When tax abatement ends

most likely be worth less then a coop apt next door. taking the CC + Taxes will be significantly more then any coop. i expect that in about 10 years, most condos will cost less then coops just because of that.

I lived in a condo for 8yrs, which never had any tax abatement..and when I sold it was priced 25% more than a comparable co-op in the area (W. Village). So I don't get this whole tax abatements will decrease value thing. There was a new construction condo across the street from my old building which probably has tax abatement, when the abatement ends the units will fall into the same pricing as the condos in that area.

Unless you're saying there will be a glut of new condos that will offer new abatements and therefore lower the value of all condos in general. Which I dont see happening as the current condo boom never affected the pricing when I sold my old condo without any abatement.

the condos without tax abatements have a different tax point. i'll give you an example of a house my friend purchased. he bought an existing house, gutted and renovated, for 1.5M with taxes of $5,500 per year. his friend purchased a house on the next block for $2M, new construction, his taxes were $14K per year.

here's an article from NY Times that explains it all. from what i've seen, the taxes on new construction will be at least double of the ones that were built earlier and had no abatement. look at the last paragraph of page 2 and first on page 3.
http://www.nytimes.com/2009/02/08/realestate/08COV.html?_r=1&em

Thanks for the replies. I am thinking about buying a unit and tax abatement ends in 7 years. The taxes are $1200 a month when tax abatement ends (which was estimated in 2009). So fast forward seven years. The new buyers won't be able to afford as much mortgage if they are now paying full taxes along with maintenance.

There some older buildings in battery park where the units have significantly lower asking price psf but the taxes are very high. Some are $1400-$1500 a month in addition to the maintenance costs. I am wondering if the price is reflective of that fact that owners in this building are paying $3000 a month separate from morgage.

Of course an expiring abatement negatively impacts value as each year passes. An abatement has a value that people are willing to pay for in purchasing a unit. The market factors that into purchase prices. As the value of an abatement decreases with every year the expiration draws near, the amount a purchaser is willing to pay for the unit also decreases. This seems fairly obvious to me, so perhaps I am missing the question.

I've said for 3 years on hear that new construction values are going to face a day of recogning as these abatements expire. Monthlies will begin exploding and buyers will not like this, but buildings will have few tools available to lower costs. The only real option is to slash amenities and staff. Without these amenities, and with still greatly increased monthlies, people aren't going to pay top dollar for these agents pretty-shiny-things-of-yesterday. In an otherwise falling, flat, or soft RE market, expiring amenities is a huge problem for a building seeking to preserve value.

this is a major issue. Tax Abatement is for the developers, not the buyers. You pay more today (foolishly), because it looks like you can afford more with lower monthlies, but as the tax abatement gets closer to expiring, the value goes down siginficantly. An additional $1,000 a month or so is huge, worth $200,000 to $300,000 or so on overall value of the apartment. Take something like the Forte - the recent drop in prices might look good, but wait until a 3 bedroom is costing you over $2,000 per month in today's dollars just for maintenance in taxes.

The intelligent buyer puts his bid in based upon what the apartment would be worth without any abatement and then subtracts out the net present value of all future tax reductions he will receive over the years.

agreed topper...ive written that several times but people don't seem to agree with that...oh well
(my view is that pv of the abatement should just be the current abated amount times years of abatement, with adjustment for tail off, on the assessment that the tax rates will keep pace with inflation, are a certain liability and do not need any risk premium to be used to pv them.....but im open to suggestions on that)

I think you do need to build in a discount factor for the future years, which becomes particularly important on some of the new construction that is granted a 20/25 year tax abatement.

If anything, I suspect the market doesn't fully reflect the tax abatements. People often look at price/sq. ft. as their most important measure for comps and do not properly account for the impact of the abatement. An abatement can easily have a present value of $100,000-200,000 which should bump-up the purchase price by a corresponding amount. For a 1000 sq. ft. apartment that works out to paying an extra $100-200/sq. ft., but I think sellers often have a difficult time convincing buyers to pay significantly more psf than other neighborhood comps based on the tax abatement.

Foolish buyers might only look at their initial monthly costs and then simply buy the nicest apartment they can "afford" and so they would then be surprised when the abatement runs out and they can't meet monthly payments. That mentality might have even dominated a few years ago, but I can't believe that the market is still being set by those types of buyers.

I know i don't have the investment acumen that a lot of folks on this board have. My plan (as i am buying a place with a tax abatement) is pretty simple, and I'm sure flawed but it is..... Create a slush fund from the abated savings. Pay into this account every month the amount of tax savings. At the end of the abatement have a pool of money from which to draw interest and essentially flip the script. If at any point I need to sell the apt. this fund will represent a buffer from my purchase price. If instead I own the place through the length of the abatement it can be used to help pay future tax increases or worst case scenario be an emergency fund.

here's my take with crewed math on both sides.

condo 1 - no tax abatement, taxes $10K per year. after taxes, considering writeoff, you're paying $6,500 per year. take that figure and increase it 3%X15 yrs, 35%. after 15 years the taxes per year will be $13,500 and you would have paid after tax approx $100K.

condo 2 - tax abatement, projected tax of $17K per year. use the same calculation as above with increases. after 15 years the taxes per year will be $22,950. after approx 7-8 years, you're paying close to the same taxes as in the older development. after year 10, you're paying more. at the end of 15 years you will have paid, after tax benefit, $20K less in taxes then with the older unit.

after 15 years, everything else considered equal, which condo would you buy or what discount would you give to one over the other, the one with $13,500 taxes or $22,950? considering that the monthly CCs in the new development are usually higher (newer staff, more ammenities), the pendulum will swing even more.

Why would condo 1 in your example have taxes of 10K and condo 2 17k? Not really an apples to apples comparison is it? What are your end numbers if both places start with 10k as the base?

Also from my understanding years 1-10(in a 15yr abatement) are 100% abated. Then in year eleven they go up 20%, year 12 another 20% and so on until in the 15th year the abatement is zero. So

"7-8 years, you're paying close to the same taxes as in the older development. after year 10, you're paying more." doesn't make sense to me? Not being contentious just wondering???

why would new construction have the same tax base as old construction? that's not how it works. this is the reason why many tear down the whole house except for 1 wall and build on existing foundation. if they were to remove the foundation and build something the same size, their tax base would be higher.

i know condo's in brooklyn that were Mitchell Lama, where the 3 Br 1 1/2 baths, on high floors, are paying $1600 per year. the same sq ft condos 1 mile away, built in 2003, will be paying $10K. this means that i was actually more generous in terms of saying $17K compared to $10K. it should have been $19K compared to $7K.

ab_11218, I'm certainly not an expert on the way that the city assesses property taxes, but I'm not sure there is quite the advantage in NYC for older construction. Good article that you posted, but it didn't seem to discuss how an older building would end up with a significantly smaller tax base than newer construction. I could be wrong, but I think each year NYC updates its property assesment on all properties, and for co-ops and condos it does all assessments based upon the rental income the property could currently generate. (A Mitchell-Lama building would probably have its own set of rules depending on whether it remains in the government affordable housing program, but that wouldn't apply to any non-Mitchell-Lama building.)

In any event, even under your example, using a 5% discount rate and a shorthand calculation you could say that after 15 years, the apartment that will have an excess $9,450 annual tax payment would then be worth $189,000 less than the other (or, if the tax savings are considered, maybe you could say about $123,000 less). But that misses the point a bit, because the key question is what are they worth now? The $10,000 per year that you are saving initially is worth way more on a present value basis than the same $10,000 will be if it is instead received 15 years in the future. You would have to really work through the math and it will depend heavily on the discount rate you pick, but don't underestimate the time value of money and the benefit of in essence deferring taxes in your example.

Here is a scenario:

Unit XYZ has an estimated annual tax projection of $12,500. Unit XYZ in Building A has a 421g tax abatement that is already in effect. The 421g tax abatement started in 2006.

421g Tax Abatement has a step rate:

Years 1 - 11 is 100% tax abated ($0 in taxes)
Year 12 is 80% tax abated (with 3% increase annually, you can expect that taxes have increased to $17,822 - paying 20% of that comes out to $3,564)
Year 13 is 60% tax abated ($7,343 annually)
Year 14 is 40% tax abated ($11,344 annually)
Year 15 is 20% tax abated ($15,580 annually)
Year 16+ starts at $20,058 annually

With this scenario, there are seven years left in 100% tax abatement. Considering that this is not an investment and will likely be a home I stay in for another 7-10 years....the new buyers will obviously have to pay for substantial taxes. Should I expect my unit to go down significantly in price than what I paid in 2010. If so, how much? Is there any way to calculate this? And yes, the market can double or half in 10 years but who knows.

My main concern is, will my $800k property today now be worth $650k in 2010 when I decide to sell and the tax abatement has ended.

***worth $650k in 2010
Error....I meant worth $650k in 2020 when I decide to sell and tax abatement has ended.

Why not value the tax abatement at the current abated amount, times the number of abated years (adjusted for the tailing off)?. That will give you a reasonable PV,because you are basically assuming that the taxes will stay even with inflation. It may understate the value of the abatement if you think taxes will exceed inflation but that is hard to guess about. There is no need to use another discount rate, because there is no "risk premium": this is a certain liability that has to be paid.

In effect when you buy the apartment you are paying NOW for your future taxes. It is like prepaying the taxes in effect you could argue. True Purchase Price = contract purchase price - pv of abatement

Over the years, all else being equal, the Contract Purchase Price will decrease each year by the runoff of the abatement.

Maybe someone can tell me what is incorrect about the above....

Whether there is something inherently risky about buying in an abated apartment seems unlikely to me. but turns on the assessment system by the city,which I don't know much about.

No.. because by year 16, all the condos and coops around you will be at a similarly high mark regardless of tax abatement or not. If I projected the taxes for any of the current NON tax abated condos, I will arrive at a similarly high number 16 years down the line. It has nothing to do with abatement, just rising taxes in general. Unless someone can provide some evidence or proof that tax abated condos will have a significantly higher taxation than their non abated counterparts in the same neighborhood?

"Unless someone can provide some evidence or proof that tax abated condos will have a significantly higher taxation than their non abated counterparts in the same neighborhood?"

that's exactly my point also....i don't get this "abatement is per se risky" argument

jmzed -

In year 16, my unit will have annual taxes of approxiamately $20,000 if it stays in line with inflation. And of course, other units will also be in the similar situation but I am assuming that 16 years from now, there will also be new buildings put up with 10-15 years abatement. Why not buy those units? As a seller, I would have to price my unit LOWER to counteract these similar units with tax abatement in order to sell, no?

This scenario also has to be happening today...with units whereed the abatement has just ended. and new condos just put up with another 10-15 years tax abatement just starting today. How are prices different bt. these units in today's market?

of course if two buildings are exactly identical,and one has an abatement, it will sell for more (and i gave my reasoning for a simple way to calculate the value ballpark)...

if the ages of the two buildings are different, then perhaps the assessed values will be different....

Thanks, everyone's giving me good insight.

wistletown, when I sold my condo in '06, there were a few new dev. condos around me, but my older building (built in '86) sold for a little less mainly because it was older, without all the bells/whistles like a washer/dryer and gym or pool. But even during the condo boom the newly abated condos never "drove down the pricing" of their non-abated counterparts. They all seem to rise and FALL together.

jmzed, That's what I am finding through comparative listings. Non-abated units are not significantly lower than the tax-abated unit that I am looking at in today's market. The primary driving factor is still location and square footage. Tax abatement seems secondary. The ones I found with significantly lower prices are in battery park and both maintenance and taxes are high.

wistletown, that's what I experienced too as a seller of a non tax abated condo. People who came to view seemed more concerned about the space itself and the location. Though battery pk is a good example of how many ppl will buy, even with very high common charges.

Jim: I'm not sure if I follow you. Take a condo that has a 20/25 year tax abatement so that instead of paying $10,500 in annual property taxes it instead only owed a nominal amount such as $500 per year for a period of 20 years and then was phased out over the last five years. Ignoring the income tax deduction, that would be an annual $10,000 in savings for 20 years (or $200,000), and then as the taxes increased to $2,500, $4,500, $6,500, $8,500 and finally $10,500 in years 21-25 there would be another $20,000 in total savings. Are you saying that apartment should simply be worth $220,000 more than an identical apartment without the tax abatement?

I wouldn't pay that much more for it, because I would need to apply some discount to the savings that will occur in future years instead of the first year. Even though the $10,000 savings is certain to occur in year 20, I could still buy a 20-year T-bill (also assumed to be a riskless investment) for about $4,000 and it would yield me $10,000 by year 20 which is why I think there does need to be a discount for the fact that the savings are paid over time. Assuming a 5% discount, I would instead value the tax abatement at a little bit over $130,000 and bump-up the purchase price by that amount compared to an identical unit that did not have the abatement (but of course selecting a discount value is somewhat arbitary and affects the result a great deal).

Cents. I agree that a discount should be applied to the future abatement savings. Of course, to do that you need to make an assumption about the future savings (they won't stay flat). So, I suggested assuming that taxes keep pace with inflation -- then, if you use the assumed inflation rate to discount back then you end up where you started, the 220k in your example. What I am suggesting is a quick rule of thumb to give some idea of magnitude. I guess it would be more logical to use a risk free treasury rate, which will lower the 220k number (assuming your projected taxes grow at a rate lower than the treasury rate)...but ...I kinda like my rule of thumb because there seems to be a real risk that taxes will exceed the rate of growth of inflation,and the number ought to be at least the 220k....just a suggestion

Yes, now I see how you got there. Tough to say how taxes would increase compared to treasury rates, so I think your rule of thumb is as good as any other and makes the calc much simpler.

Any way you slice it, tax abatements are very valuable and I wonder if they are fully reflected in purchase prices or would be good properties to target. In particular the 421-a abatements running for 25 years.

OK... I'll use the article NYT as a guideline of $1M-2M condo. As of right now, the tax amount is set at $18,209 for those new constructions. now let's take the Ansonia Condos on UWS, loved by many. Unit #375 asking $1.995M taxes $9,972, #30206 asking $1.695M taxes $5,208, #13126 asking $1.495M taxes $8,184, etc. here's an UES 157 East 72nd Street #11ABC10C asking $2.95M taxes $11,688. 30 East 85th Street #4C asking $1.925M taxes $8,748.

When it comes to taxes, older is cheaper. When they count taxes based on rents, the older buildings will have more rent stabilized/controlled apartments. That will lower the base that the tax will be collected from.

As for the Mitchell Lama example, the building left the program in 1994. 2 miles away from the 1200 sq ft 3 Br in hirise, ex Mitchell Lama ($1600 tax), are 1984 walkup condos of 950 sq ft paying $2275 per year. Mitchell Lama is on the water, the other ones are in the middle of.... nothing really.

But in 20 years when the abatement expires won't the abated condo then be "old",and taxed relatively less than newer buildings at that time (unless there is another abatement for those new buildings).

It seems your message would not be so much to avoid abated buildings but to avoid new buildings. But. there are reasons people prefer new buildings sometimes.

Aboutready, tell us again about how you paid your husband's taxes in order for you to get married.

You also have to take into consideration that new construction properties have a transfer tax of about 1.645% of purchase price. As such this decreases their value as compared to non-abated (which I assume to be an older resale property)

These abatements were strong incentives for new families to begin home ownership. Obviously they expire at some point, but the intent of the program was successful.

"buy now, pay later" is always a bad idea.

Is there a website that i can go to that will show what taxes will be for a specific building after the abatement expires?

click on BJW's link on this thread
http://streeteasy.com/nyc/talk/discussion/23709-how-to-compute-condo-taxes-after-abatement-ends

type in the unit's info (it's better if you have the block and lot # instead of doing the address search)

then click on the last quarterly statement for the unit and scroll all the way to the bottom to see the unabated amount.

So déclassé to look at monthlies as an 'owner'. Let the renters sweat out the monthlies, us owners should drink schnapps and make merry this time of year. Where is my bunghole cleaner, I pay her by the hour.

> that's exactly my point also....i don't get this "abatement is per se risky" argumen

in part it might be the difference in the way it's paid for.

current buyer takes the price for granted, finances it with a subsidized rate cause he's a wage-earner in a high tax area, and convinces himself that the tax abatement is a gift from heaven he's not paying for.

next character is the future buyer that's going to have to pay those hidden carrying costs the traditional way, by opening his wallet. no financing there, no subsidized rates, no gimmick. when you add maintenance to property taxes, many of these condos might end up having higher carrying costs than what a rent stab apartment would go for. so, who's gonna be that character willing to take the plunge? a not that savvy "RE specu-investor" imho.

the good news is that not far from now many condos in Harlem will have property tax abatements expiring. we will see if the current owners that hope to onload the property before the expiration of the abatements are able to do it. it'll be also interesting to see what happens to prices after they expire. if those carrying costs end up higher than renting... watch out!!!

the premium in condos vs co-ops is not whether it's tax abated.. the premium lies in flexibility of renting out/ general freedom of rules that a co-op board my impose...

easy way to find out is look at condos WITHOUT tax abatement and compare to co-ops.. the premium still exists.. for condos that is.

How to find out what the taxes will be upon abatment expiration for an HDFC CO-OP? It's not in the offering plan.

Ask the developer or the seller. They are legally required to disclose this.

Not sure how the tax abatement argument can or should enter in to someone looking to buy a condo or co-op in the current market. If a tax abatement is in place for the next ten years, that is $ available to the owner even if he will realize less for the sale if the abatement expires. Also the purchase of a home, even when carefully considered, is often decided upon instinctively. How many buyers in a low-inventory market will take in to consideration the full value of an abatement that expires in ten years as opposed to five? And, assuming that much new development transpires within the same relative few-year time period, won't the fact of many abatements expiring at the same time level the market?

"If a tax abatement is in place for the next ten years, that is $ available to the owner even if he will realize less for the sale if the abatement expires."

Not really.

Most buyers max out their housing dollars; it's not like they're going to "save" dollars on what they would "otherwise" be paying in full taxes, because they're getting themselves into an apartment they would not be able to afford were it not for the abatement.

Matt - Your point taken, it's difficult to create an accurate profile of 'most' buyers. Just as you can't say most will save dollars they would have otherwise spent, you can't say most max out every nickel of their housing dollars. I do understand the argument that when buyers 'do the math' on a tax-abated place it looks considerably different. That said, it is always the bigger picture that matters most, and includes borrowing rates, cash put down, whether the home is strictly an investment or a place to live, etc etc. My point is more that it isn't a 1:1 kind of thing; i.e. it isn't possible to predict exact depreciation based on projected future taxes.

"you can't say most max out every nickel of their housing dollars"

Actually, I can, based on my own experience as a board member and in talking with hundreds of agents over the years.

Bloomsday, the potential tax can change a lot between now and when it's used up.

The last tax bill for the one at 130 Lenox shows the co-op paying $35,000 this year, and nearly $1,900,000 without the 421a. But they're only in year 11 of a 25-year exemption, so it'll be some unknown amount more than $1,900,000 by 2027.

It must feel good to live in such certainty. I suppose I'm out of touch, and growing up with conservative parents kept me of the distorted opinion that when it comes to finances 'maxing out' anything is never the best way to go.

"I suppose I'm out of touch, and growing up with conservative parents kept me of the distorted opinion that when it comes to finances 'maxing out' anything is never the best way to go."

I grew up with the same kind of parents.

But being actively involved in real estate exposes you to the wider world.

I think it is important to know (to the highest degree possible) what the future will bring by gathering as much information as possible. Doesn't eveyone? Does this make me less "instinctive"? How many other threads here take a hard "Buyer Beware" tone regarding abatements? That's all I'm trying to do. What costs will I face in 15 years when the abatment has fully expired.

NWT, is there a resource out there that can give me the tax obligation to a particular unit from your example?

Exactly, Bloomsday. Which is why such information is required to be disclosed.

Ten years can go by in the blink of an eye. And then you're facing THOUSANDS of dollars in increased monthly expenses.

You'd need to get that apartment's shares as a percent of the total, then use that to figure the increase in maintenance over the remaining life of the exemption.

The offering plan's schedule of apartment shares and maintenance should say what the share of taxes will be with and without the exemption, as Matt said. But that number will be as projected when the offering plan was drawn up, and not a guarantee of what taxes would be 25 years along.

That's a lot of uncertainty, and HDFCs are complicated to begin with. There're bound to be surprises in those hundreds of pages, so maybe the best you can do is get a sense of what the worst case might be.

Thanks NWT and NYCMatt. I think i figured it out. I found the total number of shares for the building and the maintenance per share per unit and got out the calucator.

Blooms- My 'instinctive' comment wasn't regarding whether or not you should pull the trigger on buying a particular piece of property with an abatement attached, but rather who might buy it from you when you re-sell. Of course you can work out the numbers as far as what costs you will face in 15 years when the abatement expires, and you should do this. My point is that it isn't always possible to know what another buyer will pay for the place, in any given market down the road. If you're calculating what you yourself can afford, and see yourself living there in 15 years, it makes all the sense in the world to do the calculations. If however you can afford the place when all else is considered, I'm not sure that anticipating a lower relative resale (adjusting for inflation) due to an existing abatement expiring, is reason enough not to buy the place.

tpushbklyn- understood