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I am looking at a building that has a flip-tax of $2/share AND 3% of net profit. Any thoughts if that is in-line with other buildings that have the "flip"? And how common is the flip-tax in NYC? Is it supposed to be disclosed upfront? My attorney only just found out about it after he started his own due diligence.
Pretty much covered at http://streeteasy.com/nyc/talk/discussion/15929-co-op-flip-tax
sounds like a good deal.
If you lose money, do you get 3% back?
Unclear how obviously the existence of a flip tax has to be disclosed but generally they are and an attorney or yourself can find them in the financial statements.
Flip taxes are basically a wealth transfer between those who stay in their co-op for a long time and those who stay shorter (say 3-7 years). Those on the Boards of co-ops tend to be longstayers and thus this is how they get instituted. How impactful they are on the financials of a building depends on the turnover.
In mine (a large building), the turnover is only 2-4% in recent years and the 2% of sales price flip tax has raised only 3% of the co-op's revenues.
My current listing at 50 SPS has a 2% flip tax that is traditionally paid by the buyer. I feel like this is a material fact about the sale, and as such, I've disclosed it in the listing and the marketing materials.
Sometimes, though, the existence of the the flip tax isn't disclosed by the seller to the agent. My firm's listing agreement has a clause that basically states that we are relying on the seller to make accurate representations to us.
I suspect every real estate firm in town has something like that.
DG Neary Realty
takeaway: you have a listing
that's a reasonable deal of 3% of net profit. determining "net profit" is where i see a lot of problems.
Ali G. - excellent insight, and I would love to look at your listing, but can't find 50 SPS on a map, maybe you are referring to Stiff Person Syndrome (SPS), that would explain alot
@ab_11218 I agree, flip taxes should always be based on sales price, net profit is just asking for trouble, does net profit include wholesale improvements to teh property/ what about if i combine? does it include any loan expenses, refinance, legals etc.
I lived (for 17 years) in a building with a flip tax of 10% of profit. It was calculated quite simply: sale price - (purchase price + attorney's and broker's costs.) No allowances for renovations etc as people had claimed (before my time) that they had done the work themselves and la la la.) It was certainly an incentive to stay. The upside was, during the years I lived there, we got a beautiful renovated lobby with terrazzo floors, a beautiful roof deck with wonderful landscaping and quality furniture, and NO ASSESSMENTS ever. When I moved out, I bought them a beautiful new elevator, cab cables and mechanism. It was a little painful but it's not as if I had nothing left over. I had 90% of my profit, which after 17 years, bought me a nifty new place with cash. A newer tenant who sold when I did (divorce -- ugly and sad) lost money on the sale and did not pay a flip.
Keep in mind that many "flip taxes" can be avoided by selling outside the window of the "flip", which is usually after two years, depending on the building.
explain please, Matt? My impression was that most flip taxes are simply transfer ones - doesn't matter how long you have owned it.
you are correct.
matt is delusional.
maybe Matt instituted a window on his flip tax. my coop's flip tax applied to any and all sales.
Buildings will "get you" either way - through maintenance increases every year, assessments,etc. In other words, you either pay now or later.
Flip taxes based on a % of sale price can benefit longer residents, as there is a greater chance the market value will increase.
"Flip taxes" were largely introduced back during the boom times to discourage people from buying and "flipping" -- reselling within a short time period -- which contributed to a destabilization of the building community.
That's why they're called "flip" taxes; it's a "tax" you were able to avoid by not "flipping" the apartment. *Selling* at any time is not necessarily "flipping".
flip taxes were introduced as a way for the corporation to make money and keep assessments and maintenance lower.
Just ... wrong.
Flip taxes began as an attempt to solve problems inherent in the housing market during the early 1970's. As many rental buildings were offered for conversion to cooperatives, two main issues surfaced: first, an entrenched group of tenants living in rent controlled and rent stabilized apartments could not afford high purchase prices; and second, many buildings were in bad condition, for their owners had long deferred necessary maintenance because their income from the apartments was severely limited by rent regulation. Advocates representing tenants in conversion negotiations needed to find a way to fund future repairs and improvements without hitting shareholders with whopping assessments, while also keeping purchase prices affordable. Thus, Mr. Weinstein and other attorneys at the time came up with the concept of the flip tax: buyers pay a reasonable purchase price up front, and when they sell their apartments, they are "taxed" to bolster the building’s reserve fund.
hmmm. can someone admit they are wrong?
i have never heard of a flip tax on a nyc coop, which expires after a specific time
In the 70's flip taxes also served another purpose in buildings with eviction plans. Sometimes shareholders bought up the apartments of renters who couldn't afford it. This could have a positive effect, as the tenatn could continue to rent from their neighbor. But sometimes the buyer threw the renter out anyway and sold 3-4 or more apartments in the building. A punitive flip tax couldn't prevent, but could at least hope to deter, this practice.