Manhattan Co-ops for Investments

I think you'd have to do your research on that. If you you have a great broker they could tell you from past experience. Perhaps you can do a little research yourself even on SE where there are rentals for coops. I know when I owned one we had a 2 year limit on rentals to deter transient tenants. This wasn't even a fancy building.

Coops are not investments. Yes, some buildings have very lax policies, but if they change (and they do) then you no longer have an investment property. If you want a real investment, purchase a condominium.

If you are looking for investment properties, send me an email. I have been tracking tenant occupied units and know which ones have the best ROI. (mrussell@bhsusa.com)

Hello nyc_ace, I have worked with a few co-ops that will allow these types of situations. Please feel free to contact me directly for further information.

There are a few investor friendly co-ops out there where they allow you to rent out from the first day of ownership. The catch with these is that they are very difficult to get financing for because of the high renter to owner ratio (a big no-no from the bank's stand point). If you are an all cash buyer (or mostly cash with at least 50% down), these could be an option for you. The obvious advantage is that they are much cheaper than condos (about 15-20% less) and the closing costs are fairly inexpensive (on average $3000 plus your attorney's fee for properties under 1M, as opposed to a minimum of 3% of the purchase price for condos).

25 W 13th allows subletting from day one. Very nice doorman building in good location.

I think you would be hard pressed to show me how tying up a huge chunk of change buying a Manh coop is a sound investment. If you are living in it, that's a totally different story. But to make money? Really? That's the best investment you can come up with?

thanks everyone for their reply.

@chrisT - doesn't seem like a sound investment to me after some research but thanks for the lead.

@kylewest - what's the best investment you can come up with?

Diversification is obviously important, and no one element of the diversified portfolio is "best." Index funds provide a foundation. If you are wealthy enough to invest in NYC RE, one would assume you are wealthy enough to own NYC RE to live in. If you are living in a coop, then I think you have more than enough equity tied up in NYC RE and do not need to buy an additional coop. In addition, a coop as investment comes with a host of headaches other investments are free from. You have to worry about renters, maintaining the place, changes in house rules regarding permissibility of rentals, increases in maintenance, special assessments... Who needs that? And there is no indication that a RE investment in a coop in NYC is likely to yield any particularly great returns for years. In fact, you will have to put money INTO the investment just to maintain it over time.

Therefore, if you own your own coop already, then I would recommend a well-diversified portfolio of low-cost index funds such as those offered by Vanguard. Low cost brokerages like Charles Schwaab are also the way to go. All of this coordinated by an independent financial advisor.

@kylewest - decent advice. let's just say i'm expanding my portfolio and i think "cheap" co-ops could be an option since: 1) rents are climbing; and, 2) renters will pay off the underlying mortgage; 3) prices seem to have stabilized a bit. the other variables you mention are certainly components of the risk equation.

Do you realize how hard it will be to not lose money on a coop, let alone make money? SPecial assessments have to be included in the formula. Increased RE taxes. Insurance YOU must carry even if you rent it out. Turn over in tenants AND I don't know of ANY quality coops that permit you to rent them out indefinitely. There may be a handful, but I don't know them--it flies in the face of why people even buy coops or want to live in them. And if it is an investment property, you don't get the home mortgage deduction on your taxes.
Also, the transaction costs for a coop purchase and sale (really any NYC RE) are comparatively HUGE and can decimate any profit once factored in.

Why aren't you just looking at condos if you want RE investments? There are still most of these problems, but at least you don't have the limitations on renting.

pls explain item "2) renters will pay off (a coop's) underlying mortgage?

Are we talking enough to buy a whole sponsor's portoin of a coop building?

Condos as compared with coops have much higher prices for the same sizes, so you will be paying 10s of thoudsands just to have what some coops already allow; apartments in NYC have drastically increased in value over the years; do a little research and you will find that e.g., a nice studio in the respectable Kips Bay was only $50K in 1998, $180K in 2004, and now? If you know of any other investments that not only yields this kind of increase, but gives you money in pocket (rent) month after month, please let me know! For most of us who are not Warren Buffet, which fund (let alone index fund) gives you that?
Like to see your comment.

I represent investors in real estate transactions involving "investor friendly" co-op buildings in Manhattan. These buildings are known for their "unlimited sublet policies from day one", i.e., investor can purchase an apartment and start subletting it from day one.

There are approximately 30 buildings of this kind in Manhattan. At any given month, no more than 2-3 apartments are offered for sale in these buildings. Many change ownership via off-market transactions. Average time to get such units in contract is less than 4 weeks. Average time to get a traditional co-op unit in contract is 40 weeks. "Investor friendly" co-op apartments are highly liquid and attract a solid demand.

On average, a cash investors earn more than 15% annually on his/her investment by purchasing and subleasing a cooperative apartment in these "investor friendly" co-op buildings.
The math is quite simple.

Let's consider Upper East Side co-ops in pre-war low-rise buildings.

Average co-op studio price is $300,000; $600 - $650 per square foot (Average 1BR price is $350,000). An average monthly rent for a studio is $1900. Average monthly maintenance for a studio apartment is $750. Annual Net Operating Income (NOI) = $13,800. CAP = 4.6%. Compared to investing in condos - by purchasing and renting a condo in Manhattan, an investor will not earn more than 2.00% - 2.50% annually.

Moreover, over the last year, on the average, co-op prices increased by more than 15% in Manhattan (see most recent Market Reports published by the most leading real estate brokerage companies in Manhattan.)

Undisputedly, there is always a chance that a board might amend the co-op bylaws and forbid investors to purchase units in the building or create restrictions on subleasing. However, the chances of this happening are very slim. Usually, the board needs 66% voting approval from all of the shareholders in the co-op in order to to amend bylaws. Most of the shareholders in such buildings are investors who sublease the units once they close on a purchase. Such shareholders/investors will never vote against their own interests. Thus, it is nearly impossible for the board to gather the necessary 66%. That's precisely the reason why these buildings are called "investor friendly".

Today, this type of co-op deals is an incredible investment opportunity that certainly deserves a careful consideration.

If you are interested in investing in co-op “investor friendly” buildings in Manhattan or would like to get more information about this type of deals, please contact me at md@findsider.com.