Can someone please explain tax abatement to this noob?

the city assesses your building a tax, based on a calculation that is not relevant to this discussion, and in the case of condos, gives your unit its fair share, usually based on the common percentage for the unit (which does not take into account the floor of the building, interestingly enough - so you on the 2nd floor pay the same tax as the guy on the 37th floor, in the same apartment line)

So you get your tax bill. The abatement is a credit applied against this tax bill, 18%ish.

Coops the mechanics are a bit different, but the net effect is the same, except your board will dip into it.

here's a great piece on abatements:

http://www.urbandigs.com/2007/04/biggest_scam_in.html

So you pay little/no real estate taxes on your condo for a number of years that might sound like a long time but probably isn't. Then the full yearly real estate start kicking in (sometimes there's a short phase-in period). But before you even get to that point, the fact that it's coming scares off buyers ... or more accurately, causes them to pop the taxes into their monthly-cost spreadsheets. Thus, the value of your condo falls precipitously, all other things being equal.

Its primary purpose is to get housing built, so it's designed more for real estate developers, not buyers. Buyers only care how much they have to put down, and what their (immediate) monthlies (with mortgage) look like. Thus, developer can get a much higher price at initial sale.

Tread carefully. Assume full taxes, take the abatement as gravy, and assume when you go to sell it, the next buyer will pay full taxes.

Absolutely, a ton of folks got suckered by this. The abatement is nice to have, don't get me wrong. But it has a finite value, and folks essentially waaaay overpaid for it.

I still don't understand why it is a bad thing. The price of your condo towards the end of the abatement will be comparable to whatever the neighborhood/economy dictates. How does a condo with it's tax abatement ending get de-valued more than a condo with no tax abatement?

jmzed,
A condo with a ten year tax abatement can sell at a higher price than older apartments in the neighborhood without the abatement. The seller/sponsor gets this price. Over the next ten years the premium value of the unit amortizes, so at the end of ten years the two units should have similar value.
The abatement really benefits the sponsor/developer more than the buyer.

"How does a condo with it's tax abatement ending get de-valued more than a condo with no tax abatement?"

Because it was way overvalued because of the abatement (which is what happened).

If you pay 50% more for the abatement, and then the abatement goes away, you're probably looking at a bigger decline than an apartment you didn't overpay for....

Think of a new car vs. a used car. You pay a lot more for the new one vs. one just a few months old. Which one devalues quicker?

riversider, you said it better than me.

agan, jmzed, its not a bad thing. its a good thing. It has value. But if you pay $500k more for $50k in value, you overpaid. Overpaying for a good thing is not a good thing.

agree with somewhereelse. to obtain the abatement the spnonsor has to help fund low cost housing. They usually purchase negotiable certificates, the amounts of which are determined by a formula that is beyond my knowlege.

Completely agree with somewhereelse (!). To get a better sense of what an abatement's like in practice, you can search property tax records for buildings where you know they have them in place: http://nycprop.nyc.gov/nycproperty/nynav/jsp/selectbbl.jsp
You'll see the abatement vs full taxes at the bottom of the statements.

oh that type of abatement lol, I thought you mean the "annual" 18% abatement

would you say the same of a 25yr abatement?

any temporary abatement. the most damage is done when the abatement is closest to ending.... but any abatement in a market where abatements were overvalued is likely going to be an issue.

thank you all

>> would you say the same of a 25yr abatement?

No. Having recently closed at an 80K discount with a 15-year mortgage @ 4.35% and a 25-year abatement...I couldn't be happier with my decision.

Good for you. But I doubt they buyer who buys when you sell will be as happy.

abatements are very similar to ARMs. They are good when used wisely... a financial timebomb when not used wisely.

>> Good for you. But I doubt they buyer who buys when you sell will be as happy.

Why not...if I'm still here in 10 years there will still be a ton of value in that abatement...for me or a prospect

>> abatements are ...
true