Cash Available Post-Closing

Surrey,
The rule of thumb is 25% down buildings want 2 yrs.mortgage and maintenance in the bank and 20% down buildings want 1.5 years. There are, of course, exceptions. Your other alternative is a condo.

Jenet Levy
Halstead Property, LLC

"Anybody know of coops on the UWS that are not requiring 2 years mortgage and maintenance in bank post closing? Looking to buy a one bedroom in the $600K range. Have excellent credit, strong salary and cash post-closing to cover one year of mortgage and maintenance. Unfortunately, it seems that some boards are tightening standards."

Surrey, let me ask you: what happens if you find a co-op board that's happy with your $45,000 in post-closing liquidity (I'm assuming roughly $3700/month in mortgage and maintenance), and after you close and move into your new place, despite your "strong salary", you lose your job? Assuming you're making at least $200,000/year (if you're not, you certainly shouldn't be looking at a $600,000 apartment) ... and assuming even in a strong job market (which, given the current Great Recession, it certainly is not) it takes an average of about a month per $10,000 of salary to find that new job, how long do you think that $45,000 will last? (Hint: it's much shorter than you think.)

THIS is how co-op boards are thinking today.

Surrey, my husband and I closed on an UWS co-op this past summer with under 2 years' reserves -- and we were definitely marginal candidates in other ways (I'm a Realtor, and a writer, and therefore a freelancer).

Before the bears jump on me, let me point out we had some strengths too (we have a long record of past ownership, and substantial non-liquid reserves).

Most importantly, though, we had a well-crafted board package (because I put it together). Are you working with an agent to help you put together a compelling board package? If not, I'd be happy to help.

ali r.
DG Neary Realty

Do post-closing reserves have to be in a bank account?

Can't they just be in investments - say bonds?

"Do post-closing reserves have to be in a bank account?

Can't they just be in investments - say bonds?"

LOLOLOLOL.

Absolutely not. They have to be 100% liquid -- meaning, you have INSTANT access to them vis-a-vis a bank savings account or checking account.

It's assumed that you'll also have OTHER investments -- say bonds -- in ADDITION to that post-closing liquidity.

Topper, when boards look at post-closing reserves, the general test is whether they're 'liquid.' So you could put together a board package where you argue that bonds count, although you'd have to discount them by a factor of x% in order to convert them to cash.

A problem often arises in the case of retirement accounts or retirees, though. Money that you hold in a 401(k) or similar is money that you COULD get to in a real emergency, but for co-op board purposes, it doesn't count.

Similarly, I had a referral from California of a retiree who wanted to buy a place in New York. He had $2 million in cash and & California home that was free and clear -- but I had to explain to him that he couldn't buy an $800K one-bedroom in NYC because then he would have "only" $1.2 million -- and at 2% interest rates that's an income of just $24K, and boards wouldn't want to clear him with that, his housing expenses in between NYC monthlies and California property taxes would be just too high.

So there's money, and then there's money.

ali

"Similarly, I had a referral from California of a retiree who wanted to buy a place in New York. He had $2 million in cash and & California home that was free and clear -- but I had to explain to him that he couldn't buy an $800K one-bedroom in NYC because then he would have "only" $1.2 million -- and at 2% interest rates that's an income of just $24K, and boards wouldn't want to clear him with that, his housing expenses in between NYC monthlies and California property taxes would be just too high."

I'm sorry, but something is seriously wrong when someone who has almost THREE TIMES the asking price of an apartment in CASH being turned away from a purchase.

So who eventually bought the apartment? Someone with SIX times the asking in the bank? Or some working stiff schmuck who had to leverage himself to his eyeballs in a jumbo mortgage?

Matt, this client was a buyer referral so I don't know what happened on the sales side, but I assume that someone with a job -- and therefore a higher current income -- bought the apartment.

ali

"I assume that someone with a job -- and therefore a higher current income -- bought the apartment."

As a board member, I can tell you I'd much prefer the retired guy with $1.2 million sitting in the bank than some working schmuck who's barely stretching to pay the mortgage and maintenance whose income can be taken away in a second due to a layoff or firing.

Assuming a $3,000 monthly maintenance (and, of course, no mortgage, since he would have paid cash), that's *400 YEARS'* worth of maintenance payments in the bank.

I'm guessing that Working Boy did NOT have that kind of post-closing liquidity.

Matt - you do not know what you're talking about. I am Treasurer on a board on the UWS, mid-size building. We had 2 buyers last year. Each had roughly 1 year in carrying costs post-closing. And no, we do not require it to be accessible "immediately". Much of it is in brokerage accounts with reasonable risk profiles. We are a 20% down co-op with great financials.

Fact is, there is a TON of recourse for a co-op to go after a delinquent tenant, including taking over the unit in the event of a foreclosure, even before the bank has been paid. They can place liens on other real property, go after future income, take over and sell the unit, etc.

Ali, many thanks!

Say you are a retiree. At that point you have easy access to all of your 401(k) assets. Would that still be considered a problem in terms of liquidity?

"Matt - you do not know what you're talking about. I am Treasurer on a board on the UWS, mid-size building. We had 2 buyers last year. Each had roughly 1 year in carrying costs post-closing. And no, we do not require it to be accessible "immediately". Much of it is in brokerage accounts with reasonable risk profiles. We are a 20% down co-op with great financials."

I actually DO know what I'm talking about, thank you very much.

You're apparently a much more liberal building than we are, in terms of liquidity.

Bump.

That's only 33 years of maintenance at $3000 per month.. Although most 800k 1-beds shouldn't have a 3000k monthly maintenance of course. Did you mean $600 monthly maintenance?

Oops sorry, my bad.

33 years.

Still better, I'm sure, than Mr. Working Boy.

Topper, it really depends on the building and the board. (You can see that from the scuffle b/w Matt and OTNYC here).

I remember on one of my other real estate boards (wirednewyork.com), hearing a couple of years ago from a retiree who couldn't get into one of the Forest Hills buildings because the board didn't like that all his money was 401(k) money, and he was like "it's Queens! I thought Queens would be easy!"

I know I'm turning into a salesperson here, but this is why your buyer's broker positions the package a certain way. If you're doing it yourself, just make sure that your story a) makes sense and b) is consistent with your supporting financial data.

ali

"I know I'm turning into a salesperson here, but this is why your buyer's broker positions the package a certain way."

This is a broker giving herself too much credit.

We board members can figure out your situation pretty quickly without the package being "positioned".

Thanks again, Ali.

With money market rates effectively at zero I pretty much like to always be fully invested in a very diversified portfolio. I guess you can always be liquid for a "snapshot" and thereafter reinvest the cash.

"I guess you can always be liquid for a "snapshot" and thereafter reinvest the cash."

Guess again.

We constantly monitor your bank accounts.

MUAH HA HA HA!!!!

NYCMatt - You seem to be a little schizophrenic in your thinking. I recall seeing a post of yours a few weeks back where you indicated that there were many coops out there that would be satisfied with reserves between 6 months and a year? What caused your change of mind?

NYCMatt- Sorry, not all board members are financial experts. Years ago we had to explain to a board that the San Francisco building they saw on a credit report was a rental building, throwing off cash. They had been looking at it as a residence.

And I am pretty sure a board cannot "monitor" bank accounts - you can get statements for a certain period of time, just as you can get tax returns for a period of time, but not going forward.

"NYCMatt - You seem to be a little schizophrenic in your thinking. I recall seeing a post of yours a few weeks back where you indicated that there were many coops out there that would be satisfied with reserves between 6 months and a year? What caused your change of mind?"

I haven't changed my mind.

I was pointing out the absurdity of a broker turning away a guy with nearly three times the value of a given property in cash (in addition to other substantial assets), because his "income" was too low (he was retired).

$1.2 million is not necessarily a lot of money to retire on, especially for someone intending to live bicoastally and maintain two properties.

Depending on the guy's age and other assets (guaranteed pension? guaranteed healthcare?), the co-op could have been wise to reject him in favor of someone with less cash but more earning power.

"$1.2 million is not necessarily a lot of money to retire on, especially for someone intending to live bicoastally and maintain two properties."

It's 33 YEARS' worth of monthly maintenance payments.

Again, I doubt Working Boy -- who could lose his job (income) at any moment -- could have come anywhere CLOSE to that.

NYCMatt, what recourse does the board have to an individual co-op owner if, as Topper suggested, one shows the cash for the board approval and then reinvests, especially if rent and maintenance are being paid? How does the board continue to monitor the bank accounts? What right do they have to do this and through which document is the right conveyed? Do they ASK for the co-op owner to prove bank and brokerage statements monthly or quarterly? Is there some kind of covenant that the co-op owner agrees to, if so, in which document does this covenant appear?

Personally, I was thinking about putting the reserve cash toward my mortgage after closing (if it makes a difference).

"NYCMatt, what recourse does the board have to an individual co-op owner if, as Topper suggested, one shows the cash for the board approval and then reinvests, especially if rent and maintenance are being paid? How does the board continue to monitor the bank accounts? What right do they have to do this and through which document is the right conveyed? Do they ASK for the co-op owner to prove bank and brokerage statements monthly or quarterly? Is there some kind of covenant that the co-op owner agrees to, if so, in which document does this covenant appear?

Personally, I was thinking about putting the reserve cash toward my mortgage after closing (if it makes a difference)."

***

None, really. We don't do any kind of "monitoring" of your finances after you've closed. We hope that we've made a good decision in accepting someone who can and will prudently handle their finances from this point forward.

Topper - "I guess you can always be liquid for a "snapshot" and thereafter reinvest the cash."

NYC Matt "Guess again.We constantly monitor your bank accounts. MUAH HA HA HA!!!!

Someone calls you on it and then you change your mind?

bump

"Topper - "I guess you can always be liquid for a "snapshot" and thereafter reinvest the cash."

NYC Matt "Guess again.We constantly monitor your bank accounts. MUAH HA HA HA!!!!"

***

OMG I was being facetious.

Doubt it - you were just trying to paint yourself as being omnipotent - you've shown you are absolutely devoid of humor.