD has depreciated from $1.05 USD (2008) to $0.70 USD (2025). Daniel anticipates a recovery to around $0.80 USD, offering investors potential gains not just from property value appreciation but also from currency exchange benefits.

Daniel Fosh (31:55): "If you hold real estate for that period of time, you buy it today at 70 cents, and hold it until it's back at 83 cents, that's a good trade."

Specific Canadian Markets

Daniel provides targeted advice on Canadian regions poised for growth:

• Rural Areas: Provinces like Saskatchewan, Northern Ontario, Quebec, Manitoba, and Alberta offer promising opportunities, especially in towns near new mining projects or experiencing infrastructure investments.

• Outskirt Cities: Investing in cities outside major hubs like Toronto and Vancouver is recommended to avoid oversaturated markets and capitalize on emerging growth areas.

Mortgage Systems

A detailed comparison of mortgage structures between the US and Canada elucidates the financial environment for investors:

• United States: Typically offers 30-year fixed-rate mortgages, benefiting from the USD's strength and investor appetite for long-term bonds.

• Canada: Predominantly relies on 15-year fixed or variable-rate mortgages due to lower demand for long-term CAD exposure. This results in higher mortgage rates, impacting affordability and investor returns.

Daniel Fosh (25:06): "In Canada, all of our mortgages are basically arms [...] fixed rates are fixed for a period of like one to five years and then they change."

The variability in Canadian mortgage rates poses a risk, especially when rates rise, as seen with homeowners facing significant payment increases upon renewal.

Final Recommendations

Both Mexico and Canada present unique advantages and challenges for American real estate investors:

• Mexico: Offers lower entry costs, flexible payment options, and emerging market potential, particularly in tourist hotspots like Tulum. However, the lack of robust resale infrastructure and potential political risks warrant careful consideration.

• Canada: Provides stability, strong rental demand due to housing shortages, and potential currency gains. Investment opportunities are abundant in multifamily and rural properties, though political shifts and higher mortgage rates pose risks.

In conclusion, Dave and Daniel present a balanced view, ultimately leaving the decision to the listeners:

Dave Hutchinson (34:15): "We'll call it a tie. We'll let the listeners decide."

They encourage investors to weigh the pros and cons of each market based on their individual investment strategies and risk appetites.

Listener Engagement

The episode concludes with an invitation for listeners to share their investment preferences and experiences:

Dave Hutchinson: "Leave us a review or slide into Dave's DMs, not mine. Send Dave a DM to say whether or not and he can sell you properties in both countries."

Listeners are encouraged to engage with the hosts to further explore investment opportunities in Mexico, Canada, or even other promising international markets.

Key Takeaways:

• Diversification: Essential for mitigating risks in a volatile US market.
• Mexico: Attractive for its affordability and emerging opportunities, especially in coastal regions.
• Canada: Offers stability and strong rental markets but comes with higher mortgage rates and potential political uncertainties.
• Legal Framework: Understanding property ownership structures is crucial in both countries.
• Currency Impact: Significant potential gains from favorable exchange rate movements, especially in Canada.

Investors are advised to conduct thorough research and consider their long-term strategies when choosing between Mexico and Canada for real estate investments.