Showing posts with label HDFC coops. Show all posts
Showing posts with label HDFC coops. Show all posts

Jun 29, 2014

HDFC Coops Affordable Apartments No "But No Catch"

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Contrary to a recent article in the NY Times, most H.D.F.C. coops still provide affordable home ownership for low to moderate income households. Currently there is pent-up demand from qualified buyers for affordable apartments. Large affordable apartments are in extreme demand and sell quickly when priced right.

In my opinion the article in the Times is an urban myth perpetuated by it's reporter based on anecdotal evidence that may cause some consumers to make wrong real estate decisions.

I've been writing and publishing this blog about Manhattan real estate since 2006 as a transparent consumer service to help Manhattan buyers and sellers make informed real estate decisions. Having represented numerous sellers and buyers of H.D.F.C. coops in successful transactions, I would be remiss if I did not write this post.

I was surprised that HPD (New York City Housing Preservation Department), the city agency that administers H.D.F.C. coops was not included, quoted or represented in the article particularly since the new Mayor Bill de Blasio has made the goal of affordable housing a top priority of his administration.  

In my opinion, there is no "catch" or "bargains with a but" as the headline alludes and the article insinuates. Most of the HDFC listings the article included are anomalies.

The only 'But" and "catch" is when an H.D.F.C. unit is not priced right, not below market and not affordable for the intended low to moderate income buyer that can qualify for and needs a coop loan.

They are not "bargains" for low and moderate income home buyers that meet the maximum income allowed that will need to make monthly mortgage and maintenance payments but they are affordable. 

They are only bargains for fortunate cash buyers mentioned in the article that can also afford to purchase market priced apartments.

Like most coops, many H.D.F.C. coop boards use debt to income ratio to determine affordability. Typically, no more than approximately 30% of gross income should go toward housing expenses to be considered affordable. Most lenders will allow a significantly higher percentage than most coops.

NYC landlords use an income formula when renting an apartment: Income must be 40x rent. For example to qualify for a $3500/month rental apartment the tenant must have an income of $140,000.

30% of a household of 4 with a $140,000 income (165% of area median income) can qualify for a coop loan, with principle and interest payments plus monthly maintenance totaling $3500/month.

Do the math. If it doesn't work something is not Kosher.

With a 20% down conventional loan, a household of 4 earning the maximum $141,000 at a 4.5% interest rate $3500/month can afford a maximum price of approx $600,000 +/- with maintenance around $1000 +/- Households of 5 -8 people with a higher maximum income allowed can afford more. A 1 person household can afford less.

There is a correlation between household size, household income, apartment size, apartment price and affordability.

My advice to buyers looking to purchase an H.D.F.C coop: If you can find the same size non HDFC apartment in the same neighborhood in a similar building comparably priced then the HDFC is certainly NO BARGAIN. The HDFC coop should sell below market. Hence 'affordable'.

If a lender won't finance in the building or the coop won't disclose their financials that is a red flag. Why? The three largest banks in America (Citibank, JP Morgan Chase and Bank of America) are all eager to loan in H.D.F.C coops as long as the coop cooperates with lender and can meet FHA (Federal Housing Authority) guidelines. My preferred H.D.F.C. coop lender is Michael Most at Citibank

Comps (Comparative Market Analysis): Always compare apples to apples. Never compare apples to oranges when purchasing an HDFC coop or for that matter any apartment in Manhattan.

Apt 2E 3BR 2 Bath The Monerey Morningside Heights
There is no restricting an HDFC seller from trying to sell for what ever they want, other than possibly a resale cap in the coop's bylaws. Responsible HDFC coops want to remain affordable. During the board application process and interview the board can use their discretion to ascertain the purchaser's total financial picture and decide if the purchaser "fits in" just like any other coop.

My advice to HDFC sellers: Congratulations prices have risen in HDFC coops over the years. Priced right and marketed properly, listed with an experienced HDFC coop broker it will sell quickly to a qualified buyer providing the HDFC is well managed with good financials.

Like most real estate, the longer you've lived there, the more equity you will have accumulated. Since most HDFC coops are a form of limited equity home ownership a portion of your profits are shared with the coop in the flip-tax. Pricing an HDFC coop is as much of an art as a science, a skill that only comes with experience, knowledge and insight.

The flip tax in HDFC coops, unlike regular coops that converted in the 1980's wasn't to deter anyone looking to make a quick profit as the article states. You couldn't make a quick profit 30 years ago with an HDFC coop. You couldn't give them away. NYC HPD through an affordable housing program helped to rehabilitate the buildings, trained the tenants on home ownership and set the Coop up financially to be self-sustaining.

In my opinion, the reporter totally missed the point. NYC subsidized these apartments by selling them significantly below market prices, keeping the maintenance low with reduced property taxes. Instead she referred to them as "a small and quirky breed of co-op."

I've represented sellers and buyers in The Monterey, a Morningside Heights architecturally significant and sought-after HDFC coop, 45 Central Park North, Harlem's most distinguished and sought after HDFC coop on Central Park as well as HDFC's in Hamilton Heights, Sugar Hill, Manhattan Valley, Hell's Kitchen and the East Village

I've sold HDFC coops at record breaking prices while still maintaining the intent and spirit of affordable home ownership in NYC.
Central Park view from apt 3F 6.5 rooms at 45 Central Park North
I currently have qualified buyers with pent-up demand waiting for my next exclusive HDFC coop listing.

Full Disclosure: The Times reporter interviewed me for the article. It's the second time she interviewed me for an article and didn't quote me. The last time was about buyer's that ride their bikes to work. I can only assume that since my experiences with affordable HDFC coop's have been positive and rewarding for my sellers, buyers, coop boards and lenders, my quotes were not needed since the article's angle was about a a "But and a Catch"


More reading about HDFC Coops:

HDFC Coops | Affordable Home Ownership

HDFC Coops | Facts vs Myths
HDFC Coop Income Standards 
HDC Affordable Condos & Coops
The Flip Tax
Restrictive Covenants 

List your HDFC coop

Disclaimer: The opinions expressed here are those of the author and do not necessarily reflect the opinions or policy of The Corcoran Group.
Disclaimer: I am not a lawyer or accountant. This blog and my answers to questions are my opinions for information purposes only based on my experience as a NY licensed real estate associate broker and not intended as legal or financial advice and should not be used as a substitute for advice of legal counsel.


Apr 11, 2014

HDFC Coops | Facts vs Myths

0 comments
45 Central Park North
There are about 1500 HDFC coops in NYC about half are in Manhattan. Most have come through various programs run by HPD (Housing Preservation Department) in order to privatize the City's in REM (foreclosed) stock.

Buildings in the Tenants Interim Lease Program  have been gut rehabilitated by HPD then they will be converted to HDFC Cooperatives and sold to the tenants for $250 per apartment. The "buy in" price for all current residents is now $2,500.

HDFC cooperatives originating from HPD Division of Alternative Management Programs (DAMP) have certain restrictions and depending of when the conversion took place they are slightly different.

The most common restriction is income: Conversions prior to 1995 require income of new shareholders not to exceed 6 or 7 times the annual maintenance plus utilities. If the incoming household has less than 3 dependents you multiply the annual maintenance plus utilities times 6. If the family has 3 or more dependents then by 7.

There are a number of HDFC cooperatives converted from 1986 to 1995 that have a further restriction requiring the payment to the City of 40% of any profit on the resale of the shares. These are called 60/40 buildings.

HDFC co-ops are intended to be the primary, permanent homes for the self-supporting working low- to moderate-income households. They are not intended to be investment property, for market speculation or for non occupant parents purchasing them for their adult children.

In most subsidized housing low income is considered below 100% of the NY area median income and moderate income is above the median. Moderate incomes range from 120 percent to 165 percent of the area’s median income.

A project in the South Bronx, for example, might be restricted to people with incomes up to 80 percent of the median, which means $68,000 for a family of four. But in Harlem, Morningside Heights, Clinton/Hell's Kitchen or the East Village the limit might be as high as 165 percent of the NY median, or $141,735 because incomes are higher in those neighborhoods.

Generally all HDFCs usually require a "Transfer Fee" commonly called a "Flip Tax" often up to 30% of seller's profit but can vary. It is necessary to review the Proprietary Leases and Offering Plans to ascertain exactly what the restrictions for any one particular HDFC cooperative as there are many variations.

HDFC coop boards are not that different from any other coop board. All coops including HDFC are set up as private housing corporations. The coop board is entitled to approve or deny any purchase for any reason other than discrimination. The only difference is HDFC coops have maximum income restrictions. The must remain "affordable" based on New York metropolitan area statistical median income standards released annually through HPD as determined by each HDFC.

Cash is not always King: Cash only required is a red flag. There are many reasons why a lender will not lend in an HDFC coop but there are lenders (citibank, Chase, Bank of America) that will loan in HDFC coops that have good financials and are managed well. Many established HDFC coops are on the lender's approved list.

Some coops will need to be approved by a lender because they haven't had a recent sale. There is an approval process. If the coop cooperates with the lender and answers the lender's questionnaire and meets lender's and Fannie Mae guidelines they will most likely be approved.

There are a lot of myths about HDFC coops, many are perpetuated by brokers that lack experience and knowledge of HDFC coops. They don't understand the spirit and intent of "affordable housing" despite taking a listing. There are a lot of brokers in Manhattan but few with successful experience selling HDFC coops.

There are many good HDFC coops. For qualified low- moderate income buyers they can offer an opportunity for affordable home ownership but like everything else in NYC there are always some bad apples.

Caveat Emptor. Let the buyer beware. Buyers and or their (HDFC experienced) attorney should do their "due diligence" They should request financial reports as well as copies of the minutes of the Annual Shareholders Meeting, proof of insurance and Fidelity Bond, as well as payments of Property Taxes and Water & Sewer charges.

Related article:
HDFC Coops

Oct 19, 2011

HDFC Co-op | "Affordable" Home Ownership

48 comments
HDFC Coops - Affordable Home Ownership in Manhattan
The Monterey | 351 West 114th Street
Morningside Park

Q: What is an HDFC coop?

A: HDFC (Housing Development Fund Corporations)
Since 1979, the Department of Housing Preservation and Development (HPD) has sold formerly City-owned buildings to Housing Development Fund Corporations (HDFC's)

HDFC coops are affordable cooperatives in New York City. They are a relatively unknown market niche that are city subsidized and sell below market (40%-50%) below non HDFC comparable coops and condos.

If you qualify an HDFC coop may be right for you. It may be a great deal.

HDFC coops are a form of limited equity home ownership. HDFC coops offer many of the same benefits as regular coops but they have some eligibility (income) restrictions and many have a "flip tax" paid by the seller.

Since they are sold below market and the maintenance remains low because the city reduces real estate tax on HDFC coops upon selling a portion of the profit is shared with the coop and sometimes the city hence "flip tax".

Back in the late 70' and 1980's many rental buildings were abandoned by landlords and owners that may have owed back taxes or city water charges and the buildings were taken over by the city. NYC HPD (Housing Preservation Department) through an affordable housing program helped to rehabilitate the buildings, trained the tenants on ownership, set the Coop up financially to be self-sustaining, and then sold the apartments to the existing tenants for very low amounts some as low as $250 in exchange the new owners had to maintain the buildings.

Rather than becoming a landlord, the City helped rehab and trained the existing tenants, even some squatters about maintaining their building and becoming a self sufficient housing cooperative. It has been a very successful program. Over the years they rarely sold and remained within families.

During the past several years brokers including myself began listing and marketing HDFC coops and have been able to get much higher prices for the owners. While they still sell below market many sellers are now able to get the highest possible price for their coop.

I recently represented a seller and a buyer in two different 3 bedroom apartments in the same line in an HDFC coop in Morningside Heights. I sold the seller's beautifully renovated apartment for $660,000 and managed to procure the same apartment on a higgher floor, un-renovated for $550,000. The highest prices in the building's history. A non HDFC comparable coop would be $900,000 - $1.1M.

More recently I've represented sellers and buyers in Harlem's most sought after HDFC coop as well as HDFC's in Hamilton Heights, Sugar Hill, Manhattan Valley, Hell's Kitchen and the East Village.
While prices vary building to building and neighborhood to neighborhood it should be noted that under the private Housing Finance Law, all HDFCs must be low income. 

The specific definition of low income for some HDFC cooperatives were time limited and have expired, the cooperation must adopt a new standard. The highest standard that HPD will accept is 165% of the median income for the metropolitan area.

Because HDFC coops were originally set up as low income housing they must remain affordable so a buyer must qualify financially. An HDFC coop must be a primary residence and the income restrictions are based on area income standards. In many cases either less than 120% or 165% area median income. Therefore individual HDFC coops have different income requirements. It also varies depending on the household size. A household of five can have a substantially higher income enabling larger households to afford larger apartments.

The cost of owning and maintaining shares in a cooperative include apartment maintenance, the monthly payments on any loan used to purchase the shares, utilities, and homeowners insurance. Generally buyers should not pay more than 30% of their gross income in housing costs. HDFC boards have the same discretion to approve or reject a buyer like any regular coop. The only difference is there is a maximum income allowed to purchase or lease in HDFC coop apartments.

An HDFC coop represents a great opportunity to own a home  in New York City, for a fraction of the price of other coops and condos but with that comes some restrictions on purchasing and upon selling you often have to give a portion of your profit back to the coop in the "flip-tax" (private transfer fee.)

When buying or selling an HDFC Coop it is important to use a broker that understands the rules, restrictions and nuances of HDFC coops.

More reading:

HDFC Coops | Facts vs Myths
HDFC Coop Income Standards
The Flip Tax
Restrictive Covenants

If you would like more information about buying or selling an HDFC coop please contact me.
 
Disclaimer: I am not a lawyer, this blog and my answers to questions are my opinions for information purposes only based on my experience as a real estate broker and not intended as legal or financial advice and should not be used as a substitute for advice of legal counsel.

 
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