• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer
The Impact Investor | ESG Investing Blog

The Impact Investor | ESG Investing Blog

Investing for financial return is only part of the equation.

  • ESG Investment Products
    • Best Impact Investing Apps
    • Best ESG Funds
    • Best Socially Responsible Mutual Funds
    • Best BlackRock SRI Funds
    • Best Vanguard ESG Funds
    • Best Sustainable Robo-Advisors
  • ESG Education
    • How to Build a Socially Responsible IRA Portfolio
    • ESG Principles
    • ESG Shareholder Activism
    • Why You Need ESG Investing
    • ESG Investing Trends
    • Social Impact Examples
    • Impact Investing Examples
  • Careers in ESG
    • Best ESG Jobs
    • Best Corporate Responsibility Jobs
    • Environmental Justice Jobs
JOIN

What is the Impact of Foreigners Investing In US Real Estate?

Updated on September 28, 2023

Our posts may contain links from our affiliate partners. This supports helps support the site as we donate 10% of all profits to sustainability organizations that align with our values. However, this does not influence our opinions or ratings. Please read our Terms and Conditions for more information.

Real estate in the US is heating up, and many areas are seeing record prices. That presents an opportunity for foreigners investing in US real estate. There are, however, a few things a foreign investor in the US considering real estate purchase should keep in mind.

If you are a foreigner and looking to purchase real property in the USA, here is some general advice to help your experience proceed as smoothly as possible.

Table of Contents

  • Why Invest in the USA?
  • Can Foreigners Invest in US real estate?
  • Where Purchases Might Be Restricted
  • Other Investment or Ownership Challenges
  • Navigating Taxes
  • Types of Real Estate Investments in the US for Foreigners
  • Individual Direct Ownership
  • Corporate Indirect Ownership
  • Types of Real Estate Investments for Foreigners
  • Residential
  • Residential Development
  • Commercial
  • Final Thoughts

Why Invest in the USA?

The US market for real estate is one of the most vibrant, busy, and profitable markets in the world. In fact, at the end of 2021, the US residential real estate market alone was worth over $40 trillion.

To put that in perspective, the US Gross Domestic Product is slightly over $20 trillion.

Can Foreigners Invest in US real estate?

The USA has an open economy. While many countries have laws that prohibit non-citizens from investing in real estate, the USA regards real estate sales to foreign buyers and investors as the same as sales to US citizens.

That means the answer to the question “can foreigners buy property in the US?” is yes, but with some caveats.

The first is the real estate investor or purchaser must abide by the rules and the law. The second is that the real estate investor or purchaser must abide by all taxation requirements and municipal, state, and federal tax regulations, penalties, and processes.

Where Purchases Might Be Restricted

As a matter of legality, a real estate buyer or investor might run into purchase prohibitions, or restrictions are when dealing with property management associations. In the US, there are three main types of property management associations:

  • Homeowners Association
  • Condominium Associations or Cooperatives
  • Community Associations

These associations are legal entities that oversee the management of specific properties. A homeowners association, for instance, will supervise a home development community.

A condo association will oversee a condominium building. There are several types of community associations that are legal entities and manage properties or buildings.

The property owner and management associations cannot discriminate based on race or ethnicity (as well as gender, religion, political affiliation.) These groups do, however, wield a sizable amount of control.

Association Rules

Most associations have mandatory membership for all property owners or investors. Theoretically, property owners see increased value in their properties because of the associations.

Because of that, many associations have specific and firm rules.

These can be simple, like banning loud noises past acceptable nighttime hours. They can also be behavior limiting, such as prohibiting installing a swimming pool in a backyard.

For owners, along with the membership requirements, attending monthly maintenance meetings or at least the annual meeting is a good idea.

In some cases, it is mandatory. It is also in the best interest of the property owner or investor to attend.

Association Ownership Prohibitions

In some states, associations can restrict or even prohibit property ownership. The stated purpose of these rules is to prevent absentee ownership whereas enforcing Association rules is almost impossible.  

Other Investment or Ownership Challenges

Foreign real estate purchasers and investors may find purchasing property in the USA very different from what they are used to in their own countries.

Here is a quick summary of some of the challenges a foreign real estate buyer or investor may face.

Securing Bank Loans

A foreign investor in the US generally has a more challenging time accumulating funding for real estate purchases. The reasons are simple.

Banks have little recourse if the foreign investor defaults on the loan. In addition, for many banks, verifying potential borrower data can be challenging.

For that reason, many US domestic banks will not lend to a foreign investor without significant scrutiny and requirements. Those additional requirements could be:

  • Higher required down payments to qualify for a loan
  • Higher loan interest rates allow the bank to get its money back quicker
  • More paperwork to prove loan worthiness
  • An American co-signer for the loan
  • US-based collateral

The foreign real estate investor or property buyer may also be limited in what banks can do business with them because of Freddie Mac and Fannie Mae. Both Freddie and Fannie buy mortgages from lenders and banks and use them to create bundled securities.

Neither will purchase mortgages from non-US citizens, which means the borrower has to find banks that do not sell their loans to Freddie or Fannie.

In addition, many banks will not lend to a foreigner if that person has not paid taxes in the USA. Additionally, credit ratings help banks determine creditworthiness.

Many foreigners do not have a credit rating recognized by American banks. A foreigner with no American bank-recognized credit rating must jump through hoops to provide a lot of additional financial data proving a loan to them is a low risk for default.

See Related: Best States for Real Estate Investing

Closing and Loan Taxes and Fees

A foreign US real estate investor or property buyer will also have to assume some fees as part of the entire property buying and selling experience.

These come in four forms:

  • Local and state taxes and fees
  • Real estate commissions
  • Home and property inspections
  • Banking fees

The local and state taxes are transfer taxes to transfer a title for a home from the new buyer. Real estate commissions get factored into the home sale, but that also raises the cost of the property.

Home and property inspections are mandatory in some municipalities, but even if they are not, it is a good idea to get them done anyway.

A buyer does not want to find out the property or buildings have significant problems after the sale. The buyer usually pays for home inspection costs because they benefit the most if the inspector finds any issues. 

Other banking fees include:

  • An appraisal charge
  • An origination fee
  • Prepaid interest costs
  • Closing fees
  • Insurance fees

These fees are also why a bank might charge more to a foreign property investor than to a domestic buyer.

State and Federal Considerations

While foreigners can purchase any property on the market in theory, there are instances where state, federal, public safety, and national defense concerns factor in.

Examples of cases where there may be restrictions on foreigners or Americans buying property include, but are not limited to:

  • Property purchases near nationally sensitive property (military bases, restricted areas)
  • Land purchases near airports and marine ports
  • Potential national defense concerns (nuclear reactors, reservoirs, etc.)
  • State or municipal property that is sensitive (near drinking water reservoirs, etc.)

Municipal Restrictions

Another area that may have restrictions on foreigners purchasing properties is municipal property. Examples would be a property embroiled in eminent domain processes, municipal drinking water sources, or public health and safety-oriented properties.

Navigating Taxes

Taxes associated with property purchases, title transfers, and property sales are another challenge. A foreign property buyer must comply with US taxes, which often confuse American citizens. Someone unfamiliar with the American taxation system has no chance. 

Every foreign real estate investor or buyer must have an Individual Tax Identification Number (ITIN.) The ITIN is required even though the foreign individual may not have a green card. The reason for this is the federal tax system. The IRS likes to know who potentially owes it money.

Other taxes that could affect a sale are:

  • Property taxes
  • Transfer taxes (mentioned above)
  • Real estate Capital Gains tax
  • State and Federal estate taxes and fees
  • State and federal income taxes

Property Taxes

Property taxes in the USA vary from state to state. Some states rely on the property tax as a principal funder of state and local government. In many states, property taxes support the local public education system.

Transfer Taxes

Transfer taxes fund the process of transferring a title from one owner to a new owner. Local municipalities usually collect transfer taxes, even if the revenue ends in state coffers. 

Capital Gains Taxes

Capital Gains taxes apply to some profits made on a real estate investment.

If you buy a property for $300,000.00, for example, and sell it for $800,000.00, you would pay the Capital Gains tax on the profit you made from the sale. If you lose money on the sale of real estate, you owe no Capital Gains taxes.

State and Federal Estate Taxes

State and federal taxes apply to estates if the property exceeds a statutorily defined value. The amount owed varies, but it can be as high as 40 percent of the property value.

Municipalities assess properties and homes to come up with an assessed value. In most cases, an initial payment of a portion of the assessed property taxes is due at the property sale closing. 

State and Federal Income Taxes

If a foreign investor in the US rents a building or home, it is considered source income and subject to local, state, and federal incomes taxes.

Types of Real Estate Investments in the US for Foreigners

Houses Blue Roofs

Corporate holding structures provide tax and general liability relief. Holding structures are also a great way for an investor to stay off of any public disclosure documents. Many foreign investors utilize corporate structures, especially if they own multiple properties. 

Individual Direct Ownership

An Individual Direct Ownership holding structure lets a foreign property buyer or investor own real estate in the USA under their name.

The benefit of the Direct Ownership approach is that it helps control costs. It comes, however, with liabilities.

The long-term benefits are almost nonexistent and expose the property owner to liability, estate taxes, and state and federal tax reporting requirements.

If the property is ever rented out under a direct ownership holding structure, the owner is responsible for income tax. In addition, liability protections are limited.

For example, if a tree falls during a storm and hits the house on a property under individual direct ownership, the owner is liable for all repairs unless it is covered by insurance.

If the property is rented and one of the renters damages the property or rental units, the owner can sue the renter, but there is not a lot that can be done if the owner is thousands of miles away.

Corporate Indirect Ownership

Corporations are exempt from paying the US estate tax, which makes a Corporate Indirect Ownership holding structure very attractive.

Limited Liability Company (LLC)

An LLC provides the lowest amount of income tax exposure compared to other corporate holding structures. It also limits wealth liability for investors, which is tied to the property value. Most importantly, an LLC helps investors or a foreign property owner to control liability exposure.

All the property owner’s property and associated assets are protected under an LLC.

That means if damages occur to the property, the LLC members are not responsible. If a renter damages a property or the personal property of other renters (or community members,) the LLC members are not held accountable.

Additionally, an LLC allows for ownership privacy. A foreign investor could purchase a property and remain anonymous by hiring a management company to oversee the property.

An LLC member also does not have to register their name on any government registry. The entity owning the property would appear as the name of the LLC.

A downside with LLCs is the liability for the estate tax. Additionally, any owed income or sales taxes for the property are levied on the LLC and due in the normal tax payment processes.

US Blocker Structure

A US Blocker Structure allows a property owner to avoid paying the estate tax. It affords almost complete privacy and asset protection. After a five-year waiting period on the sale of the property, the proceeds can be distributed to the owner with zero tax consequences.

The downside is having to wait for any sales proceeds and it will owe very high capital gains taxes when the property is sold.

Leveraged Blocker

A Leveraged Blocker is a holding structure that is similar to a US Blocker structure. There are some differences, and a Leveraged Blocker is only recommended in certain circumstances.

Specifically, a property buyer would set up a Leveraged Blocker if they were making multiple real estate investments or when the investments involve multiple investors or specialized funds.

The benefit of a Leveraged Blocker is that the overall effective tax rate is lowered significantly and there is limited liability protection.

A major downside, however, is that the foreign property investor must have a US corporation in addition to the Leveraged Blocker. Part of the investment amount must be loaned to the corporation. That provides certain tax deductions as well as being able to deduct loan interest. 

Types of Real Estate Investments for Foreigners

The USA real estate market is wide open to foreign investors and property buyers and that reality opens a lot of property buying options. The following are the major forms of property.

Residential

House with a Lawn

Residential property comes in many different forms.

Single-family homes: Whether to live in, rent out or remodel and sell, single-family homes are the largest swath of real estate sales in the country.

Apartment Building: These are great investment opportunities, but do come with the trade-off of having to keep them up. As an investment, these are some of the most popular options.

Condominiums: These are as popular as apartments although the ownership structure for each unit is different. These also have to be maintained.

The issue with condominiums is much like those with Homeowner Associations and the expectations the owner of a property will be present and an active participant in the management of the building.

Cooperative: A cooperative is a homeownership option where a foreign investor would become a shareholder of a corporation that purchases a larger, usually multi-home property. Cooperatives are great from a capital perspective as other traditional forms of real estate.

See Related: How to Build a Socially Responsible IRA

Residential Development

Houses and Streets

Another vein of residential homes is purchasing a tract of land zoned for residential use and parceling it off to accommodate multiple, zoned plots of land. The plots are then developed and buildings are constructed on them or the parcels are sold off for buyers to build on them.

For a foreign investor or property buyer, a development arrangement makes a lot of sense provided the buyer has:

  • A management company that oversees the development of the land, including ensuring compliance with laws, permit requirements, taxes, etc.
  • Contractors that can do any required building on the land
  • Sales personnel that can sell plots or homes on the land

There are a few options in regards to the type of buildings that can be constructed on development land.

Single-family homes: These are new construction homes that are then sold separately.

Manufactured housing: Manufactured housing is fabricated in a factory and delivered to a job site. Construction personnel installs all infrastructure like links to sewage, water, etc.

Apartment Buildings: These types of construction projects are a little more complicated, but a foreign investor can build apartments and/or condos for individual purchase or rent.

Converted rental space: In this scenario, the property buyer or investor purchases existing buildings and converts them to residential facilities.

Commercial

Towering Buildings

Commercial property is specifically zoned as such. It can include developable land, existing storefronts or buildings, or new building construction. This can be done directly or via crowdfunding platforms such as Diversyfund.

Here are a few examples of commercial uses for property purchases.

Agricultural: This falls under land development, but an investor or individual buyer can rent the land to develop crops or raise livestock. The arrangements for this type of use are usually a lease or rental agreement.

Commercial Construction: This entails constructing buildings, remodeling existing structures, or developing land that complies with commercial zoning regulations.

Some examples:

  • Strip mall retail space construction or renovation
  • Older building renovation
  • Business rentals of new or existing space
  • Parking facilities

Industrial: Industrial space also has several categories, including

  • Undeveloped land that is split up and zoned for commercial use
  • Warehouses, which serve as repositories for supplies or fulfillment processes
  • Factories: These can be built or pre-existing and converted

See Related: Mainvest Review

Final Thoughts

There are many options for foreigners investing in US real estate. The USA welcomes foreign investors and property buyers as long as each adheres to local, state, and federal law.

The key to looking at opportunities for investing in US real estate for foreigners is that they have competent representatives working out all the details of the various property types.

Related Resources

  • Best ESG Funds to Invest in Today
  • Things to Know About Climate Refugees
  • Best Socially Responsible Banks | ESG Options
923d95e062b28f617965ee8eee7a115bc3a2913e65cff2bdf19668d7ac8b3174?s=100&d=identicon&r=g
The Impact Investor

Kyle Kroeger, esteemed Purdue University alum and accomplished finance professional, brings a decade of invaluable experience from diverse finance roles in both small and large firms. An astute investor himself, Kyle adeptly navigates the spheres of corporate and client-side finance, always guiding with a principal investor’s sharp acumen.

Hailing from a lineage of industrious Midwestern entrepreneurs and creatives, his business instincts are deeply ingrained. This background fuels his entrepreneurial spirit and underpins his commitment to responsible investment. As the Founder and Owner of The Impact Investor, Kyle fervently advocates for increased awareness of ethically invested funds, empowering individuals to make judicious investment decisions.

Striving to marry financial prudence with positive societal impact, Kyle imparts practical strategies for saving and investing, underlined by a robust ethos of conscientious capitalism. His ambition transcends personal gain, aiming instead to spark transformative global change through the power of responsible investment.

When not immersed in finance, he’s continually captivated by the cultural richness of new cities, relishing the opportunity to learn from diverse societies. This passion for travel is eloquently documented on his site, ViaTravelers.com, where you can delve into his unique experiences via his author profile. Read more about Kyle’s portfolio of projects. 

  • Facebook
  • Twitter
  • Email

Filed Under: Impact Investing

Primary Sidebar

Start ESG Investing

Best Impact Investing Apps

Best ESG Investment Funds

ESG Investing Trends

What are the Core ESG Principles?

Investment Product Reviews

Earthfolio Review

Betterment SRI Review

Axos Invest Review

Nutmeg Review

Wealthfront SRI Review

Recent Posts

  • 11 Most Carbon-Friendly AI Companies Leading the Sustainable Technology Revolution
  • ESG/Impact Investing vs. Traditional Investing: 9 Data-Backed Performance Insights for 2025
  • 9 Critical Impacts of Trump’s DEI Policies on Sustainable Investing
  • How to Choose Sustainable ETFs: Step-by-Step Guide
  • Green Bonds vs Sustainable ETFs: Complete Analysis
Polar BearPolar Bear on Ice on Ice

Future Generations Will Thank You

Join the newsletter and learn how you can make a invest for financial return and make a positive impact.

JOIN NOW

Footer

About

The Impact Investor is a blog focused on helping retail investors find ESG, socially responsible, and impact investment opportunities through our expert insights, tips, and blog posts.

Resources

  • Best ESG Jobs
  • Best ESG Stocks
  • Best EV Battery Stocks
  • Best ESG Analysis Tools
  • How to Finance Solar Panels

Tools

  • Tesla Charging Calculator
  • Solar Loan Calculator
  • PACE Loan Calculator
  • Electric Bill Calculator

Products

  • Best Investing Apps
  • Best Robo-Advisors
  • Best ESG Funds
  • Vanguard ESG Funds
  • Best Green Credit Cards

Marketplace

  • Community Solar Providers
  • Best Car Insurance for EVs
  • Best Home Solar Systems
  • Best Green Auto Loans

Contact

  • About
  • Contact Us
  • Privacy Policy
  • Disclaimer
  • Facebook
  • Instagram
  • Twitter
  • YouTube

Copyright © 2025 The Impact Investor