Why Is This Apartment Priced So Well????
^ the view from the master bedroom room the listing agent requested to be edited out of the listing photos
I wish I could look back at college and say I was fashionable, knew how to do flattering makeup, made socially-aware decisions I stand by 15 years later, and posted eloquent and timelessly witty Facebook statuses but sadly, none of these things are remotely true. I wore low rise True Religion jeans and tube tops; smudged thick eyeliner around the entire perimeter of my eye and made zero attempt at contouring; posted an entire Facebook album after every night out, filled with every unapologetically gauche picture taken; and publicly posted berserk Facebook statuses that disqualify me from ever running for office in the future. But of all my bad decisions, lapses in judgement, and failures to thrive, the one I can’t get over is how we all were fooled by Groupon.
Growing up my parents did their very best to instill valuable life adages in me, one of which being “you get what you pay for”. There was an ever-wariness in that every deal came with a caveat and the immediate benefit of a low sticker price usually came back in time to haunt you. As broke college students without a fully formed prefrontal cortexes, when Groupon popped up in 2008, it had us right where it wanted us. Services, experiences, items that were once out of our price range were suddenly within grasp. Like a free shot with a beer deal, what could go wrong?
What can go wrong is you get discounted highlights but your hair stylist turns out to basically be a raccoon on meth and all of a sudden you’re left looking like Kelly Clarkson in 2002:
The same exact logic works for real estate. Of the thousands of homes I’ve seen in the last 10 years, 99% of the time if it’s too good to be true as there’s usually a very warranted reason that unfortunately some buyers miss because they’re too wrapped up in the sparkly price tag.
Today we’re going to go through the heavy hitters that you need to keep on the lookout for every time you find yourself rapidly slipping into a state of infatuation over a property that you declare is “the one” before ever setting foot into it. Land leases, high maintenance costs, bedrooms without windows, spiral staircases, HDFC coops: we’re going to cover it all and I’ll explain why you should think twice before inheriting these as permanent albatrosses.
^ the all-caps manic text I get a few times a week at 3am with the link to a listing priced way under market
Monstrous monthly maintenance
The price tag may look outstanding but then you look at the maintenance/common charges and property taxes and get slapped in the face with an alarmingly bloated number. Most owners sitting on very high monthlies have to adjust the price tag accordingly in order to trick someone into inheriting that burden. What you must note as a homeowner is that the monthly maintenance fee is never going to go down. The components that make up that figure – property taxes, the cost of physically running the building, staff salaries, etc. – will only go up in time with inflation and rising cost of living so it is unadvised to inherit a monthly cost that is markedly over the average for the neighborhood as it will make resale that much more difficult. Coops assess buyers with two different qualifications: debt-to-income ratio and post-closing liquidity. Your debt-to-income ratio should not exceed 30%, which will get more difficult to achieve with a higher monthly maintenance cost. Post-closing liquidity for coops is usually two years of mortgage and maintenance fees liquid post-closing, which also will be affected by high maintenance costs. If you do swallow a higher maintenance cost for a property because the price tag is too good to be true, just know that you will most likely have to apply the same discount when you go to sell someday in order successfully sell.
HDFC coops
We’ve all seen them – the three-bedroom on the UWS for $800,000, the studio in Chelsea for $300,000…yet they’ve been sitting for months and even have price cuts.
Welcome to little nook of real estate known as HDFC, or Housing Development Fund Corporation. These are income-restricted co-op housing intended for low-income New Yorkers. Their birth occurred in the late 1970’s when the city seized thousands of derelict apartments, fixed them up, turned into low-income coops, and allowed tenants to purchase them for nominal amounts.
HDFC’s have kept the spirit of their inception alive by setting strict income thresholds to ensure that the owners represent a pay bracket that is largely excluded from home-ownership in NYC. For example, X-property may have an asking price of $489,000, with an income cap of $97,020 for a single buyer, or $110,880 for two buyers. HDFC buildings receive tax breaks and subsidies to help keep operating costs and maintenance charges for shareholders at a minimum. Buyers in HDFC’s must meet strict income caps either tied to the area median income or a formula based on the apartment’s utilities and maintenance fees. They also ensure that the purchase is a primary (and often only) residence. So with income capped, a buyer will rely on assets/gifts to make the purchase, as these are not be restricting.
While these competitive price tags will 100% pique the interest of investors, by no means is this recommended for serial movers or buyers hoping to profit from their real estate investments in the short term. Most HDFC’s have an extremely high flip tax in order to discourage investors from flipping the property, which averages at 30% of the purchase price. While there aren’t restrictions set on the resale price, the income restrictions and flip taxes are the drivers keeping the price tag low.
With HDFC purchases, the return on investment is something typically only realized in decades, not years.
This purchasing model favors buyers with lower incomes by significant assets, such as retirees, young buyers with parents assisting, or individuals with trust funds or inheritance. While all-cash buyers are typically always king in real estate, that’s further exacerbated with HDFC’s, as the building often needs the cash for repairs or debt. Furthermore, getting mortgage approvals for HDFC buildings can prove to be extremely difficult, as banks are wary of financing limited equity co-ops from a liability standpoint. For the application, the amount of paperwork needed is slightly more cumbersome than your typical coop and approval can take a month longer, as the package must first go before a government agency, the entity ultimately in charge of these properties.
While HDFC’s are wonderful for long-term homes and have a strong sense of community, they are, more often than not, in dire need of a face lift and could have some skeletons hiding in the closet regarding the building’s finances and management.
Land leases
Going off that high maintenance thing, if you see a crazy high maintenance and then the designation that it is a Land Lease building, BOOM another red flag. A land lease is when the building doesn’t own the land it sits on but rather pays rent to an independent owner, payment of which is collected through additional maintenance charges. Lease terms run from 50-99 years and theoretically if the coop doesn’t renew its lease with the owner, everyone flat out loses their property and is evicted. This has never happened…but it’s a logical possibility. Land lease properties are about 20-30% less than comparable home however banks are very apprehensive to lend in them due to uncertainties of the ownership. Also if the lease expires in 20 years, a bank will not give a 30 year loan. However these properties are still regularly bought and sold just with more apprehension and extremely thorough due diligence.
Spiral staircases
I’ll be brief on this one: spiral staircases detonate resale. First, animals hate them and can’t comprehend how to get up and down them. Second, if you have any handicaps or injuries, it will not be a welcome mode to get to your bedroom every night. Third, if you have a few cocktails, you are asking for a potentially gruesome experience. Imagine trying to get a baby up and down a spiral staircase? No way. Avoid.
Multilevel units without privacy
You’ll see one or two bedrooms split across a duplex or triplex where all the units are connected by an open air staircase system. I consider these studios but worse because there will be no privacy between the spaces and instead of having an open air, single floor concept, your apartment is cut up into stacked spaces but every room only has three walls, there’s no privacy, and you can always hear what’s happening on other floors. I would much prefer a large loft than this layout. Triplexes may be the same square footage as a larger lofted studio/one bed, but actually feel much smaller and cramped.
Close to elevated roadways or major throughways
Even if a neighborhood is up-and-coming and prices are still low, you have to consider the unmovable parts of a neighborhood that will serve as a deterrent from that area becoming a hub. Elevated roadways and expressways are not going anywhere, anytime soon and not only will additional traffic noise be something you may inherit, but restaurants/bars will stay closer to the idyllic and more favorable parts of the neighborhood. The general safety and growth potential of the area close to roadways will most likely continue to be a question for future buyers when you go to resell.
Duplexes with subterranean bedrooms
If you’ve lived in New York for at least a month, you know that when it rains here, we all become third class passengers on the Titanic and the city tends to temporarily flood. Now subterranean apartments/rooms have their issues for other reasons (lack of light, low ceilings, feels like a dungeon, smells like a dungeon), but if there is one reason to avoid these apartments like the plague, I have one word: flooding.
High floor walk-ups
So while many New Yorkers are in some semblance of shape due to how much we walk and the majority of us have rented 4th/5th floor apartments, high floor walk up as a purchase are just not for everyone. Sometimes it’s unavoidable, as many of the best locations in the city have walk-up, tenement style buildings. But for people with children, strollers, or health problems, walk-ups are off the list. This isn’t hugely limiting as to what size buyer pool you have when you go to resell, but it is just something to consider when looking at the full picture of your investment. Walk-ups do mean lower maintenance costs though (think – no carrying costs for elevators and doormen) so a lot of people are willing to trek up a few flights for a lower carrying cost and also the addition light from being on the 3rd floor or higher.
Small kitchens with no workspace or ability to make them larger
While New Yorkers are known to engorge themselves in the dining scene, people still need a workable kitchen, as primitive as their cooking skills may be. Now to get a chef’s kitchen in New York is a status symbol, but you do want to make sure you have enough counter space to theoretically prepare a meal. One little corner will not do it. Either the space has to be there or there needs to be flexibility in the floor-plan to potentially expand the kitchen. This is a lower list item but proper space to cook is something to strive for, at least for resale purposes.
No closets or logical space to add closets
For anyone else who has 20+ past Halloween costumes in their apartment…*crickets*…you’ll understand how important closets are. There’s only so much you can hide under your bed and make up for with free standing armoires. Very minimal closet space is a huge turn-off for all buyers, regardless of their hoarding habits. If there’s lean closets to begin with and there’s no logical place to build out more closeting, both your quality of life and your resale suffer. It always surprises me how many buyers forget the *things* they have when assessing apartment closet space. Both bedrooms absolutely need closets then you have to consider kitchen storage and common area storage. Make sure to consider jackets, shoes, suitcases, cleaning supplies, paper products, seasonal wear, home decorations: these need to go somewhere and usually one tiny hallway closet isn’t going to cut it.
Low floor/interior facing/no light
The floor your property is on makes a huge difference. Many potential buyers won’t consider anything under the 2nd floor due to the obvious issues of street noise and low natural light. Prices for ground/1st/2nd floor are more favorable than higher floors, particularly in elevator buildings, but that will sorely cap resale value and also limit your buyer pool when you go to sell.
Living rooms that have low useable square footage because of pass through space
So this is my favorite one to point out because sometimes it’s easy to forget that you have to furnish an apartment and useable square footage isn’t top of mind. If you look at living room, you need to make sure you can furnish it properly while keeping in mind how many walls you get to work with (for example, open kitchens eliminate a wall, leading to fewer configurations with a TV and couch set up) and where the doors are. The latter is very important because the placement of doors will determine what you need to account for as “pass through” space. An ideal living room is a square/rectangle where all of the doors/pass through space are kept to one side of the room so you can freely use the rest of the space and get creative with your options. Doors on a diagonal across or directly in the middle of walls can sometimes limit what you do with the space.
A bedroom that doesn’t count as a bedroom
If I had a dollar for every room listed as a “bedroom” on Streeteasy that could only fit, at best, a twin sized bed…there are a lot of agents out there passing off rooms who’s usefulness peaks at office or nursery as proper bedrooms, which is a murky misrepresentation. If you are going to pay the money for a “two bedroom” make sure the smaller bedroom can fit full sized bed, end tables, maybe a desk. If it can’t, then you should only be paying for a one bedroom with a home office. The resale will bite you because most two bedroom buyers are looking for something they can grow into with the second bedroom possibly starting as an office but ultimately becoming a proper bedroom and this will be a deal breaker for them.
Tough coop
Does the coop state no subletting, no pets, no pied-a-terres, no co-purchasing, no gifting, no parents buying for children, crazy amounts of liquidity post-closing, a lower percent allowed for financing, and no fun in general? Not that these buildings are bad or red flags, but it means you’re entering a stricter coop that will be a bit of a more arduous purchasing process, which your eventual buyers will also have to endure. Glass half full, these are often the most financially stable and strict about making sure all owners are professionally qualified with strong assets.
Underlying financial issues with the building
A building that finds itself in a tough financial spot – be it the underlying mortgage is massive or the building reserves are low – is something to just think about before buying into that situation. A building with low reserves will call for assessments or an increase in maintenance to help gain some traction, and if the maintenance is already high to begin with, you may be in for another bump. You’ll get all financial color during due diligence but just consider the gravity of any financial red flags before you commit.
Exiting the apartment onto a chaotic street or avenue
There is a very clear reason why apartments on 14th street, 23rd street, Times Square, and directly on any major avenues typically come with a reduction on the sticker price. People generally don’t like to walk out of their apartment and be immediately punched in the face by all of the things about New York we hate the most (tourists, Halal carts, vape stores, etc). An apartment may be beautiful, but if your front yard is a Dollar slice store, a 7-11, and a Boost Mobile, no one will be looking forward to coming and going home. While some may argue convenience, part of the “home” you’re buying is the experience of coming home and leaving home and let’s just say the energy of Times Square is not what most home buyers are seeking these days.
A living room can’t fit a proper dining and living space
So this is getting nit-picky but it is something to flag when considering the overall picture of the apartment. Especially if there is an open kitchen which takes away a wall from the living room, you want to make sure you can properly set up a living space and still have room for a table designated for dining. This isn’t our parents house the suburbs so no one is expecting a formal dining area in New York, but you do want to be able to make a defined area for both living and dining, as this usually is higher up on buyers’ priority lists. Funny enough, a lot of new developments don’t heed this advice and that’s a lot of why you see buyers choosing resale apartments over new developments.
A Bathroom through the bedroom
While this layout happens frequently and sometimes it’s just the reality for a great apartment, if the only bathroom is through a bedroom, you have to consider that from a privacy and general annoyance aspect. If you have guests over and they’re constantly traipsing through your bedroom, this will inevitably become a sore spot. Again, this is a common layout so not the most avoidable, but just something to consider when you’re looking at various apartments and floor plans
A far walk from public transportation opportunities
While I personally love walking, I know that the same cannot be said for all people. Particularly if you’re in nice business attire and the weather is not favorable, having a 15-minute walk to the closest train is a toughie to commit to. Most individuals do prioritize proximity to public transportation options and while a stunning apartment at a great price could make them reconsider, an easy commute is hard to pass up.