I have a very basic question about buying into a 60/40 HDFC co-op, but cannot find an answer anywhere. We are contemplating buying an apartment that needs very, very significant work--it is not habitable (vermin, broken floors, broken walls, broken plumbing, non-working electrical). The building became a 60/40 HDFC in 1991, and paid off its only mortgage in 2007. Five of the units are currently... [more]
I have a very basic question about buying into a 60/40 HDFC co-op, but cannot find an answer anywhere.
We are contemplating buying an apartment that needs very, very significant work--it is not habitable (vermin, broken floors, broken walls, broken plumbing, non-working electrical).
The building became a 60/40 HDFC in 1991, and paid off its only mortgage in 2007. Five of the units are currently vacant and available for sale. The rest are owner-occupied.
We plan to stay for a long time, but want to understand the resale rules just in case our family situation chages. If/when we sell before 2021, we understand that 40% of the profit goes to the City. However, is this profit based on the difference between purchase price and selling price, or the difference between purchase price + improvements and selling price? Since it needs a gut renovation at a cost of $100K, we will never be able to afford to pay the city 40% of a "profit" that we will not actually realize.
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Response by SomeonewhoKnows
about 17 years ago
Posts: 157
Member since: Jul 2008
I am the only person I know who has flipped HDFC co-ops (and only three times). It is THE most complex and complicated aspect of the NYC residential real estate market that I have ever dealt with.
In buildings I've dealt with, the 60/40 split is applied to the difference between purchase and sales price. It *NEVER* takes improvements or carrying costs into account. I wouldn't swear to that being the case in every building, but you can find out the answer for sure in the building you're considering by checking the agreement between NYC and the particular HDFC. Those docs are generally not very long and written in clear English. The lawyer for the co-op can provide you with those docs.
Keep in mind that the 60/40 split includes 30% to the building, as well. (40% to city, 30% to building, 30% to you). You're only entitled to 30% of profits.
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Response by tandare
about 17 years ago
Posts: 459
Member since: Jun 2008
Jennem - you'll want to contact an attorney familiar with HDFCs -- the basic concept is the same for all, but they can all be structured differently (some have no "flip tax", some do, so on and so forth). I'd also suggest checking with the UHAB organization (which is involved with all HDFC coops' formation) and get the specifics from them.
If you are hoping for investment value, HDFC is not likely to provide it. An HDFC building may 'expire' out of the program, but most people I spoke with when looking into this, I never actually found a building that did expire out and everyone agreed to essentially deregulate it. I'm sure they exist, but doesn't seem like many do.
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Response by SomeonewhoKnows
about 17 years ago
Posts: 157
Member since: Jul 2008
There are HDFCs out there that ignore both income requirements and flip taxes even before the program expires. This is technically illegal, but there is no enforcement. The Grinnell, for example, a beautiful building on Riverside Drive, does not enforce any income restrictions at all. And there are others too.
That don't make it right, but it does exist.
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Response by jennem
about 17 years ago
Posts: 22
Member since: Oct 2008
Yup, our attorney called HPD and the TIL office, and they said they do not check into or enforce the income requirements...there's no reporting to them in any way. The co-op sale isn't even reported, let alone the buyer's income.
We meet the income requirements, we just called to find out if there was paperwork that needed to be prepared to go to any sort of city office (the seller & seller's broker are clueless). And they had no idea what we were talking about when we called...they were like, "No one's ever asked us that before! No, it's between you and the Board."
Anyway, we're not looking for investment value. Not even looking for a tiny profit! We just want to make sure that, with the economy going the way it is, if our long-term plans change and we have to sell, we break close to even.
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I am the only person I know who has flipped HDFC co-ops (and only three times). It is THE most complex and complicated aspect of the NYC residential real estate market that I have ever dealt with.
In buildings I've dealt with, the 60/40 split is applied to the difference between purchase and sales price. It *NEVER* takes improvements or carrying costs into account. I wouldn't swear to that being the case in every building, but you can find out the answer for sure in the building you're considering by checking the agreement between NYC and the particular HDFC. Those docs are generally not very long and written in clear English. The lawyer for the co-op can provide you with those docs.
Keep in mind that the 60/40 split includes 30% to the building, as well. (40% to city, 30% to building, 30% to you). You're only entitled to 30% of profits.
Jennem - you'll want to contact an attorney familiar with HDFCs -- the basic concept is the same for all, but they can all be structured differently (some have no "flip tax", some do, so on and so forth). I'd also suggest checking with the UHAB organization (which is involved with all HDFC coops' formation) and get the specifics from them.
If you are hoping for investment value, HDFC is not likely to provide it. An HDFC building may 'expire' out of the program, but most people I spoke with when looking into this, I never actually found a building that did expire out and everyone agreed to essentially deregulate it. I'm sure they exist, but doesn't seem like many do.
There are HDFCs out there that ignore both income requirements and flip taxes even before the program expires. This is technically illegal, but there is no enforcement. The Grinnell, for example, a beautiful building on Riverside Drive, does not enforce any income restrictions at all. And there are others too.
That don't make it right, but it does exist.
Yup, our attorney called HPD and the TIL office, and they said they do not check into or enforce the income requirements...there's no reporting to them in any way. The co-op sale isn't even reported, let alone the buyer's income.
We meet the income requirements, we just called to find out if there was paperwork that needed to be prepared to go to any sort of city office (the seller & seller's broker are clueless). And they had no idea what we were talking about when we called...they were like, "No one's ever asked us that before! No, it's between you and the Board."
Anyway, we're not looking for investment value. Not even looking for a tiny profit! We just want to make sure that, with the economy going the way it is, if our long-term plans change and we have to sell, we break close to even.