WTF is a HDFC coop?

^ I see you looking at that wildly under market coop while completely disregarding the income requirements…

My mother is a broker in Massachusetts so I literally grew up with real estate. Television shows such as Million Dollar Listing, House Hunters and HGTV take the tiniest sliver of the profession and adorn it with bells and whistles, romanticizing every interaction as a glowing example of camaraderie and aesthetic pizzazz. This representation of the field is as accurate as showing someone a photo of Brad Pitt in Fight Club when trying to describe Gary Busey. Real estate has become very tangible for the public, largely due to the volume of information readily available on the internet, which in contradiction to many people’s assumptions, does not make you an expert. For example, in my attempt to become more in touch with my taxes, I typically dump all my peculiar questions in my accountant’s inbox instead of relying on google, who has lost credibility with every medical search I’ve done which always left me pregnant or with liver failure. With real estate, there are a lot of intricacies that won’t be explained online and seem to manifest themselves at very inopportune times if you aren’t aware of them. Recently I got a very enthusiastic email about a two-bedroom coop in the LES that was extremely under market with jaw-dropping low monthlies, “CAN WE SEE THIS?” No matter what my response time was, the emailer was emotionally ready to take the leap with the slightest nudge. After quick scroll through the listing, HDFC appeared stagnantly in the description so I picked up the phone to save myself the carpel tunnel…

*trying to think of an optimistic and kind way to explain that this is not at all representative of the normal resale market*

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. If you are in a position to purchase an HDFC apartment, it is definitely worth exploring, but the first step is making sure the situation is right for you from an immediate and long-term perspective.