The Do’s and Don’ts of Buying Property in the USA as a Foreigner

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|10 min read

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Real estate is a significant investment that requires careful consideration and planning. By the same token, if done, fully informed, and supported by the right team of experts, buying property in the USA as a foreigner can be a rewarding and profitable investment.

Whether you are looking to purchase a residential or commercial property, there are several do’s and don’ts to keep in mind when buying property in the USA as a foreigner. In this article, we will discuss the important aspects of purchasing real estate in the USA, including costs, taxes, limitations, and benefits.

Can I buy a house as a foreigner?

Yes. Anyone can buy property in the USA regardless of citizenship. There are no restrictions or laws preventing foreigners from buying property in the United States.

The Do’s of Buying Property in the USA as a Foreigner

1. Get pre-approved for a mortgage

Before you start shopping for a property, it’s essential to know how much you can afford. Get pre-approved for a mortgage to determine your budget and avoid falling in love with a property you can’t afford.

Some banks, such as HSBC Bank are catering to foreign residents’ buyers. The down payment requirement is usually higher than 20%. An alternative will be buying cash or financing in the country of residence.

2. Research the market

Do your due diligence and research the local real estate market. Look at recent sales, trends, and property values to determine if it’s a good time to buy.

It’s also essential to understand the neighborhood, amenities, and culture of the area for a profitable investment.

3. Hire a Realtor

A professional Realtor can help you navigate the complex process of buying real estate.

They can provide valuable insights, submit an offer to purchase, negotiate on your behalf, and help you find the perfect property. Some Realtors are specialized in working with foreign buyers and hold the National Association of Realtors designation of Certified International Real Estate Professional (CIPS).

4. Entity Structure

Consider setting up a legal entity in the U.S.A. to hold the title of the property. This can provide liability protection and may have tax advantages.

Common entity types include limited liability companies (LLC’s) and corporations. Consult with an attorney and certified public accountant to determine the most suitable structure for your investment. 

5. Understand Potential Taxes

Foreign Investment in Real Property Tax Act (FIRPTA) is a federal law that imposes withholding taxes on foreign sellers of US real estate. As a foreign buyer, you need to be aware of the FIRPTA rules and potential withholding requirements when selling your property in the future. 

According to FIRPTA, the foreign seller owes the tax; however, in reality, the buyer is held responsible for paying the tax. There are some exceptions to this, yet, it’s essential to consult your realtor and be clear on what taxes you will pay.

6. Consult a Team of Professionals 

When buying complex commercial real estate assets, such as hotels, office buildings, or manufacturing facilities, engage professionals from all areas of expertise.

It’s critical to rely on real estate agents, attorneys, accountants, inspectors, and property managers with experience in international transactions. They can guide you through the process and help navigate any legal and financial complexities.

It is also important to plan ahead how the asset will be managed, especially for remote owners. 

>>Got Questions? Ask a Licensed Real Estate Agent for Advice

7. Inspect the property

Before you make an offer, make sure to get a professional inspection of the property. This will help you identify any potential issues that could affect the value of the property.

In addition, you will be more aware of the condition of the property, costs for repairs, and what may need to be renovated in the future.

8. Consider the location

The location of the property is a crucial factor in its value.

Look for properties in desirable neighborhoods with good schools, low crime rates, and easy access to amenities. When buying property in the USA as a foreigner, it may be difficult to assess the area. Therefore, rely on the expertise of your real estate agent to guide you to you right location.

9. Local Regulations

Each state and municipality may have its own specific rules and regulations regarding international real estate transactions.

Ensure you are familiar with local laws, zoning restrictions, permitting requirements, and any other regulations that may affect your investment. 

>>MORE: How to find an experience real estate agent

The Don’ts of Buying Property in the USA as a Foreigner

1. Rush into a purchase

Buying real estate is a significant investment that requires careful consideration. Don’t rush into a purchase without doing your due diligence and considering all the factors.

2. Overlook the hidden costs

When buying real estate, there are many hidden costs to consider, such as closing costs, property taxes, and maintenance expenses. Make sure to factor these costs into your budget.

3. Ignore the limitations

Every property has limitations that could affect its value. For example, a property near a busy highway or in a flood zone may be less desirable. Make sure to consider all the limitations of a property before making an offer.

Costs of Buying Residential Real Estate in the USA

The costs of buying residential real estate in the USA can vary depending on several factors, such as the location, property type, and size. Some common costs to consider include:

Down payment

The down payment is typically 20% of the purchase price, but it can vary depending on the lender and the buyer’s financial situation. A foreign buyer receiving a loan in the US is usually required to have a 30%-40% down payment, depending on the lender.

Closing costs

Closing costs can include fees for the appraisal, title search /insurance, escrow services, loan, and legal services, all varying from state to state.

When purchasing a condominium or coop, there are Homeowners Association (HOA) dues and fees. Some HOA’s require upfront move-in fees, HOA ownership transfer fees, and the first month of HOA.

Property Taxes

Property taxes are based on the assessed value of the property and can vary depending on the location.

The property taxes are determined by the local and state governments and are calculated as a percentage of your home value.  Homes assessed at higher values pay higher taxes. In addition, some states have significant property taxes. If a buyer is unaware of the annual taxes, it could put them in a difficult financial position.

Capital Gain Taxes

If you sell your primary residence for a profit, you may be subject to capital gains tax.

However, there are exemptions available for homeowners who meet certain criteria. There are also mortgage interest deductions for homeowners. Check with IRS and a tax professional before any purchase or sale to ensure that you understand all financial aspects of the real estate transaction.

What are the rules for foreigners buying land in the USA?

While there are no laws or restrictions on buying property in the USA as a foreigner, there are several necessities to be aware of prior to buying real estate in the USA.

  1. Foreigners will need to obtain a taxpayer identification number (TIN) from the International Revenue Service.
  2. Financing must be clearly established. While some US banks will provide a mortgage loan, it is wise to also look into your country of residence for a loan.
  3. Documentation of finances, pay stubs, credit history, and tax returns
  4. A higher downpayment is usually necessary for buying property in the USA as a foreigner.
  5. Annual taxes for US citizens and foreigners are the same.

Find Home Sooner With FastExpert

USA real estate market is a mature and regulated ecosystem, with a lot of safeguards in place in order to protect the consumers, whether domestic or foreign. Being informed leads to the most suitable decision for your personal and investment needs and a positive experience during the purchasing process.

Buying property in the USA can feel complicated; however, with the guidance of an experienced real estate agent, it can be a smooth process.

If you need a great agent, FastExpert has a free tool to match you with experienced real estate agents who can help you find your dream home. Or browse the world’s largest real estate directory and read reviews and ratings to connect with your perfect agent.

Alina Aeby is a global real estate and Proptech consultant, speaker, and investor based in San Francisco, California. Alina is dedicated to helping buyers and sellers in San Francisco and throughout the Bay Area. She enjoys representing a first-time home buyer as much as she enjoys representing a seasoned multi-asset investor or a luxury property seller or buyer. Alina has a background in journalism and economic research and holds a PhD in Economics with an emphasis in globalization.

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