Shares in a private company counted liquid?

Are you an employee of this company?

You can always try it and add a note but be sure you explain that the valuation is a cinch too.

cue Matt to come on here and say he would never accept such antics

I am a sleeping partner

The way you are asking questions, you might be better off in the condo or condo-op markets, because if you are a stretch, in this market with many bidders, you will lose to competition with more solid financials.

30% discount at least , when valuing it

My guess is no. You would have to provide written proof, e.g., partnership agreement, that the shares are liquid, i.e., that you can sell your shares to the other partners / force them to buy your shares when you want and their valuation. If I were on a coop board, I would still not be comfortable with this because the PA is just a piece of paper and I would be relying on the promise of individuals I have not vetted i.e., your partners, to purchase your shares at x price.

It's not by virtue of your investment being in a private company that your shares cannot count as liquid. For example, you could have a strong case if we're talking about a hedge fund and you are past the lock-up period. Without knowing the nature of your investment and what written (not oral) agreement you have with your partners, there's no clear answer. By the way, I'm talking more from a lender's perspective, a coop board could be alot more finicky.

People apparently don't understand the definition of "liquid" assets.

It's not securities. Or real estate. Or Grandma's jewels.

It's CASH. In the bank. That you can access IMMEDIATELY.

NYCMatt - a liquid asset is by definition one that can be easily converted into cash. Lenders will certainly consider your marketable securities and maybe even a limited partnership interest if it passes their standard of liquidity. Are you saying that a coop board will only consider cash?

If I have only one stock worth 1mm in my portfolio, coop will/should give it at least a 50 percent haircut vs a diversified portfolio. For a private investment, coop should discount even more as price discovery is based on quotes from your business associates.

My understanding of liquid assets is that they are cash or any property that can be converted to cash immediately. That would include securities, notes, a life insurance policy with a cash surrender value, savings bonds. Some people might consider Grandma's jewels and silver might be considered liquid assets as long as they are the type of property that can be converted into cash quickly and easily. I remember learning in law school that accounts receivable are liquid assets, but my experience of life has taught me that those can be pretty tough to collect when you want them.

I would be wary of OP's scenario of counting on partners to buy him out. It's much too speculative and unreliable.

OP, you've asked many questions on this board in the past few days. I don't know your situation, but perhaps you might consider setting your sights lower or waiting a while until you're more ready financially to buy. It's never what people want to hear but a more conservative course could avoid unhappiness in the long run.

"Are you saying that a coop board will only consider cash?"

Pretty much, yes. At least our board.

A liquid asset is cash. Anything else is an investment asset. If it can be converted to cash immediately (all securities still take at least 3 days, which is not 'immediately'), at a readily determined price (i.e., it trades on an exchange), a liberal board might take it into consideration. But mostly, they make distinctions between what's in your cash accounts, your unrestricted investment accounts (i.e., non-IRA/401k), your IRA/401k/pension accounts, and any other holdings (other real estate, vehicles, debts owed to you, your Ty Beanie Baby collection). The 'haircut' for each type of account increases to 100% far before you hit the last item listed.

Matt, now I am intrigued. Of the following list, which would you and your board consider to be a liquid asset?

- The money in your wallet
- The money in your checking account
- The money in your savings account
- Your money market account
- CDs
- U.S. savings bonds
- A life insurance policy with a cash surrender value
- U.S. T-bills
- Commercial paper
- Short-term government bonds (less than 3 months)

- The money in your wallet

Just one clarification question, any chance this money would be used for tips?

The post-closing liquidity requirement of most co-op boards is only 1 to 2 years of housing expenses cash on hand.

That is not very much money. If you're fancy enough to own private stock, with partners who would love to buy you out (hum), you are fancy enough to have that much cash or highly liquid investments available.

Only a lax co-op board is going to accept private stock in lieu of cash, and I wouldn't want to own a co-op in a building that would accept it!

Shares in a private company won't be considered by a coop board. Such are notoriously difficult to even price for any purpose e.g., computation of estate tax.

"Matt, now I am intrigued. Of the following list, which would you and your board consider to be a liquid asset?"

- The money in your wallet
- The money in your checking account
- The money in your savings account
- Your money market account
- CDs
- U.S. savings bonds

Private company shares are definitely not liquid...

Look at the line of people out the door selling their plain vanilla mutual funds and stocks and incurring capital gains taxes to satisfy Matt.

"Look at the line of people out the door selling their plain vanilla mutual funds and stocks and incurring capital gains taxes to satisfy Matt."

Or they could just try to buy something they can actually AFFORD without having to sell and hock everything down to Grandma's Christmas brooch ...

@NYCMatt, so you can't afford a place if you need to sell stocks or some other investments? Hm, strange view of affordable

Does a 401k count as liquid if the buyer IS of retirement age (but not retired) ?

Do boards expect buyers to have non-liquid assets in addition to the required liquidity?

"@NYCMatt, so you can't afford a place if you need to sell stocks or some other investments? Hm, strange view of affordable"

I -- and quite a few board members in this city -- heartily disagree.

That seems like quite the blanket statement when people's financial situations can be so diverse. Please elaborate?

I'm getting a little confused. So if we keep all our money in the bank, earning 0.01% interest, we're chumps because stocks and mutual funds pay much higher returns. But if we keep our money in those, we don't get to count it when interviewing with a co-op board, because it isn't liquid.

Are we supposed to keep our money in investments until just before we pull the trigger on making an offer, selling stocks and mutual funds and putting the cash into the bank, until the co-op interview is over, and then go back to the market?

Why have co-op boards not created standard devaluation percentages, based on previous cases where people have had to scrounge up cash on short notice, and then multiplied semi-liquid assets like mutual funds by these percentages, rather than ignoring them entirely?

perhaps because board members are not automatically financially savvy. remember, many of these people on the boards, are not the smartest finance people but older guys/gals who have a lot of free time on their hands.

the real question should be: do you want to be a partner in a business venture with people who are relatively financially clueless? because that is what a co-op is.

"Are we supposed to keep our money in investments until just before we pull the trigger on making an offer, selling stocks and mutual funds and putting the cash into the bank, until the co-op interview is over, and then go back to the market?"

You're clearly not getting this.

We're looking for post-closing liquidity that you would normally have in the bank *anyway* -- IN ADDITION TO your investments. In other words, working capital.

If you have to *liquidate* all your investments just to qualify for purchase, you clearly cannot afford the purchase in the first place.

"If you have to *liquidate* all your investments just to qualify for purchase, you clearly cannot afford the purchase in the first place."

Not true. If you have $10MM invested in stocks, bonds, etc, and want to buy a $1MM coop, that is a TOTALLY different situation versus someone who has the two figures reversed.

I was on the board of my coop (anyone who wants to be on the board should have their head checked or get something better to do with their time. And coops suck for a variety of reasons). Liquid assets were viewed as those assets that could be efficiently sold for cash - essentially stocks, bonds, CDs, etc.

"Not true. If you have $10MM invested in stocks, bonds, etc, and want to buy a $1MM coop, that is a TOTALLY different situation versus someone who has the two figures reversed."

Now you're being absurd.

We're not talking about 1-percenters with millions in investments.

We're talking about "regular" people trying to fudge the numbers with the $50K they have in their 401(k) complementing their sad little $7,000 savings accounts.

NYCMatt-- the person I was asking for is about $10,000 short in their savings acct to cover required liquidity after they withdraw their downpayment money. They have much more than 50k in their 401k and they're old enough to withdraw without penalty. Of couse, they'd still have taxes so would prefer not to transfer to savings unless absolutely necessary. Would a board consider this money? Thanks.

I would not.

Post-closing liquidity is an absolute minimum. You should ideally have much, much more.

If you can't meet the minimum, you can't afford the apartment. Period.

Thanks for your reply. It is hard to understand when banks don't require post-close liquidity before giving a mortgage. I think this person can afford the apartment they want because the total monthly charges are less than their current rent and they have never had a problem with that. They would still have their income, savings and retirement accounts. When they leave their job their pension will cover their expenses.

If you have time can you explain why you think they can't afford to buy. Thanks!

Maybe they CAN afford it.

But again, it's quite black and white: If they don't have the requisite post-closing liquidity, they FAIL the application. Period.

And 401(k) accounts, for my building's purposes, are NOT liquid.

Thanks. What would you suggest in this case? I'd hate to see them cash out part of their 401k and pay the taxes and then not be approved. Do you think it's worth the risk to transfer it to their savings account? Are there a lot of other reasons someone might fail the application?

Thanks.

i strongly suggest not basing actions on what matt says. the fact that the people you mention can freely withdraw money from their 401K based on their age clearly changes the way a rational person/board would view the liquidity of the 401K.

"Thanks. What would you suggest in this case? I'd hate to see them cash out part of their 401k and pay the taxes and then not be approved. Do you think it's worth the risk to transfer it to their savings account? Are there a lot of other reasons someone might fail the application?"

My suggestion is for them to find a more affordable apartment so that the liquidity they DO have is more than adequate.

tharton, not every building is a hardass like the Principality of Matt. If you are at the bid stage, I would just include the 401k as a liquid asset in the financials with an asterisk that it can be accessed without penalty. This is only being presented to the Seller.

If the bid to be accepted, it's unlikely to be because hard liquidity is 10k short. Use the time between bid acceptance / offer sign to hit the managing agent or listing agent about how the Board has acted in past close situations.

I would say the most common outcome of this if it gets to the Board is that they would approve if you can put 24 months of liquidity into escrow- then you can decide if you want to liquidate the 401k to do that.

I strongly suggest not basing actions on what C0lumbiaC0unty says about what Matt says.

"If the bid to be accepted, it's unlikely to be because hard liquidity is 10k short. Use the time between bid acceptance / offer sign to hit the managing agent or listing agent about how the Board has acted in past close situations. I would say the most common outcome of this if it gets to the Board is that they would approve if you can put 24 months of liquidity into escrow- then you can decide if you want to liquidate the 401k to do that."

***

I'm sorry, but in this economic climate, boards are loathe to consider applicants asking for special exceptions who don't quite meet the board's set criteria.

Everyone has an excuse these days.

Seriously, why can't they just look for something less expensive and more affordable?

No chance are shares in a private company liquid.
Most certainly solid. Like toilet paper.
Further, can't even consider a value for it. In fact, if this company owes more than it makes it can be a further liability.

Only cash is liquid.That includes savings, money markets, even certificates of deposit.(at least to me). It's still cash with a very minor early withdrawal penalty.

On 401Ks. I suppose one could count the cash in that account after deducing the penalized early withdrawal balance. But if your down to calculating that, you shouldn't be buying the place.

matt is incorrect as re to most coops, incl park and fifth ave. now his building in wash hts may be of a higher standard, but who wants to live up there anyway?

"a liquid asset is by definition one that can be easily converted into cash"--correct

"readily marketable securities" is a phrase used by many boards.

401k's and ira's are not considered liquid assets, for purposes of coop board formulas, but are considered, esp when they are large.

now some boards want to see a lot of liquidity after one has purchased, but certainly actively traded stocks and bonds count as liquid asserts.