Coop Mortgages

This is par for the course. Typical mortgage for a coop is a 10 year loan with a 25 year amortization schedule. Generally, coops refinance back up for the original loan amount. The cash-out portion of the loan often goes towards capital projects (facade, lobby, etc.).

You should ask for the financials of the building. Within the audit report you will find an income statement, statement of cash flows and balance sheet. You should be able to figure out where the money comes from / goes to from the financials.

thanks...but if they say 40% tax deductible ....its only interest/tax portion.....correct? So im assuming..the higher this percentage.....the better for the shareholder since it means a higher tax deduction and potentially lower operating expenses?

eastside, most coops do not pay off their mortgages and get 10 yr mortgages that are based on 30 yr amortization.

you are correct in thinking that the 40% tax deduction of maintenance is for property taxes and mortgage interest.

Theoretically.

Of course, the LOWER the mortgage (and consequently, the lower the tax deduction), the lower the overall monthly maintenance charge in the first place.

Buildings tend to adhere to the strategy of carrying some debt because it has tax advantages over carrying no debt.

TD portion of maintenance is two things : one is interest on underlying mortgage, the other is real estate taxes (as opposed to things like maintenance and doorman/super/porter labor, which aren't TD).

ali r.
DG Neary Realty

"Buildings tend to adhere to the strategy of carrying some debt because it has tax advantages over carrying no debt."

Reminds me of a Seinfeld bit;

"It's a write-off for them."
"How is it a write-off?"
"They just write it off."
"Write it off what?"
"Jerry, all these big companies, they write off everything."
"You don't even know what a write-off is."
"Do you?"
"No, I don't."
"But they do....... And they're the ones writing it off."

Eastside, if I'm guessing right then the mortgage history is at http://a836-acris.nyc.gov/Scripts/DocSearch.dll/Detail?Doc_ID=2003101501919002

While we're on the subject of co-op mortgages, I was under the impression that banks generally will not lend to co-ops for more than 10 years -- hence, the high frequency of 10-year balloon mortgages.

Does anyone know of options for co-ops that would allow for longer loan durations? During our board interview, we were told it would be great if we could help with some of the legwork for refinancing the building's underlying mortgage. (What can I say, it was a strange interview.) There seems to be some receptivity, based on general philosophy as well as current interest rates, to get a fully amortizing mortgage if such a thing exists.

I have plenty of time, as the balloon payment is not due until early 2011, but if anyone has any pointers while we're on the subject, I'll file them away.

I've seen 5, 10, and 15. Off-hand I'd say mostly 10, but that's based on tens of mortgages out of, what, thousands?

My own is 15, 1998-2013, interest-only at 7%. Seemed good back then, I guess.

Just calculated a what-if, had my co-op chosen a fully-amortizing rather than interest-only mortgage back in 1998.

My share of the interest-only has been $114 per month. Then in 2013 it'll go up or down a few bucks, continuing forever.

For a lousy $176 per month, only $62 more, the piddly mortgage could've been paid off in 2013.

I'll bet in 2013 we just refi again, paying $20-30K in costs, maybebecause people are so attached to that deductibility, negligible though it is in this particular building.

so most buildings NEVER pay down their mtge????? NWT....yes i can understand being stuck on the deductibility but wouldnt it be better to have no mortgage and your mtce would be reduced since it would only be operating expenses?

I don't know what proportion of co-ops are mortgage-free, but some certainly are. Last one I noticed was 525 or 535 E 86th. Then there're co-ops on Fifth with such tiny mortgages you wonder why they don't just assess everybody the few bucks and pay it off.

i wonder if those mortgage free buildings have low mtce AND if the pricing is reflected in the no mortgage...

Millhqt, a great deal of co-ops do (unfortunately) have no realistic plan to pay down their underlying mortgage. Far too many people get caught up in the tax deduction and forget that in order to deduct interest you have to PAY interest. There are also plenty of people who live in the here and now (or bought their apartments for $30k years ago) and would rather gripe over $50-100/month even if it's the difference between being debt free and being in debt forever.

Buildings without an underlying mortgage do typically have (much) lower maintenance. The fact that the building is debt-free is usually mentioned by the broker and almost always reflected in the sale price. Whether the sellers recoup the full value of the paid-off mortgage is up for debate. Based on comments on this board, many people buying co-ops don't even know about underlying mortgages or typical financing terms. There was even a poster a few weeks/months back who asked if a building with a paid-off mortgage was a BAD thing....!