How Much Do I Need Liquid to Buy in New York?
During our childhood, there were so many different things that we were told to invest in/hoard and if we did just that, our future held nothing but cascading wealth. Some of these things:
- Beanie Babies, most notably the Princess Diana Beanie Baby
- Pogs
- Pokemon Cards
- Power Ranger Anything
- Happy Meal Toys
- Precious Moments Figurines
- Oh yeah, and that absolutely insane Tickle Me Elmo craze
“Dear Les & Sue Fox, your Beanie Baby Handbook is complete garbage and you owe Cheryl in Des Moines, Iowa a sincere apology for spending the entirety of her children’s college funds on Patti the Platypus and Peace the Bear.”
I can gladly say that I have yet to have a buyer attempt to write off a collection of memorabilia as an asset for their purchase BUT with the down payment required to purchase in New York famously weightier, people are forced to be aware of their full financial picture when stepping into a transaction.
The question I field a lot these days is “How much do I need liquid in order to buy a property in New York?” That number varies with property type, purchase price, financing/not financing, and specificities within each property – so this month, we’re going to cover what to expect for upfront costs required to purchase.
While there are some smaller fees tied to more nominal aspects of the transaction, here are the big hitters to be aware of when thinking about the liquidity you need in order to enter a transaction.
No matter what property type you buy (condo, coops, or new development), there are a handful of costs you’ll always be responsible for:
1.Attorney fee – this runs on average $3,000 for the entire transaction
2. Application and move in/move out fees – while coops tend to be a bit higher and some of these fees are refundable, I would ration between $1,200 – 3,000 for total fees requested by the coop/condo for your application and move-in
3. Bank fees – speak with your lender for exact amounts but these will include appraisal fees, processing fees, general bank fees, bank attorney, ect.
4. Maintenance adjustment – this is usually pro-rated for the closing month and you’ll be responsible for paying back the seller for the amount they’ve already pre-paid
If you go the condo route:
1. Downpayment – typical minimum down payment for a condo is 10-20% of the purchase price
2. Mortgage recording tax – this tax requires purchasers to pay 1.8% on mortgage amounts under $500,000 and 1.925% on mortgage amounts above $500,000 in NYC
3. Title insurance – so it varies per transaction, but most real estate attorneys will estimate it to be 0.45% of the purchase price
If you go the coop route:
1. Downpayment – typical minimum down payment for a coop is 20/25% down, however that can go upward to 40/50% (which isn’t too common)
2. Post closing liquidity – coop boards like to see that the buyer has ample liquidity post closing; typically, they like to see two years of maintenance and mortgage fees liquid after the down payment and all closing costs are accounted for
3. Recognition agreement fee – this is typically about $250
4. Flip Tax – so this is almost always the responsibility of the seller, but in the very off chance it’s the buyer’s responsibility, it varies between 2-5% of the purchase price and is usually calculated as either a percent of the purchase price or a dollar amount per share tied to the amount of shares being transferred
**for coops, you are not paying the mortgage recording tax or title insurance since you’re buying stocks in a corporation, not real estate**
If you buy into a new development, since you’re buying from the sponsor, in addition to the condo fees, you have some pretty hefty fees due to the city and state:
1. Typical condo requirements – you’ll be responsible for everything listed in the condo section above, as new developments are always condos
2. New York City transfer taxes – for properties under $500,000, it’s 1% of the purchase price and for those over $500,000, it’s 1.425% of the purchase price
3. New York State transfer taxes – for properties below $3,000,000, its 0.4% of the purchase price and for those over $3,000,000 it’s 0.65% of the purchase price
4. Sponsors attorneys fees – buyer is responsible and it’s usually ~$3,000
5. Capital contribution fee – in order to built up reserves, you’ll be asked to pony up money for the working capital of the building, which usually starts at a few months of maintenance fees but is often a bit more
Other fees that you may incur just to be on the lookout for:
The mansion tax – the most poorly named tax in the city functions on a sliding scale: once the purchase price goes over $1m, you’re hit with a 1% of the purchase price tax; $2m, 1.25%; $3m, 1.5%; $5m, 2.25%…and the upward scale continues until it maxes out at $25m, 3.9%.