HDFC Coops: Best Deal on New York City Real Estate?

HDFC Coops: Best Deal on New York City Real Estate

Have you been frustrated with the high apartment prices in New York City? Well, here’s the good news: if you’ve ever wanted affordable New York City living, look no further. If you qualify, you may have found the best deal in New York City.

A little-known niche market in New York real estate, HDFC Coops represents the “latest great deals” in New York City. These co-op apartments often sell for 40-60% below comparable regular apartments or condos for sale. HDFC (which stands for Housing Development & Finance Corporation) has been around for many years, but it’s not until the last few years that more and more people are discovering these amazing deals. They are only available in New York City, although there may be other similar programs in other cities.

The history of HDFCs

HDFC co-ops are city-sponsored apartment co-ops that offer many of the benefits of a regular apartment co-op, but also have some purchase restrictions and often have a “reverse tax” on the sale.

An HDFC cooperative arose for one of several possible reasons. They may have originally been a rental building that had been abandoned by a landlord, or the landlord may have owed taxes or water and therefore lost the building to the city.

The City then rehabbed the building, trained tenants on the property, financially established Coop to be self-sufficient, and then sold the apartments to existing tenants for $250 each. Yes, that’s right, $250!

The premise is that instead of the City being one owner, it has now trained a group of owners who care about their building and its future. It has been a very successful system.

Typically, over the years, these HDFC cooperatives changed hands among friends or family for very low prices. In recent years some brokers with foresight have realized the value these Co-ops represent, and by being more professionally marketed, they have commanded much higher prices for Owners.

Benefits

This has benefited both the buyer and the seller of an HDFC apartment. A salesperson has now made much more money than he ever thought possible and has the opportunity to fulfill his dreams. Many HDFC co-op sellers moved to the suburbs and bought a house or took a dream vacation, bought a better car and led a better lifestyle. Remember, the original owners of the HDFC co-ops were there because they typically lived in a run-down, neglected building, so getting $150,000, as much as $500,000 for one of these apartments that they paid just $250 for is a huge windfall.

The buyer has the opportunity to own a piece of New York City, one of the most expensive real estate markets in the world, for a fraction of the price of regular co-ops or condos. Most often, HDFC co-ops sell for $400-$600 per square foot, while co-ops and condos in New York can sell for $900-$3,000 per square foot. This is clearly a big difference.

Also don’t think these HDFCs are in bad neighborhoods because many of these are in prime New York City neighborhoods such as the Upper East Side, Upper West Side, Lower East Side, and Williamsburg, Brooklyn.

Below

It sounds too good to be true? Well, it’s not too good to be true, but you should qualify to buy. In many cases, to qualify to purchase and cooperate with HDFC, you must earn less than 120% of Area Median Income. In 2008, this number was $64,500 for 1 buyer and $73,725 for 2 buyers in a family and $82,950 for 3 buyers in a family. Alternatively, some buildings, under the cooperative’s bylaws, have income restrictions on purchasing based on a multiple of the annual maintenance and utility charges for the apartment. In either case, the cooperative’s management company and/or Board of Directors will generally look at adjusted gross income from your prior 2-year tax returns.

In addition to an income restriction to buy, many HDFC Coops have a “reverse tax” when you sell. Typically, this reverse tax is calculated as a percentage of the profit you make. Profit is defined as the sale price minus the purchase price. The flip tax could be as low as 5% and can go as high as 85% of your profit.

Clearly these factors must be taken into account and depending on the flip tax that the Cooperative has, the price and value of the apartment can vary greatly.

Summary

We have seen that an HDFC co-op represents a great opportunity to own a piece of the “World’s Greatest City” at a fraction of the price of other co-ops and condominiums, but that comes with some restrictions on buying and selling, often having to return a part of their profits to the cooperative and/or to the city.

Tips when buying or selling an HDFC Coop

Find a broker who understands HDFC Coops rules and restrictions. There are many intricacies in the process and if a buyer or seller is not properly qualified, they may waste a lot of time only to find out that they cannot buy or sell the apartment.