Showing posts with label flip tax. Show all posts
Showing posts with label flip tax. Show all posts

May 18, 2013

Flip Tax | NYC Real Estate

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Q: What is a Flip Tax
A:  A private Transfer Fee

The flip tax is a private transfer fee that many new york coops impose on shareholders. In the late seventies and early 80's when many rental buildings converted, huge profits were being made by former renters who bought their units at inside prices and then resold them. Called "flipping" The boards decided to impose the transfer fee and call it a flip tax on sellers to dissuade flipping.

Due to high costs of operating and maintaining their buildings, many coops and condos need to build their reserve fund by either trying to impose a flip taxes or succeed at imposing a flip tax usually on seller's. In order for the flip tax to pass most bylaws/ proprietary leases require 2/3 of the shareholders have to vote in favor of it. It requires a quorum. An absent vote is a no vote.

A flip tax is a restrictive covenant All co-ops and 99% of Manhattan condos have restrictive covenants. "A provision in a deed limiting the use of the property and prohibiting certain uses".

Condo and condop buildings that have many investor owners from out of town make it difficult to pass a 2/3 majority if governing documents allow changes by vote.

HDFC coops (a NYC affordable housing program) usually have a flip tax as a way to keep the buildings affordable.

There are several ways they try to impose the flip tax. There are arguments on both sides for every type. It is any easy way to get 2% sometimes 3% - 5% of a unit's sale price. The average apartment in Manhattan is over $1 million. Do the math. Buildings have figured 5-10 transfers a year what a nice windfall for them.
  1. A percentage usually 2% but sometimes 3%
  2. A flat fee
  3. Percent of profit
  4. Dollar amount per share
Management companies and boards lobby the shareholders why a flip tax is good. They argue if they have this reserve fund from the flip tax they won't have to raise maintenance or have assessments.

Elderly people planning on leaving the apartment to their children don't care as that is an exemption in many proprietary leases. People who recently bought and have to be relocated feel it's unfair as they have not been there that long. Long time residents feel they stuck it out and have already paid for all assessments over the years.

I prefer the dollar amount per share. A seller will always know their liability. The way the shares were allocated in the offering plan in my opinion is the fair way to determiner a flip tax.

If a seller made renovations to their apartment and or hired a great real estate broker who sold for a higher price than other comparable apartments with the same amount of shares, the seller deserves that profit not the building.

If the flip tax is based on profit, in my opinion it should be net profit not gross. The seller should be allowed to deduct the cost of renovations and capital improvements they made to their unit. After all the profit is because the owner increased the value of the shares by making the improvements. The coop should not be entitled to limit the seller's equity unless they contributed

Manhattan Seller


Oct 27, 2011

Restrictive Covenant: Right of First Refusal

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Manhattan Real Estate Q&A

Q: Do Manhattan condominium and cooperative apartments have restrictive covenants and what is a restrictive covenant?

A: Manhattan housing is primarily made up of coop and condominiums. Both coops and condos in Manhattan have restrictive covenants.

The legal definition for a restrictive covenant: "A provision in a deed limiting the use of the property and prohibiting certain uses".

Most all condominiums in Manhattan have the restrictive covenant: Right of first refusal.

Most coops in Manhattan have the restrictive covenant: Right to refuse AKA board approval 

Many people confuse the two different covenants.  Right of first refusal means the condominium has the first right of refusal on any offer. They have the right to match the offer and buy the condominium unit for the same price and terms being offered. They either exercise that right and purchase the unit or they waive the right and issue a waiver so the condominium unit owner can close the sale and transfer title. 

A coop's right to refuse gives the coop board the right to refuse any coop purchaser for any reason or no reason.  A coop is not required to give a reason for a board turn down. Coops must adhere to fair housing and human rights laws. The burden is on the buyer or seller to prove the coop turned down a sale because of discrimination.

A flip tax that many coops and some condominiums impose is also a restrictive covenant requiring the seller to pay a portion of their sale price or profit to the coop or condo board.

Restrictive covenants may prohibit certain financing. FHA does not loan in coops and condominium buildings with restrictive covenants. The Federal Housing Finance Agency was considering a rule that would prohibit Fannie Mae from purchasing loans in buildings where there is a private Transfer Tax AKA "Flip Tax" The real estate board of NY, REBNY successfully lobbied against the rule because of the adverse affect it would have on the NYC housing market.

Feb 2, 2011

REBNY Succeeds in Flip Tax Effort

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Buildings with flip tax exempt from proposed FHFA ruling that would have restricted financing

Sigh of relief for NYC’s residential real estate industry
REBNY members warned legislators of proposed ruling’s crippling impact

With the help of hundreds of its members who delivered 629 letters to the Federal Housing Finance Agency – more than a quarter of the total responses received – The Real Estate Board of New York (REBNY), the city’s leading real estate trade association, has succeeded in its effort to fight a proposed ruling that would have barred lending in buildings with a flip tax. The proposed ruling could have had a crippling impact on property sales throughout New York City.

Addressing the concerns raised by REBNY and its members, the proposed FHFA rule announced Feb. 1, 2011 now excludes private transfer fees paid to homeowner associations, condominiums, cooperatives, and certain tax-exempt organizations that use private transfer fee proceeds to benefit the property.

When the ruling was first proposed last fall, REBNY and its membership launched the initiative through the REBNY Action Center. Members were encouraged to contact the FHFA and key officials to advocate for exempting the flip tax and acknowledging the long-standing beneficial practice in New York City housing.

Led by Congressman Anthony Weiner, the entire New York City House delegation
supported the New York City housing industry and swiftly signed and submitted a letter requesting that federal funds should continue to be available when transfer fees are paid to a cooperative or management to the benefit of a building.

The Real Estate Board of New York is the city’s leading real estate trade association with more than 12,000 members.

Sep 7, 2010

Fannie Mae Flip Tax Proposed Rule Change

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A draft rule has been issued by the Federal Housing Finance Agency for comment that would create serious problems for Co-op and Condo buyers. The rule would prohibit Fannie Mae from purchasing loans in buildings where there is a Transfer Tax/Flip Tax. 

Regulators have recommended such a rule and on August 12th a draft was issued for public comment. The link below will give you the details of the proposed rule. According to Fannie Mae, the primary intent of this proposed rule was not to have this apply to all Co-ops and Condos. 

Their primary intent is to stop developers from imposing 99 year covenants on new homes that require seller's to kick back a percentage of the sale price of the home to the developer when the home is sold. They are currently reviewing the concerns of REBNY (Real Estate Board of New York) and hopefully, will revise language that would correct this serious problem.

If their response does not assure REBNY that he rules will be corrected, REBNY will ask it's members to join them in reaching out to the New York congressional delegation. 

Link to proposed Rule Change:http://www.fhfa.gov/webfiles/1648/PrivTransFeeGuidance081210.pdf

Sep 8, 2006

The "Flip Tax"

2 comments
 

Creative Financing or a Coop Cop Out ?

The flip tax is a transfer fee that many new york coops impose on shareholders. In the late seventies and early 80's when many rental buildings converted, huge profits were being made by former renters who bought their units at inside prices and then resold them. Called "flipping" The boards decided to impose the transfer fee and call it a flip tax on sellers to dissuade flipping.

Due to high oil costs, insurance, and increases is most expenses many buildings need to build their reserve fund and are trying to impose flip taxes. In order for the flip tax to pass 2/3 of the shareholders have to vote in favor of it. It requires a quorum. An absent vote is a no vote.

Condo and condop buildings have many investor owners from out of town making it difficult to pass.
There are several ways they try to impose the flip tax. There are arguments on both sides for every type. In my opinion none are good for sellers.

HDFC coops (a NYC affordable housing program) usually have a flip tax as a way to keep them affordable. HDFC coops were set up as a form of limited equity home ownership.

It is any easy way to get 2% sometimes 3% of a unit's sale price. The average apartment in Manhattan is over $1 million. Do the math. Buildings have figured 5-10 transfers a year what a nice windfall for them.
  1. A percentage usually 2% but sometimes 3%
  2. A flat fee
  3. Percent of profit
  4. Dollar amount per share
Management companies and boards lobby the shareholders why a flip tax is good. They argue if they have this reserve fund from the flip tax they won't have to raise maintenance or have assessments.

Elderly people planning on leaving the apartment to their children don't care as that is an exemption in many proprietary leases. People who recently bought and have to be relocated feel it's unfair as they have not been there that long. Long time residents feel they stuck it out and have already paid for all assessments over the years.

I prefer the dollar amount per share. A seller will always know their liability. The way the shares were allocated in the offering plan. So if you made renovations to your apartment and or hired a great real estate broker who sold for a higher price than other apartments with the same amount of shares you deserve that profit not the building. If the flip tax is based on profit then in my opinion the seller should be allowed to deduct the cost of capital improvements.
 
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