HDFC Coops: The Best Real Estate Deal in New York City
Have you been frustrated with the high prices of apartments in New York City? Well here’s the good news: if you’ve ever wanted to live in New York City at an affordable price, look no further. If you qualify, you may have found the best deal in New York City.
HDFC Coops, a little-known niche market in New York real estate, represents the “latest great deals” in New York City. These cooperative apartments often sell for 40%-60% below comparable regular apartments or condos for sale. HDFC (which stands for Housing Development & Finance Corporation) has been around for many years, but it’s not until the last few years that more and more people are discovering these amazing deals. They are only available in New York City, although there may be other similar programs in other cities.
The history of HDFCs
HDFC co-ops are city-sponsored co-op apartments that offer many of the benefits of a regular co-op apartment, but also have some purchase restrictions and often have a “reverse tax” on the sale.
An HDFC cooperative arose for one of several possible reasons. They may have originally been a rental building that had been abandoned by a landlord or the landlord may have owed taxes or water and thus lost the building to the city.
The City then rehabbed the building, educated tenants about ownership, financially established Coop to be self-sufficient, and then sold the apartments to existing tenants for $250 each. Yes, that’s right, $250!
The premise is that instead of the City being an owner, it has now empowered a group of owners who care about their building and its future. It has been a very successful system.
Typically over the years, these HDFC co-ops changed hands between friends or family for rock-bottom prices. In recent years, some forward thinking brokers have realized the value these Co-ops represent, and by being more professionally marketed, they have fetched much higher prices for Owners.
Benefits
This has benefited both the buyer and the seller of an HDFC apartment. A salesman has now made much more money than he ever thought possible and has the opportunity to make his dreams come true. Many HDFC co-op sellers moved to the suburbs and bought a dream home or vacation, bought a better car, and led a better lifestyle. Remember, the original owners of the HDFC co-ops were there because they typically lived in a rundown, rundown building, so getting $150,000, as much as $500,000 for one of these apartments that they paid only $250 for is a huge windfall.
The buyer has the opportunity to own a piece of New York City, one of the most expensive real estate markets in the world, for a fraction of the price of regular co-ops or condominiums. Very often, HDFC co-ops sell for $400-$600 per square foot, while co-ops and condos in New York can sell for $900-$3,000 per square foot. This is clearly a big difference.
Also don’t think these HDFCs are in bad neighborhoods because many of these are in affluent New York City neighborhoods like the Upper East Side, Upper West Side, Lower East Side, and Williamsburg, Brooklyn.
Down
It sounds too good to be true? Well, it’s not too good to be true, but you have to qualify to buy. In many cases, to qualify to purchase and cooperate with HDFC, you must earn less than 120% of the area median income. In 2008, this number was $64,500 for 1 buyer and $73,725 for 2 buyers in a family and $82,950 for 3 buyers in a family. Alternatively, some buildings, depending on the cooperative’s bylaws, have income restrictions to purchase based on a multiple of the annual maintenance and utility charges that the apartment has. In either case, the managing company and/or the Cooperative’s Board of Directors will generally look at your adjusted gross income from your tax returns for the previous 2 years.
In addition to an income restriction to buy, many HDFC Coops have a “reverse tax” when they sell. Typically, this invested tax is calculated as a percentage of the profit you earn. Profit is defined as the sale price minus the purchase price. The flip tax could be as low as 5% and can be as high as 85% of your profit.
Clearly these factors must be taken into account and depending on the flip tax that the Cooperative has, the price and value of the apartment can vary a lot.
Summary
We have seen that an HDFC co-op represents a great opportunity to own a piece of the “greatest city in the world” at a fraction of the price of other co-ops and condominiums, but that comes with some restrictions on buying and selling, it often has to return a portion of their profits to the cooperative and/or the city.
Tips when buying or selling an HDFC Coop
Find a broker who understands the HDFC Coops rules and restrictions. There are many complexities to the process and if a buyer or seller is not properly qualified, they may waste a lot of time only to find out that they cannot buy or sell the apartment.