Co-purchasing just means I can wire money for the downpayment and call it a day…right?
^ Parents buying for or co-purchasing with children thinking they can get through the coop board without showing any of their financial paperwork…
There are a lot of phrases I find myself saying too often.
“Do you have…*waits expectantly*…oat milk?”
“Just because I’m wearing a furry jacket it doesn’t mean it’s an invitation to pet me”
“What’s your zodiac sign?”
“Please continue to tell me about how I should think about freezing my eggs.”
“God, paper straws are absolute garbage.”
My favorite, “Forget everything you know, purchasing in New York is different from anywhere else in the country.”
Due to the weightier up front costs required for purchasing in the city, many buyers explore the option of outside help to satiate the initial down payment, post-closing liquidity required, and closing costs. This collaborative purchasing structure can manifest itself in a few different forms – co-purchasing, gifting, and acting as a guarantor – and while these are all allowed by condos, most coops have restrictions on which if any that they allow.
While condos are the preferred form of ownership, coops are less expensive, more common, and unavoidable in certain neighborhoods. However they tend to be a more complicated purchase requiring all participating parties to be fully involved in the process. So this month we’re going to talk about collaborative purchasing in New York:
^ Me, after a parent co-purchasing with their child tells me they won’t give up their full financials, relaying back to said-parent that the coop board demands it and will reject the purchase if not complied with
Quick terms:
Gifting is when someone is “gifted” the down payment amount. This is often a very popular option since the person giving the gift usually does not have to fill out the purchase application
Co-purchasing is exactly what it sounds like – someone else buys the apartment with the main purchaser, so both people are owners of the apartment. Both purchasers will have to fill out the purchase application and, if it’s a co-op, both will have to be present for the board interview.
Guarantor plays out where the individual buying is the sole owner of the apartment, but someone else guarantees the payment of the maintenance. If that sole owner don’t keep current with payments, the co-op board or condo association can look to the guarantor for payment. The rules for each building may vary, but guarantors can expect to still have to fill out at least a part of the application or the entire application as well. However, they probably won’t be asked to attend the board interview.
Condos
Since condos are much more straightforward with fewer hoops to jump through, we’ll discuss that first. Condos, the famously the more liberal form of homeownership and they have no restrictions on co-purchasing. As long as the money is good, the purchasers can get a loan (if they’re financing), and there are no scary skeletons in the buyer(s)’s closet, the transaction is straight forward.
The condo has the right of first refusal, so the only way to turn down a purchaser is for the condo to push the buyer out by buying the unit directly from the seller at theaccepted offer price. The easiest route for collaborative purchasing in condos would be for the individual to gift the funds for the purchase to the buyer directly. The condo doesn’t assess debt-to-income ratio or post-closing liquidity – for a buyer who may not have flush funds or a higher salary on their own, the condo board will not be as nearly as stringent with assessment compared to coop boards. However, if this individual is on the mortgage alone (if financing), the bank may be stricter with qualifications. For individuals looking to collaborate with someone buying a condo, if you are gifting the money, you can just wire the funds to the purchaser and call it a day, unless you’re needed for that individual to qualify for a loan. Co-purchasing will require the individual participating to partake in the board package, meaning submit a full board package with financials, tax returns, letters of recommendation, and whatever else the condo requires. Guarantors will need to complete at least part of the application. While no board package is a breeze, condos tend to have much less scrutiny, particularly with collaborative purchases. And no interviews.
Coops
Now they do have a fairly notorious reputation for being a more arduous purchase but there’s varying degrees of difficulties. The first thing to do with any coop you may be interested in is to ask off the bat “does the coop allow co-purchasing, gifting, or guarantors?” Some may be very liberal and happily accept all three. Others may not allow any. Sometimes they allow two of the three. Once you know the options, you can ask yourself if a purchase in this building is even plausible or if it’s something you can creatively maneuver into a successful sale. The thing with coops is that they will want that other party contributing funds to be more active in the purchase. If a gift is allowed, they’ll solely want a gift letter. However with the situation of a guarantor or co-purchase, it’s more likely than not that the board will require full board packages and interviews from that participating individual..meaning, full financial disclosure. There’s definitely massive opportunity in New York for individuals looking to invest, especially from a parents perspective with their child’s apartment as you can build equity and not spend money on empty rent. The first step is always sitting down and thoughtfully assessing what you’re looking for, how that translates in the market, what your options are, what that dictates with your involvement level, and if this aligns with your comfort level.
Shoot me an email at [email protected] to discuss more!