Note: To follow is an excerpt of an interview with Adrian Arriaga, CCIM, Certified Commercial Investment Member. He’s Broker/Owner of AAA Real Estate & Investments in McClelland, Texas and Jose Luis Pascual, SVP/Director of International Markets and Alternative Delivery Channels and Nathaniel Karp, SVP/Economic Research with BBVA Compass Bank or Banko Bilboa Vizcaya Argenta. To listen to the show archive or download an MP3, go to www.IncomePropertyInvestmentTalk.com/112608.

Mosca: The people, the proximity, the Peso. These are three reasons why our neighbor to the south, Mexico, is increasingly becoming a choice for real estate investment foreign investors around the globe, in particular the United States. To elaborate, baby boomers are a growing middle class in Mexico. Of course the U.S. shares a 2,000-mile border with the country and the Peso is trading at, my last number was 13.22 to 1 against the dollar. The bottom line is today’s Mexico is a lot different than the country of the past century. With the passage of the North American Free Trade Agreement and numerous other factors, Mexico is realizing its full potential as a major player in world politics and economics. Is this good news for American real estate investors?

Arriaga: It is outstanding. As the Presidential Liaison for the National Association of REALTORS to Mexico, I have had the opportunity to work in Mexico and of course with American REALTORS. Challenging times have brought some great opportunities especially in across the border investments and home purchasing. Times are great right now. One-dollar equals 13 and 22-cent New Mexican pesos. The dollar is getting stronger to the Peso.

Karp: The most important thing for Mexico right now is to assure investors, reveal confidence, and to remain comfortable with the liquidity steps that the government has taken so that financing in the economy continues as it has been in the previous months and that the disturbances are kept at the minimum.

Mosca: The relationship between Mexico and the United States is important to both countries right now. Mexico, for example, exports about 80% of its goods to the U.S. So, the outcome of these economic stimulus packages is important to others outside the U.S.?

Karp: One thing we have seen in the last couple of years is that the share of U.S. exports have moderately declined and Mexico has taken the opportunity of the global growth to increase the share of both Latin America and Europe and Asia. The diversification of the product chain has changed a small amount to a degree so the impact of the U.S. deceleration or recession is going to be much lower than in previous downturn cycles.

Arriaga: The Texas Association of REALTORS just did a trade mission to Guadalajara, one of the largest concentrations of Americans in Mexico, that BBVA Compass was so gracious to be a sponsor of. We were able to visit not only the commercial and the industrial side, but also see why and how Americans are moving into Mexico.

Mosca (as a caller named Barry from Tucson): With regard to the Peso, what do you see as the future of the currency and do you think it’s going to gain against the dollar. Where do you think the best investments are for Americans investing in Mexico at this time?

Karp: Most of the long-term foreign exchange models that we have for the peso suggest an equilibrium level of around 12 to 12 1/2 pesos per dollar so currently these models will suggest that there will be a small appreciation of the peso. Probably the last three or four months we’ve seen some overshooting. Now, having said that, a lot of depends also on the risk perception. The financial strains both in the U.S. and everywhere else remain quite elevated so we may see a period of several months before we see some appreciation.

Arriaga: I just got back from Playa del Carmen at the AMPI conference -- AMPI is the National Association of Realtors for Mexico. The biggest concern was that NAFTA has opened the door in marketing from Canada to Mexico and that’s why 80 percent of all Mexican products are now traded in the U.S. and Canada through NAFTA. What’s yet to play out is the impact, if any, of the incoming administration in Washington, DC. In the last 24 months, the Coast area has become attractive to Americans, Canadians and Europeans starting with Baja California, the Laredo area, everything on the West Coast goes north and south and Playa Del Carmen. If you were trying to buy three years ago when the big boom was going strong, no one wanted to negotiate. Right now the market is slow, you can go in and actually negotiate a price. We talked in Playa Del Carmen and the property that was for a half a million dollars then can now be purchased for around $300,000. There are people in Mexico that will assist you, a “fly and buy,” and pay for you to stay at their place called “play and stay.” For about $300 you and your wife can travel to certain areas in a certain resort. They will wine and dine you, and of course do a hard sell. There is no commitment to purchasing. It’s a great way to do research for more information, complete the form at www.IncomePropertyInvestmentTalk.com/112608.

Mosca: Are relationships improving to a point where dollars are able to move across the border, making it easier for investors and residents in both countries to transact business?

Pascual: About a year ago, Bancomer USA decided to create a retail business unit. Its basic goal addresses the financial service needs of foreigners. In a little over one year, we have now over 30 points of sale scattered all over Mexico especially in the resort areas, especially where Americans, Canadians and European citizens live. We provide retail services there. We have retail branch services, like credit cards, debit cards, checking accounts in dollars, in pesos, and even car loans. We offer all sorts of products that will help someone who is going to be spending between several months a year in Mexico to have a bank where they can get money. We do mortgage loans to buy property in Mexico and use the property purchased as collateral and we finance up to 80 percent LTV (loan to value).

Arriaga: I have a friend in the Austin area that couldn’t sell his $750,000 house because of financing on the U.S. side. He did owner financing, he got one third down, got financing in a house in San Miguel, and of course he gets his money deposited directly to his bank and of course he draws it out in Mexico and did a continuous transaction. He’s very happy because he got to do owner financing and the cash flow is financing his house in Mexico.

Pascual: We provide all services to our customers. We can do a mortgage loan here in the U.S. but we will obviously partner with a sister bank in Mexico so there will be a representative of the bank in Mexico to help the client to close the loan and gather all the documents and all the permits there. Then, once the loan is closed, we provide the retail banking services. They can open an account in dollars and in pesos so they can easily transfer money or deposit a check from an American bank in Mexico and pay their bills there.

Mosca: Are we seeing an influx of Mexicans who came over to the states to make a few dollars go back home with cash to buy property?

Arriaga: Absolutely. The Border States now have a buzz of activity. The Mexican people are starting to try and shelter their peso. A good example is if they buy property now at 13.21 and sell the property in five years, not only will their property appreciate in value because there are good deals to buy in the United States right now, commercial and residential, but when they want the money back out and they sell five years from now, we know the peso is going to be 17 or 20, 22 to 1. They actually would get a double dip in their profits.

Mosca: How do you see the Mexican economy playing out for the rest of 2008 and into 2009?

Karp: The most important pressures are rising from the personal consumption side because employment growth is moderating and also because real income gains are slowing down. Obviously, that’s going to make some impact on the spending side. In turn, probably private investment is also going to slow down as domestic sales and exports weaken. Overall, we expect 2009 to be basically close to zero percent and that’s not bad considering the downturn in the U.S. One key element here is that for the first time in the last four decades in this crisis the public sector is going to take counter cyclical measures and that’s a huge difference to previous crisis where the public sector just exacerbated the private sector crisis. The other important issue is probably that banks are in a healthier position in Mexico. There are no problems in terms of the capital rations, the liquidity, or the inter-bank market. In fact, bank lending is growing at a solid pace particularly in the mortgage market. There is some slowdown in the consumption sector but commercial and industrial remain also pretty strong. Overall the forecast for Mexico is much better than that for many other emerging economies.

Mosca: With about 50 percent of your population being under the age of 24, a prime home buying age, are you seeing a lot more first-time buyers helping to keep the mortgage lending up?

Karp: Definitely. There was probably one generation that had no access to mortgages through banks. They basically used banks to pay the utilities bills and that was about it. The new generation of the last decade for the first time can go into a bank and have a mortgage loan at a long-term, fixed rate. In a country where you have a huge back load of housing, this is going to be a huge opportunity. There is no housing bubble. The lending standards in Mexico were not relaxed during the last few years so we didn't have any problems arising from that also.

Arriaga: Mexico is a whole other country and they have laws that are a little bit different to ours but mostly parallel our economy. The biggest upside for an American when he buys property in Mexico is taxes are inexpensive, living conditions are inexpensive, and the maintenance of homes is inexpensive. If you want less risk, buy property that already has title and has been sold several times already to other people.

Karp: Get the correct title and the property correctly registered before you go ahead and pay 100 percent of the price.

Pascual: Mexico is very important to the U.S. and a lot of the people that are buying homes in the U.S. are from Mexico and our footprint across the South border of the United States that provides us with more Mexican nationals as clients.

Mosca: Gentlemen, what is your golden nugget for today?

Pascual: I would like to emphasize that at BBVA Compass Bank we have a program to help Americans to buy properties in Mexico as well as we have a program to help Mexicans buy properties in the United States. I encourage them to use these programs and purchase properties on both sides of the border.

Arriaga: Take advantage of the “fly and buy” and “play and stay” offerings we spoke about for more information, complete the form at www.IncomePropertyInvestmentTalk.com/112608. They invite you to go down there, they pay your way, you get to see the properties, and there’s no obligation to purchase.