Unlimited sublets in a NYC coop: truth or fiction?

Keep in mind that co-op boards are capricious and bylaws change. Today's 'liberal subletting policy' could easily be modified or voted out completely sometime down the road. Don't purchase in a co-op if you're certain you'll want to sublet. Better to buy a condo instead.

if the building is already predominantly investor owned then its very unlikely to change. but yes, anything is possible.

"if the building is already predominantly investor owned then its very unlikely to change. but yes, anything is possible."

But very improbable.

If the percentage of renters in the building gets too high, it becomes difficult for prospective buyers to get a mortgage.

In addition to what bramstar and NYCMatt have said, sometimes co-ops with very flexible sublet policies have such policies to counteract for some other negative factor. E.g., they try to offset high maintenance (for instance) with a liberal sublet policy. Due diligence will be of extreme importance with this unit. A very liberal board is not always good and can come back to bite you.

Thanks for the great feedback. How can I get a better feel for what might happen? FYI it's a large coop (>100 units) with more than 1/3 units still held by the sponsor.

Basically, if the policy is likely to change, I would get an ARM mortgage and save money in the shorter term ($20K saved in first 7-10 years). But if there is a fairly good chance it might hold, I would get a fixed mortgage and keep my options open.

My previous reply disappeared into the void for >8 hours pending approval, apologies if this is a repeat:

Thanks for the great feedback. My real concern is which type of loan to get. If the prospect of long-term subletting is unrealistic, I'll get an ARM and save $20K over 7 years on interest. But if the chances are reasonably good, I'd pay more for fixed-rate so as to keep my options open.

Is there any way to estimate the chances of subletting policy changing? FYI it's a pretty big coop (115 units) with 40% of the units still held by the sponsor, who is slowly selling them as they vacate; out of the privately owned units, 12% are currently rented out. Thanks!

There are approximately 30 "investor friendly" co-op buildings in Manhattan which have "unlimited sublet policies from day one", i.e., investor can purchase an apartment and start subletting it from day one.

At any given month, no more than 5-6 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 investor gets 4.00-4.5% annual cash-on-cash return plus appreciation 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.

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.