Tax Abatements

Ignore them at your risk. The more the taxes go up, the less the apartment is worth.

Read the bottom of page 2 and top of page 3, then tell your broker to go to ......

http://www.nytimes.com/2009/02/08/realestate/08COV.html?_r=1&pagewanted=2&ref=realestate

That's what I thought.

It seems like these new developments are charging the same as a coop would for common charges not taking into account that in a few years owners will have to pay these huge re taxes also, making the monthly carrying cost about double that of a coop.

In my opinion, I would expect that after the abatements will start expiring, there will be a flood of condos on the market with HUGE property taxes and HUGE maintenance costs. This will most likely cause coops to be worth more than the condos. Just give it 10 years and mark my words.

When I look to purchase a condo, I only look at the older ones that do not have the abatement in place. You'll pay more per month/year now, but you will not end up with a worthless piece of property later.

There have been too many short sighted people in the market for the past 5 years and there are still some now.

AB thanks a lot. I am looking to buy something in the next 12-18 months, and that is exactly what I am going to focus on (older condos). I don't think I'll get by the board in a coop, because I am using all of my cash to put down on the apartment. I want to have as small of a mortgage as possible when I decide to jump back into the market.

I believe most abatements are for 30 years, so chances are a new condo will be sold multiple times by the time the abatement expires.

If you review the listings, most are 15 years. There are some for 10 years. Only in places like Bushwich and East New York will you get 20.

ILoveMyayThai. I think that your reasoning for avoiding coops maybe somewhat faulty. What the board look at in terms of financials is:

1) Down Payment
2) How much of your gross pay will go towards mortgage and maintenance
3) Do you have liquid assets left after the down payment. Depending on the building, the requirements would be different.

Once you are ready, call the condo and coop listings that you like. For coops, mention your situation to the broker and he/she will know if you would qualify or at least will find out. No one wants to waste time showing an apartment. It's much easier, and wiser, to know what the requirements are by calling the management company, speaking to the owner or other brokers who deal with the building.

The tax abatements I came across were 10 to 15 years.

Thanks again AB. I was under the impression that I would have a still have a lot of cash after buying the apartment. If that isn't always the case, then I'll look at the less strict coops too.

"In my opinion, I would expect that after the abatements will start expiring, there will be a flood of condos on the market with HUGE property taxes and HUGE maintenance costs."
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I think you have a good argument here and I have been looking at this for years.

A non land lease co-op where at least one mortgage exists on the building, has 3 costs associated with a unit: prorata share of the building's mortgage, prorata share of the building's taxes, and a prorata share of maintenance elements. Whereas a condo only has taxes levied on the unit itself and a prorata share of common charges

What is essentially at play over here in the maintenance arena is that many condominium buildings have been in some sort of self defined service level competition, driving up the common charges (maintenance expense) to unmanageable and unattractive levels. But really a buildings' maintenance expense is what it is and a co-op and condo should cost the same in an apples to apples situation.

So that leaves the taxes for us to argue about. To your point co-ops taxes tend to be less than that of a fully unabated condominium but isn't it all relative? Shouldn't that be the case? The only question is how much less? The truth is that the taxes that the estimated taxes that are quoted at the expiration of a newly constructed abated building are mind-boggling. I have some really crazy examples of $20,000 annual taxes on a one bedroom and $35,000 on a run of the mill 2 Bedroom! If this does play out, there is a lot of pain coming. The truth is I doubt it will and over time some sort of equilibrium will be established between the condominiums that do have abatements, those that don't, and coops.

So...if you agree with my conclusion on the above 2 items, that just leaves the mortgage portion of a co-op. There is no such counterweight in a condominium.

Therefore, apples to apples, over time a co-ops mtc expenses should run higher than a condominiums by the approximate amount of the prorata share of the building's mortgage that the unit owner will absorb.

That is why I always tell people, when you buy a co-op, add the prorata share of the mortgage you are inheriting into the purchase price!!!

UD did a piece on this topic
http://www.urbandigs.com/2007/04/biggest_scam_in.html

New construction uses a different formula to calculate what taxes should be paid as opposed to old construction. You will hear a lot of stories where a person will buy a house with a good sized foundation, knock everything down except one wall and start from there. This is done not to have to deal with the new taxes.

Here's a perfect example. My friend purchase a house that was rebuilt as I stated above on a 40X100 lot. His taxes are approx $5K per year. His friend purchased a new built house that has a lot 60X100 and the house is 30% larger. His friend's taxes are $16K. If the formula would be the same for new and old construction, the newly built house's taxes should not have been more than $8-9K.

My old (gut-rehabbed) Harlem condo, which I bought new in 2001, has a 35-year abatement/exemption. I think shortly thereafter, the City started offering shorter-term deals.

ab_11218, I've heard of the "one wall" think in Cali, but I didn't know it applied here. I thought that in NY, for a house, any major alteration creates a tabula rasa for assessment purposes.

Alan, I agree with you about that. It will still be cheaper on taxes though then building a new foundation with a house/building on top of it.

it does depend on several variables once the abatement is gone (assessed values, tax rate on assessed value and change in exemptions that you might be able to claim anyway, like main residency or retiree...). anyway, to see how much taxes on a unit you are interested would be without the tax abatement, follow this steps. using as an example, "313 WEST 119 STREET, 1K"

download the "2009/2010 421a Exempt Properties" on
http://www.nyc.gov/html/dof/html/property/property_tax_reduc_421_a.shtml

find the addresses of the units you are interested in and find the blocks and lots (01946/1011 in this case). that's the list of all properties in manhattan with tax abatements, but there are also lists for each borough. and this step is not really needed if you know which unit you are looking for (i had to use the sq footage cause the listing in street easy didn't have the unit #).

put the block/lot into:
http://nycserv.nyc.gov/nycproperty/nynav/jsp/selectbbl.jsp

and check
February 20, 2009 - Quarterly Statement of Account
January 15, 2009 - Notice of Property Value (Detailed Information)

on the first you see how much the property taxes are now (many times it differs from listings, here is accurate, $324/year) and if the abatement wouldn't exist ($16,807/year)

Tax Before Exemptions and Abatements $133,429 X 12.5960% = $16,807

In the second you get to see how nyc dept of finance goes from assessed value to taxable value. when the "Transitional Exemption Value" goes to 0 (now at $131k), the "Transitional Assessed Value" (now at $133k) will be the actual "Taxable Value", now at $2,6k.

There are several 20 and 25 year ones in harlem.

sure, finding a unit without a tax abatement in harlem could be a challenge. the longest i heard of was 25 years so many have still 15 years to go. but higher prop tax bills are definitely beginning to show up, how many buyers that are already stretched took them into account? who knows!

Tax Before Exemptions and Abatements $133,429 X 12.5960% = $16,807

with that level of property taxes ($1,400/month) and maintenance ($1,527) the price will have to drop below half a million (that's a 66% drop) to be close to what renting a 3 br in harlem cost (around $4,5k).

I was told, visiting an open house down the street, that their 20 year abatement would come off 20%/year only in the last 5 years. False?

Our building should get its J51(?) approved in July for 15 years. Does it also come off only in the last 5 years or is there a pro rata system?

In the last 5 years or so the 421-A abatements tended to be mostly in the 7, 10, 15, 20, and 25 year periods. I am not educated enough on the J51 abatements to comment. Many of the 7 or 10 year abatements tended to occur in areas that really didn't meet the intended goal of the 421-a program (which may be why they changed the qualifications for the program last year). The longer abatements tended to be in areas that did really need some stimulus. My area in Hamilton Heights was included in the area that really needed assistance- which is why I have a 25 year abatement and my abated taxes are just $3/month. HarlemNWCP's example is similiar to mine- were the first 20 years is a full abatement and the last 5 years the abatement is reduced by 20% per year.

As to the pricing and tax issue of when the abatement ends- well that arguement is really a non-starter (at least in my building- a new construction). Sure, percentage wise the taxes skyrocket- but as to the actual dollar amount- it's still trivial...the full unabated amount is $27/month. When you figure in the abatement ends so far out- the issue is really moot. Obviously with a full tax amount that low- I don't know that we really needed the 421-a when you consider how much the initial certificate cost...but ok, what's done is done.

Really, when it comes down to it, buildings with tax abatements should be evaluated just as throughly as any other- but that doesn't mean there has to be a world of pain down the line when the abatement ends.

I bought a condo in east williamsburg with a 25 year tax abatement. It's a win/win situation. If I sell early, I can ask for a higher price than a comparable condo without an abatement or with a shorter abatement. If I stay longer, I save on property taxes. I don;t think I would have bought it if the abatement was for 15 years because that means after 10 years, you start paying property taxes. But 25 years? With low maintenance? I think I got a decent deal.

I'm in contract on a condo in east williamsburg with a 15 year tax abatement. It's a win/lose situation. After 10 years, taxes go up 20% of the full tax assessment each year for five years. Unlike semerun, the unabated taxes are far from trivial: supposedly $1,150 per month (based on an unrealistic $800K valuation). As lr10021 says, "the estimated taxes that are quoted at the expiration of a newly constructed abated building are mind-boggling."

So, ILoveMuayThai, I agree, buyers beware. But I'm expecting that after reassessment/angry letters/political action committee/armed uprising, my taxes will be more like those of comparable old condos in my area, btw $400 - $700/mo

"So, ILoveMuayThai, I agree, buyers beware. But I'm expecting that after reassessment/angry letters/political action committee/armed uprising, my taxes will be more like those of comparable old condos in my area, btw $400 - $700/mo "

it could happen. but also give some probability to the opposite to happen. those trivial unabated taxes might become non trivial due to the city's chronic deficits going from here (baby boomers retiring from public service will not make things any easier, pensions/health care to retirees already makes up for half of nyc spending). it's up to the city how much they'll assess your property, what exemptions to grant and the tax rate. those retirees will have to get the money from somewhere.

admin - agreed. this city needs the money right now. i don't see them giving more tax breaks then they have already given.

although djradon, i do like the armed uprising idea.

"although djradon, i do like the armed uprising idea."

i'd bet there's gonna be some in texas when the federal gov bails out california. lol

is it gonna do it? well, maybe not.

Assuming that our 15 year goes through in July, I'd expect to sell in 5 years, leaving the next owner 5 years of essentially no taxes. That buyer will benefit just as I am, but the resale situation would be less rosy if they planned to sell in 5 years (the next buyer would be at the tail end of the abatement). So I may have to provide serious data on the tax outlook when I sell. I believe the "w/o" abatement on our building was $500/month and I'm currently paying about $350/month as the paperwork goes through.

The conservative approach is to look past the abatement: would you still buy?

Given the political climate / budget woes, I wonder whether unapproved abatements like ours will go through and whether existing abatements will be cancelled.

"Given the political climate / budget woes, I wonder whether unapproved abatements like ours will go through and whether existing abatements will be cancelled."

i'll guess they'll pass. it seems to me that the day of reckoning will come abruptly. like "ups, we can't borrow anymore?" more than through sensible and consistent spending cuts and tax raising. but, what do i know???