Foreign Investment in U.S. Real Estate: What Buyers Must Resolve Before Closing

Foreign buyers purchased 67,100 existing U.S. homes worth $45.3 billion between April 2025 and March 2026, both numbers down sharply from the year before. The decline matters less than it first appears. Nearly half of those purchases were all-cash, and Chinese buyers alone accounted for $7.6 billion—more than buyers from any other country. The National Association of Realtors’ 2026 report has the full numbers.

Cash removes one layer of outside scrutiny. A buyer without a lender has nobody else insisting on an appraisal, examining the condition of the property, or questioning whether the transaction makes economic sense. Banks and title companies still review the source of funds, but they are not there to protect the buyer from a bad investment. Buying American real estate from abroad has also become harder in ways that have little to do with price. Federal review reaches more property near military installations than it did two years ago, a growing number of states restrict ownership by certain foreign individuals and entities, and federal reporting requirements remain unsettled.

Those are threshold questions, and they are often the ones foreign buyers ask us about first. They are rarely the ones that cost the most money. In our experience, foreign investors who get badly hurt in U.S. real estate usually did not choose the wrong entity. They bought the wrong building. Foreign buyers often devote considerable attention to the ownership structure while giving too little attention to the property itself.

The United States Is Not One Real Estate Market

American real estate is governed by federal law, fifty sets of state laws, and thousands of local codes. The rule that kills a deal is usually the most local one. A short-term rental operating legally in one Florida city violates the ordinance in the city next door. The same apartment building carries landlord-tenant risks in Seattle that it would not carry in Phoenix. Development rights can change from one side of a street to the other.

Before Washington enacted its current condominium statute, a client of ours from Mexico City put a 40-unit Seattle apartment building under contract for $12 million. He intended to convert the building to condominiums, spend roughly $25,000 per unit on cosmetic work, and sell the units at an average of $450,000. The arithmetic was clean, and the broker’s package supported it. Washington condominium law destroyed the plan. Converting the building would subject the project to statutory warranty obligations affecting both the units and the common elements, including parts of the existing structure. An engineer estimated that addressing the resulting exposure would cost roughly $95,000 per unit. After adding tenant relocation and the required notice period, the projected conversion cost rose from about $1 million to nearly $5 million, against projected gross sales of $18 million before commissions, financing, and carrying costs. The deal was dead.

The buyer discovered the problem during due diligence and terminated the contract. He lost what he had spent investigating the building but recovered his deposit. Had he closed first, he would have owned a Seattle rental property he never wanted, at a price that made sense only as a condominium conversion, with no attractive way out. That transaction arose under Washington’s former condominium law. Washington has since enacted a new condominium statute and amended its warranty provisions, so the same project would require a fresh analysis today. The current law distinguishes condominiums created before July 27, 2025, from those created on or after that date and imposes additional requirements for proving a warranty breach. The current implied-warranty provisions appear in RCW 64.90.670.

The First Question Is Whether the Buyer Can Own It

Before a foreign buyer spends serious money on a transaction, it should determine whether it is legally permitted to complete it.

CFIUS Review Near Sensitive Locations

The Committee on Foreign Investment in the United States (CFIUS) reviews certain foreign purchases, leases, and concessions involving real estate near military installations and other sensitive locations. Treasury substantially expanded the covered-installation list in 2024, and jurisdiction extends one mile from some installations and 100 miles from others. The rule does not cover every home inside those circles. A foreign person’s purchase or lease of a single housing unit is generally excluded, along with adjoining land and fixtures incidental to its residential use. Multifamily, commercial, industrial, and unusually configured residential properties still require closer analysis. Treasury’s CFIUS real estate location guidance links to the government’s Geographic Reference Tool, and its residential-property guidance explains the single-housing-unit exclusion.

The power gets used. In 2024, President Biden ordered MineOne Cloud Computing Investment, a British Virgin Islands company majority-owned by Chinese nationals, to divest property it had acquired near Francis E. Warren Air Force Base in Wyoming. Property outside a covered area ordinarily ends the standalone CFIUS real estate inquiry. CFIUS jurisdiction can still arise, however, if the acquisition is part of a transaction involving a U.S. business. Property inside a covered area calls for a closer look at the buyer, the transaction, and the intended use. That review should occur before the buyer becomes emotionally and financially committed. Our overview of U.S. foreign investment and the CFIUS rules explains the broader review framework.

State Ownership Restrictions

State restrictions have multiplied faster than any national summary can track, and we no longer answer this question from memory for any state. We check the current statute every time.

Texas Senate Bill 17 took effect on September 1, 2025. It restricts certain purchases by individuals and entities connected to countries identified as national-security threats and reaches residential, commercial, industrial, and agricultural property. Its application turns heavily on domicile, control, and the intended use of the property. U.S. citizens and lawful permanent residents fall outside the prohibition, and the law also contains exceptions for homestead property and leasehold interests of less than 100 years. The enacted text and legislative history appear on the Texas Legislature’s SB 17 page.

Florida built a different system. Its law restricts some foreign principals from acquiring agricultural land or property near military installations and critical infrastructure. A separate provision generally prohibits specified individuals and entities connected to China from acquiring Florida real estate unless an exception applies. One exception permits a natural person domiciled in China who is lawfully present in the United States under a qualifying visa or asylum documentation to buy one residential property of up to two acres, provided the property lies outside the specified military zone and is purchased in that person’s name. Florida also imposes registration and closing-affidavit requirements that can catch buyers who assume the underlying acquisition is permissible. The controlling provision is Florida Statutes § 692.204.

Recent appellate decisions have not settled the constitutionality of the central purchase prohibitions. In Shen v. Commissioner, the Eleventh Circuit held that the plaintiffs lacked standing to challenge Florida’s purchase restriction. It nevertheless reached the preliminary-injunction merits of their challenges to the law’s registration and affidavit requirements and concluded that the district court had not abused its discretion by refusing to enjoin them. The court’s opinion explains the distinction.

The Fifth Circuit’s decision in Wang v. Paxton was narrower. The court held that the plaintiff lacked standing because he had not alleged facts showing that he was domiciled in China—the status to which the relevant portion of Texas SB 17 applies—or that he faced a substantial threat of enforcement. The ruling did not decide whether SB 17 is constitutional. The opinion in Wang v. Paxton turns on the plaintiff’s circumstances.

Neither decision invalidated the relevant statute, but neither conclusively resolved the merits of the principal purchase prohibition. Buyers should analyze these statutes as laws currently in force rather than treating the litigation as having cleared the field. Nationality alone rarely answers the ownership question. Domicile, immigration status, ownership and control, the property’s location, and its intended use can all change the result. Buying American property also confers no right to live or work in the United States. Anyone planning to spend substantial time here needs an immigration strategy separate from the real estate transaction.

The Tax Bill Is Part of the Purchase Price

Foreign ownership generates income, property, transfer, and estate taxes, along with withholding and annual filing obligations. Three issues cause much of the trouble.

Where the Buyer Lives Changes Everything

A buyer’s connection to a particular country matters well beyond the state ownership statutes. Chinese buyers face restrictions on moving purchase funds out of China and close source-of-funds review by American banks on the receiving end. Those systems operate independently. Buyers from other countries encounter home-country taxes and reporting duties that their American lawyer and broker will not necessarily see. Their U.S. structure therefore needs to be coordinated with advisers who understand the laws of the country where the investor lives and pays tax.

Estate-tax treatment also varies by treaty, and the treaty network is thin. The United States has estate or estate-and-gift tax treaties with only a limited group of countries. Canada receives some estate-tax relief through the U.S.-Canada income tax treaty. Investors from countries without treaty protection—including China, Mexico, Brazil, India, South Korea, Spain, and Portugal—face a materially different calculation. Treaty coverage changes the analysis rather than eliminating it. Citizenship, domicile, immigration status, home-country law, the ownership structure, and the property itself all matter.

FIRPTA Withholding

When a foreign owner disposes of a U.S. real property interest, the buyer must generally withhold 15 percent of the amount realized and remit it to the IRS. That withholding is an advance against the seller’s eventual tax liability, not the tax itself, but it reduces what the seller receives at closing. Sellers who first learn about it when they see the closing statement are understandably unhappy. Exceptions and reduced rates apply to some transactions. A seller whose required withholding substantially exceeds the expected tax can apply for a withholding certificate, but the IRS generally needs time to process the application. The IRS FIRPTA guidance explains the general rule, principal exceptions, and withholding-certificate process.

The $60,000 Problem

The estate-tax disparity is where foreign buyers get badly blindsided. In 2026, a U.S. citizen or U.S.-domiciled individual has a federal estate-tax exclusion of $15 million. A nonresident who is not a U.S. citizen ordinarily receives a credit sheltering only $60,000 of U.S.-situated assets, and U.S. real estate is a U.S.-situated asset. Those are not minor variations in treatment. They are different systems.

A non-domiciled investor who holds valuable American property personally can leave their family a substantial federal estate-tax bill on an asset the family may have to sell to pay it. Debt, deductions, treaty protection, ownership structure, and the investor’s other U.S. assets all affect the calculation, but living and dying abroad do not make the issue disappear. The executor of a nonresident noncitizen’s estate must generally file Form 706-NA once the value of the decedent’s U.S.-situated assets exceeds $60,000. The IRS summarizes the rules in its estate-tax guidance for nonresidents. Addressing the problem after closing is usually more expensive and can create additional tax consequences, which is why the planning belongs in the acquisition.

Choose the Ownership Structure Before Signing

Foreign buyers routinely sign purchase agreements personally and plan to sort out the entity later. Changing course after closing can require lender consent, new title work, transfer taxes, and another round of legal and accounting fees. The transfer itself can also create tax consequences.

No structure is right for every foreign investor. Advice that begins with the entity rather than the buyer’s circumstances is incomplete. A domestic limited liability company offers liability protection and administrative flexibility but does not, by itself, solve the estate-tax problem described above. A foreign corporation can reduce direct U.S. estate-tax exposure but often brings less favorable income-tax treatment and greater administrative complexity. Trusts and partnerships carry their own benefits, costs, and reporting obligations. Home-country rules matter as much as American ones. A structure that works well under U.S. law can produce a bad result where the investor lives and pays tax. Entity selection should therefore be coordinated with the purchase agreement, financing, tax planning, intended use, and likely exit. Assignment rights preserve some flexibility, but they are a poor substitute for deciding before signing. Our discussion of choosing between an LLC and a corporation explains why “we will fix it later” so often becomes expensive.

What an Entity Actually Hides

An entity can keep an investor’s name out of some publicly searchable property records. It does not conceal the investor from banks, title companies, tax authorities, or the federal government. The federal reporting rules have changed repeatedly. FinCEN’s residential real estate rule took effect on March 1, 2026, and required reporting for many non-financed residential transfers to legal entities and trusts. On March 19, 2026, a federal district court vacated the rule. FinCEN and the Department of Justice appealed, but while the vacatur remains in force, reporting persons need not file Real Estate Reports and face no liability for failing to do so. FinCEN posts the current status on its Residential Real Estate Rule page.

The Corporate Transparency Act followed a different path. In August 2026, FinCEN issued a final rule exempting entities created in the United States from beneficial ownership reporting. Certain entities formed under foreign law and registered to do business in the United States remain covered, although they no longer report U.S. persons as beneficial owners. That rule took effect on August 14, 2026, and FinCEN maintains the current requirements on its beneficial ownership information page.

As matters stand today, a domestic LLC does not incur a reporting obligation under either federal regime merely because it acquires residential real estate. That can change if the government succeeds in its appeal or Congress or FinCEN changes course again. Check the rules when the transaction is ready to close rather than relying on what was true when the contract was signed—or when this article was published.

Due Diligence Decides Whether the Deal Works

Sellers and brokers present a remarkably consistent picture across markets: stable tenants, below-market rents, light renovation needs, and room for appreciation. Due diligence tests that picture against the records and the physical property. It is also the part of the transaction that foreign buyers most often try to trim. The purchase agreement must give the buyer enough time and access to do the work, along with a meaningful right to terminate or renegotiate. Once the deposit becomes nonrefundable, most of that leverage disappears. Diligence performed afterward can identify a problem, but it cannot restore the buyer’s lost bargaining position.

Title, Access, and Lawful Use

A title review can uncover liens, easements, recorded restrictions, and competing claims. A survey shows whether a building crosses a boundary or whether the only legal access is too narrow for the tenant’s trucks. Title insurance covers specified title risks; it will not widen an access road or remove a recorded restriction that prevents the buyer’s intended use. Existing use also proves nothing about lawful use. Properties routinely contain unpermitted work, illegal units, and improvements that violate parking, setback, or occupancy requirements. The seller may not know about them either. When the economics depend on redevelopment, condominium conversion, or short-term rentals, the buyer needs to establish what local law actually permits. A business plan that depends on an untested government approval is not yet a business plan.

Physical and Environmental Condition

The physical inspection should cover the structure, major systems, accessibility, and capital expenditures likely to arise during the next five to ten years. Older buildings and larger properties justify a formal property-condition assessment. The cost is trivial compared with the cost of guessing.

Environmental review deserves particular attention at gas stations, dry cleaners, former industrial sites, and properties whose neighbors may have released contamination. Federal and state law can impose substantial obligations on an owner who did not cause the contamination.

A company asked us to conduct due diligence on a commercial property in Las Vegas. We quoted $25,000. The company declined and bought the property without conducting any due diligence at all. It later came back to us, this time seeking help avoiding responsibility for an environmental cleanup. That was how we learned what had happened. The site had already been identified in public records as requiring cleanup, and a routine Phase I environmental site assessment should have uncovered the problem before closing. By then, the company owned it. The financial exposure was only part of what it lost. Federal law allows a purchaser of contaminated land to qualify as a bona fide prospective purchaser and limit its liability, but the protection depends on satisfying statutory requirements, including completing “all appropriate inquiries” before acquisition and meeting continuing obligations afterward.

A buyer who closes without conducting any environmental diligence has not merely failed to discover the contamination. It has jeopardized a statutory defense that cannot be recreated after closing and surrendered the opportunity to renegotiate the price, allocate the risk by contract, or obtain insurance addressing it. The EPA explains the requirements in its guidance for bona fide prospective purchasers.

Leases and Operating Records

For an income-producing property, the leases largely determine the value. The buyer should read the leases, amendments, guaranties, and attached documents, then compare the rent roll with actual receipts, operating statements, and tax returns. Reported rent is not necessarily collected rent. Concessions, delinquencies, termination rights, and undocumented side arrangements can reduce what the building actually produces. In retail properties, termination and co-tenancy rights can hollow out the apparent security of a national tenant’s lease. Operating expenses deserve the same scrutiny. Deferred maintenance and understated insurance, utility, or management expenses can erase a projected return without a single tenant leaving.

Financing and Insurance Cost More Than the Model Says

Foreign buyers obtain U.S. financing regularly, but they often face larger down payments, stronger guaranties, deeper reserves, and more extensive source-of-funds review. Foreign financial statements and corporate records also need translation and explanation, while moving purchase funds across borders takes longer than buyers expect.

Chinese foreign-exchange restrictions and American anti-money-laundering review operate on separate tracks. A transfer that passes one system can raise questions in the other. Dividing a large transfer among relatives or associates to work around Chinese limits can cause an American bank to question whether the payments were structured to evade legal controls. The critical question is not simply whether the buyer has the money. It is where the money sits and whether it can lawfully reach the closing account on time. We discuss that distinction in China’s New Overseas Investment Rules: Can Your Chinese Investor Actually Get the Money Out? and explain the dangers of improvised transfer arrangements in Getting Money Out of China: NOT This Way.

The loan documents matter at least as much as the interest rate. A due-on-transfer clause can block the restructuring the buyer’s tax advisers recommend two years later. Cash-management provisions can place rental income under lender control as soon as the property misses a coverage test.

Insurance has become a serious underwriting problem in catastrophe-exposed markets. The seller’s current premium says little about what the buyer will pay after a change in ownership, occupancy, or use. Obtain written quotations during due diligence based on the actual ownership structure and business plan, and confirm that the coverage satisfies both the lender and the leases before the deposit becomes nonrefundable.

Distance Magnifies Management Risk

An overseas owner experiences the property largely through the manager’s reports. They cannot readily inspect a completed repair, meet competing contractors, or notice that maintenance has been deferred for three years. A weak manager can hide a deteriorating building behind tidy monthly statements until a tenant leaves or a major system fails.

The management agreement should reflect that distance, particularly in its treatment of reporting, spending authority, competitive bids, fees, and responsibility for the manager’s mistakes. The owner still needs to compare actual results with the budget, question unexplained variances, and obtain an independent inspection when the reports stop making sense. Renovation work magnifies the problem. Early budgets commonly omit permit costs, professional fees, concealed conditions, and delay. A low bid can become a sequence of change orders that an owner thousands of miles away has little ability to evaluate.

The Exit Shapes the Purchase

How an investor expects to leave should influence how they enter. A sale, a transfer to children, and a disposition through a joint venture produce different legal and tax consequences. For a non-domiciled investor, holding property until death can be particularly expensive if the structure leaves direct U.S. estate-tax exposure in place. Joint ventures need their own exit rules. The operating agreement should address capital calls, deadlocks, transfers, and who decides when to sell. Partners who agree completely about buying a building often disagree about funding a new roof or holding through a weak market.

The plan will change. The structure selected at acquisition should accommodate the most likely alternatives without requiring an expensive reorganization to carry out any of them.

What This Comes Down To

Our Mexico City client spent real money investigating a Seattle building and learned before closing that the project did not work. He walked away and recovered his deposit. The Las Vegas buyer declined to spend $25,000 on due diligence and then bought a property requiring an environmental cleanup. Neither outcome turned primarily on entity selection. Both turned on whether the buyer obtained the information needed before becoming irrevocably committed.

Due diligence does not eliminate every risk, and a thick report is not necessarily a useful one. The point is to find the handful of facts that change the price, require different contract terms, or mean the buyer should never own the property at all. If you are buying U.S. real estate from abroad, address the ownership restrictions, tax exposure, financing, legal structure, and property-level risks before you sign—or at least before your right to walk away expires. After closing, the problem belongs to you.