HDFC in Manhattan or Condo in Brooklyn?

1) Don't take on more debt than you can afford.

2) Don't assume that values in a "still up and coming" part of Brooklyn are going to go up. (Crown Heights? Gowanus? Those are risky bets.)

3) Don't even assume that values will stay as high as they are now.

4) The HDFC option is virtually no risk. No possibility of making big bucks later, but also no risk.

Given the wacked-out state of the markets, I'd say go the no-risk route. Three years from now if the economy has settled down you can sell HDFC and buy in one of those areas of Brooklyn for no more than they are asking now -- are probably less.

HDFC. You sold me.

Is the flip tax on profit, or on sale price? If the latter, you certainly don't have "virtually no risk".

Tread carefully with HDFCs -- they're often wildly mismanaged, and have corrupt boards. Get a great lawyer who can pore over documents very carefully. Run away fast if they don't have the current audited financials ready NOW.

Just beware of the HDFC and check the financials. A lot of them haven't collected the flip tax or honored the spirit of the HDFC. Some day the city may come asking for their money. at least I would if I was in charge.

There's a lot to be said for an easy commute and living near your family and friends.

The flip tax is on the profit. If I do any renovation, I can take that amount out of the profit and then the remaining will be flip taxed on. I will make sure to have a lawyer fine come through their documents. The sellers realtor has informed me that they have 10thousand in reserved fund and other spending money but again, I would have to have the lawyer look into that.

The other tricky thing I have been facing with is that many big banks are reluctant to going forward with the mortgage for HDFCs.

My main concern is, as the years go by, and the surrounding income medium rises which makes the max cap rise, I probably would be able to sell the apt higher than what I paid for, but from my research, people adamantly note how HDFC's are not homes to make a profit on. I would eventually like to at least make back what I paid for, plus all the closing cost etc along with the mortgage interest that gets tacked onto the loan.

Also, after doing the rent vs buy calculator (which I know is not exact), it comes out that I would be better off just renting which is really discouraging.

"people adamantly note how HDFC's are not homes to make a profit on."

"people" meaning the malevolent, self-serving and utterly incompetent UHAB.

10K in reserves???? now that's the biggest joke that i've heard in years.

if that is actually the case, i would touch the HDFC even if it was free.

"I would eventually like to at least make back what I paid for, plus all the closing cost etc along with the mortgage interest that gets tacked onto the loan."

*sarcasm on*

Oh, that's cool, not greedy at all. You just want to be able to live there for free, you know put that 3.5% downpayment in there, and be compensated for that huge risk with free housing for as long as you live there. Makes perfect sense, that's how capitalism works. Put down $10K, receive $200K in benefit.

In your defense, you seem willing to actually pay your own maintenance.

*sarcasm off*

Now, to be helpful. Are you in a rent-stabilized place right now? What is the rent you're paying vs. the price of the HDFC place & its maintenance, etc.?

most hdfc buildings have a time period after which the flip tax expires you should find out what the time frame is before you make the decision

oldbroker - I looked over the info on Acris and from what I understand, I think it became an HDFC in 2008. I will look into that.

inonada - thanks for switching those on and off buttons haha. I am planning on putting down about 23% and my mortgage and maintenance will still be about $400 more than what I currently pay for my rent. As for my rental, because of the economy, I have been able to steadily talk them down each year that I have been there so far (plus I've been dealing with heavy water leak). My apt is not rent-stabilized and the sqfootage is about half the size of the HDFC I was looking at.

The HDFC sounds like the move.

bump

Alanhart, re:

"people adamantly note how HDFC's are not homes to make a profit on."

"people" meaning the malevolent, self-serving and utterly incompetent UHAB.

Can you shed any more light on UHAB?

I do have a friend who is also looking into an HDFC in Harlem.
UHAB, from what I can sift through from what he has shared, is somehow involved in the Approval and Finance of the Unit, since the Coop can not get conventional financing due to various 'irregularities' within the coop!
[. . . . yeah, I know . . . . and, I asked my friend more about this, and he was willing to take the risk to get a super large Unit, that he could actually afford, even in Harlem, with his income!]

UHAB seems to have some sort of connections with Private "Not for Profit [??!!] Entities willing to lend to The Cooperative!]
Any [more?] pitfalls to be aware of, or how to proceed?

The Board seems willing to bite off its nose to spite its face, and is definitely less than properly managed -- Not Financial Maliciousness, more like basic incompetency and willingness to hide it, and The Broker involved seems like a real rookie learning as she goes along!

any thoughts you or others can share?

hysteryck, it seems like HDFC is the no-brainer if you plan on living there long-term. Do you have an estimate of price vs. annual rent for a comparable market-rate apartment?

Don't some HFDC buildings eventually go free market so those living there make a huge profit? Didn't that happen at Co-op Village on the LES? Isn't that what it looks like will be happening at Southbridge Towers near the Brooklyn Bridge and the South Street Seaport in Manhattan? Can anyone clarify? Thanks.

The LES towers were not HDFC, they were built by garment workers' unions.

http://www.nytimes.com/1998/07/26/realestate/rules-on-occupancy-in-a-co-op.html?scp=1&sq=hdfc%20co-ops&st=cse

The primary purpose of the HDFC program was to get buildings that the City had taken over for nonpayment of taxes and fines off the City's back ... their minimal maintenance was outrageously expensive to the City. The City essentially gave them to the long-suffering rent-regulated tenants, to be run as privately-owned coops.

[Here I need to reiterate that Rent Control and Rent Stabilization were NOT intended to be low-income, or middle-income, or any income-tested, program.]

Certain RE tax breaks and loan programs were cobbled together so that long-neglected buildings could replace their building systems, and in connection with those loans there were "soft" expectations to keep the buildings in a vaguely-defined hovering pattern. Each building was given wide latitude in correlating its requirements to some multiple of median income, to institute flip taxes that remit to the coop's coffers, etc.

Basically, the City did nothing to enforce whatever slim (and widely varying) legal requirements that were mentioned in documents from the handover of ownership. The City was happy not to have to pay for the heating, repair and upkeep of the buildings, and to have the prospect of one day collecting RE taxes.

Self-serving, ultimately malevolent (if not outright malicious) non-profits got in on the act, and imposed the notion that HDFCs are the new housing projects, that they should remain very low income in perpetuity, etc. etc. They are the go-to point people for the media on anything regarding these confusing programs, especially UHAB. They do a great disservice and insult the original tenant/owners especially, because those people had been proud enough to move into "regular" buildings, not housing projects.

I could go on about UHAB's decades of cruel incompetence, but I'll shift instead to the newer HDFCs. These are usually buildings that had not been taken over by the City, but instead seized from outrageously bad landlords and put into various programs that facilitate the direct (albeit slow) transition to the tenants.

The City gives UHAB broad powers in defining these buildings as low-income equity-imprisonment programs -- basically UHAB writes its own legislation. The buildings are saddled with huge renovation mortgages, built into which are onerous provisions that severely limit profit for something like 35 years, and then limit it considerably beyond that time. UHAB installs its own incompetent (corrupt?) management company (Wavecrest). Bad renovation decisions are imposed on tenants whether they want them or not -- something that would never be allowed with rent-regged tenants in privately-owned buildings. Renovations drag on for years and years beyond plan.

Many tenants see huge jumps from their old rents to their new maintenance. The solution? Section 8 vouchers for anyone who's low-income! That way they don't need to have any incentive to keep costs under control.

I personally wouldn't touch a newer HDFC with a ten-foot pole -- they're much more likely to have onerous provisions in clearly defined and enforceable language, as opposed to the older ones that might not, and are closer to sunset if such a thing is legally possible. I don't believe any HDFC has ever fully exited the program, and I doubt it's possible without legislative, or at least City Hall, action on a program level.

Another thing to check before you proceed is what kind of mortgage terms they have, in the traditional sense: interest-only, balloon payment, etc.?

Another famous co-op built by unions - Penn South. They voted to keep the co-op limited equity. http://www.pennsouth.coop/PublicPages/about.html

According to some realtors, 800 RSD (Grinnell) has a similar tax deal - there is an income limit.

AH: Not surprised. It seems that many of these non-profit groups that get into the housing game are quite corrupt. When I was looking for investment properties in Harlem, a few groups had a virtual lock on getting these derelict properties from the city for zero money, renovating and reselling to moderate-income buyers. As an outsider, I had zero chance of doing the same. The process was FAR from transparent.

hysteryck, what neighborhood is your prospective HDFC in?

Everything has a price. As long as you're getting a super-super-SUPER-low price on the HDFC co-op, it may be worth it. For instance, check out the closing prices on this co-op in primish UWS and look at how few co-ops have successfully sold. http://streeteasy.com/nyc/building/7-west-92-street-manhattan

alanhart- the HDFC I'm looking at is in LES. Thanks for the tips. I think this HDFC is the newer type. It's not the 60/40 type but I would still have to dig deeper.

nyc10023 - what is low low low price on HDFC? I checked out that link and it's pretty insane to see the difference of the asking and selling price difference as high as 19%.

Alan: If the ask was $1 (with same mtce on any one of the W92 apts), would there be any takers? Yep, 10k. 20k, yep. 100k, yep.

How about the price tag of 400K?

Whats the outlook for a Harlem HDFC with 20% Vacant Units?
3/4 of the vacants are recently and very decently renovated . . . . the remainder are wrecks in need of complete renovation.

NOT 'upscale'[!!] Harlem, but Units are priced nicely for the space; but Maintenance is on the high side and increasing regularly . . . .
The Building really is a potential gem in the rough, it could be really nice in the future with TLC and Good Management!

Conventional Banks and Lenders wont touch it.
Too much vacancy; Big Time Renovation Lien; some Maintenance Payment Backups.
The Board is trying to do a decent job, but sorta stuck, and did sell 3 Units in a year with No Broker Assistance.
UHAB and Not For Profit Lenders involved.
An interested potential Shareholder, but need some Creative Financing leeway with Not For Profit
. . . at a rate that is comparable to what a Bank WOULD do . . . . . if Coop was Finance-Able in conventional manner!
The Units need to be sold if Lien is to be paid off, and Maintenance is to stabilize or reduce, and Coop is to move into future!
But the Board seems willing to just kinda keep on not doing much as time marches on . . . .

Management Company seems to be a waste of good Maintenance Money.
Board could probably do a Great Job if so motivated! And, that may be Forced, as things just get worse . . . .

Overall The Price and Future Potential is what keeps my sis from a complete about face!

Any thoughts?