New York City First Time Buyer and Investor

PART 5- BUYING WITH YOUR HEAD AND YOUR HEART!

Buying your 1st or your 10th New York City apartment will probably be the biggest purchase of your life.  In today’s market it’s more important now than ever to understand what your long term goals for purchasing.  Are you sick of paying rent to a landlord and purchasing your first starter studio or 1 bedroom?  Maybe you have outgrown your current apartment and need that second or third bedroom?  An investor looking for a long term investment and tax benefit? Or an overseas buyer looking for a second home here in Manhattan.  Whatever the reason might be, the key to a successful purchase and ultimately long term success is to become educated about purchasing and to find an apartment that you can see yourself owning for the long term.

Steps to a Successful Purchase

1. Understand Why You are Purchasing – Are you looking for an apartment that you can lease once your purchase?  Well than a co-op might not work for you and a condominium would be your best option.  Are you renting right now and want to find out if it makes sense to buy and stop putting money in your landlords pocket?  A rent vs. purchase analysis might show that it makes more sense for you to rent, but the qualitative benefits of owning your own apartment could also affect your decision.  How long do you plan on being in the apartment?  One year or indefinitely? Right now in this market, you should plan on owning for a minimum of 5 years to see a significant amount of appreciation.  The key is to think about what your long term goals are for purchasing because that should dictate what type of property is right for you and how you should go about your search for your next home.
2. How Much Can you Afford- Speaking with a mortgage broker or the bank of your choosing and having an in depth discussion of how much you can afford will have tremendous impact on your purchase.  Because lending isn’t what it was a year or even 6 months ago, guidelines changing, conforming loan rates changing, having an up to date understanding of where you stand obtaining a mortgage is essential to a successful purchase.
3. Becoming Market Educated- Currently Manhattan is a changing market.  How much is an apartment worth today?  One market report says that median prices went up a few percent, but another report says that the transactions are down 70%.  Who to believe and what does it mean to you?  Looking at the city as a whole will give you a macro-perspective, but the key in my opinion is to follow the price point and neighborhoods that you are going to purchase in.  A one bedroom condominium in the West Village and a Classic 6 in a Park Avenue co-op are not apple to apple comparisons, so reading a report that says prices are down 20% citywide, may not be indicative of the type of property you are looking for.  The way I see things is that right now, an apartment is worth the price a buyer is willing to pay and whatever the seller is willing to accept.  I find market reports extremely useful, but the key is to break them down for the micro-search that you are doing.  
4. Go with your Gut Instinct- Most of my customers know the apartment they will buy when they step their foot in the door.  Ask yourself the question, do you love the apartment, can you see yourself living there?  The perfect apartment doesn’t exist, because it is usually out of our price range, but first impressions are very important.  Once you have educated yourself and understand the variables of your purchase you will be ready when you see the right apartment.

• Manhattan New York Buyer Guide Part 1-Know the Housing Product
• Manhattan New York Buyer Guide Part 2- Understand the Buying Power
• Manhattan New York Buyer Guide Part 3-Financial Report of the Manhattan Condo or Coop building
• Manhattan New York Buyer Guide Part 4-Manhattan Condo or Coop management
• Manhattan New York Buyer Guide Part 5 – Buy Manhattan New York Condo or Coop Must Read

Part 4- WHO MANAGES THE BUILDING?

One of the most common questions we receive is who manages the building?  What kind of track record do they have?  What happens if my sink backs up, dry cleaning is delivered, do they return phone calls quickly?  As a part of being a first time home owner in a co-op or condominium building in New York City you will be a part of your experience will be influenced by the management company that runs your building.   Typically the size of your building will dictate the type of management company that runs it.

Doing research about the management company, ask your broker about their experiences with the company’s reputation, and if you know people who have lived in a building managed by a particular company will be extremely useful information.

There are certain management companies that specialize in running large buildings with hundreds of units.  These companies have the experience, infrastrcuture, and are specifically positioned to run buildings with dozens of support staff, maintenance workers, and resident requests.  The big management companies typically manage multiple buildings and they have websites where they can be researched.  Run a google search on them to see what the residents are saying, how quickly do they resolve issues? Keep in mind its always the disgruntled person who speaks the loudest!  

In our experience, big management definitely has its pros and cons, as both a resident and as a real estate agent.  Big management firms have the resources, training, and experience to solve almost any issue that comes up.  Although in our working experience, big management can take a few days to find the right person to answer a question or concern.  There are also times big property management is more reliable in terms of having all of the documents I might need to obtain information for financing or to submit an application.

If it is a smaller management company that runs the building find out if the super lives in the building? The super will be your knight in shining armor when you have any issues, definitely make sure you get to know them. Small management in our working experiences,  have always been very organized and prompt in answering phone calls. Although the management may only manage one building or two, they are usually very sufficient and friendly to the residents of the building.

You will sometimes find that the building is self-managed, if this is the case, make sure you do your due diligence and find out how the mangement is structured and who is responsible for your requests.  

Each experience is will be different, whether you live in a 500 unit building or a 20 unit building, everybody wants prompt and friendly service.  You can get it in many ways from a helpful super to a large management company with staff at your disposal.  If you have a question regarding a specific building feel free to contact us below and we will answer all of your questions.

• Manhattan New York Buyer Guide Part 1-Know the Housing Product
• Manhattan New York Buyer Guide Part 2- Understand the Buying Power
• Manhattan New York Buyer Guide Part 3-Financial Report of the Manhattan Condo or Coop building
• Manhattan New York Buyer Guide Part 4-Manhattan Condo or Coop management
• Manhattan New York Buyer Guide Part 5 – Buy Manhattan New York Condo or Coop Must Read

Part 3 – KNOW THE FINANCIAL REPORT OF THE BUILDING:

Whether you are a first time buyer or a seasoned investor buying a New York City Condo, Co-Op, Condop, or Townhouse it is important to understand the full financial picture of the building. When you are buying an apartment, besides buying the single apartment unit in the multi-dwelling complex you are also buying into a building. Having a financially sound building can help avoid any future unexpected costs.  A number of common questions usually asked by prospective buyers are does this building have any upcoming assessment, what is the underlying mortgage, if so how much, and what is the tax deductibility in this building.   Your attorney as part of their due diligence will go over the buildings financial documents, but here is an overview of the major areas that you as a buyer should be aware of. 

A building’s financial statements are made up of three different areas: Income, Expenses, and Assets. The amount of cash and/or reserve fund that is held by the co-op or the condominium makes up the asset portion of the financial statement. The cash on hand is the amount of liquid assets held by co-op or the condominium. The reserve fund typically refers to the money that is used to make improvements or repairs that occur throughout the year.

When the building decides to make improvements or when major repairs occur such as, boiler change, elevator upgrades, updating the hallways or lobby the buildings reserve funds are tapped into to finance these expenditures. How much money should be in the reserve fund? Typically the reserve fund should be equal to one-third of the annual maintenance income of the building.  So that number can fluctuate depending on the size of the building, what major improvements or repairs have been made and a number of different factors.  So what happens when the reserve funds are depleted?  Some co-ops replenish the reserve funds by receiving income from a “flip tax.” Flip tax is a bit misleading, it’s not a “tax” but rather a charge imposed when a unit is sold.  It is important to ask to see if the building you are considering has a flip tax. This flip tax can be the seller’s responsibility, or possibly the buyers and sometimes will be split between the two parties.  The flip tax is very important to consider.

Next, look at the section on the income and expenses for the building. This section will indicate whether or not the maintenance or common charge payments cover the operating expenses. If it does, the result will be a cash surplus to the building. If it does not, the result will be a deficit. If there is a deficit, the money received from flip taxes, sublet fees, commercial rents, laundry income or any other revenue source will be used to cover the shortfall.  If there is still not enough income there could be a maintenance increase or a special assessment to cover the shortfall. 

The Underlying Mortgage and Sponsor-Owned Shares

The status of a co-op building’s underlying mortgage is extremely important to understand and investigate before you purchase.  Many of the co-op buildings will have a mortgage like any other real property.  The buyer’s attorney will review as part of their due diligence what type of mortgage exists, how many mortgages there are and how long is the mortgage for. 

A condominium does not have an underlying mortgage on the building because each individual unit is real property. However, it’s important to know how many units the sponsor owns in the building.  The reason being is that the sponsor has to pay real estate taxes, common charges and any possible mortgage they have for the units.  If for some reason the sponsor is unable to pay for all those expenses, the building as a whole will be affected.  This information is usually disclosed in an amendment to the offering plan and will be a part of the due diligence of your attorney to examine.

The financial statement will supply a lot of insight for the building but you need to consider other areas as well.  The following areas to consider are whether there have been assessments, is there a tax abatement and when will it expire, is the property on a land-lease, the common charge or maintenance history, how many apartments are investor owned, is there a flip tax, are any major upgrades or repairs in the near future, any pending litigation, and if there are commercial leases that bring income to the building and when are those leases expiring.

Hiring an attorney that is an expert with New York City apartments is such a crucial step for any buyer especially first time apartment buyer.  Your attorney will have the expertise in understanding the financial documents and will be able to discover the inner workings of the building you are looking to purchase into through their due diligence.  As an educated and informed first time buyer you should always team up with a Real Estate professional to assist you navigate through this complex process to ensure you make the right decision.

• Manhattan New York Buyer Guide Part 1-Know the Housing Product
• Manhattan New York Buyer Guide Part 2- Understand the Buying Power
• Manhattan New York Buyer Guide Part 3-Financial Report of the Manhattan Condo or Coop building
• Manhattan New York Buyer Guide Part 4-Manhattan Condo or Coop management
• Manhattan New York Buyer Guide Part 5 – Buy Manhattan New York Condo or Coop Must Read

Part 2 – Understand YOUR BUYING POWER:

The best thing for a buyer in today’s market is understand your buying power. Knowing your buying power means more than just having an idea as to what you qualify for and what your monthly payments are going to be. 

We always ask during our initial consultation appointment with new buyers what amount of down payment they have.  Down payment is so important because it will determine what type of product, condominium or co-op, which is suitable for you.  Aside from the amount of the down payment, it is also important to know where your down payment is coming from…such as parents, inheritance, gifting, personal accounts.  Some buildings require that you have 30% down, 50% down, or even buy with all cash.  Some buildings do not allow parent gifting, or co-purchasers, so this will narrow down what a prospective purchaser should look at. 

The overall financial picture is so important when finding the perfect apartment in New York City especially if you are looking into a Co-op.  The reason being that each co-op has its own specification for what they look for in a prospective member.  Do they allow guarantors, co-purchase, parents monetary involvement, the debt to income ratio and work history.  So not only do you have to work with the banks to qualify for the loan, but you have to satisfy the co-ops requirements also.

It’s best to discuss your financial conditions upfront so as to not waste time or get excited about an apartment that you would not be able to purchase anyways.

The next major question that I think can confuse a lot of first time homebuyers is what are the differences between a bank lender and a mortgage broker and what are the pros and cons of each? 

I work with both bank lenders and mortgage brokers so I asked them this exact question and this is what they had to say.

 This is the information I received from a mortgage broker.

Working with a Mortgage Broker

More Options working with a Mortgage Broker

When you work with a mortgage broker you have more financial institutions to work with.  The broker will research which banks offer the best products that the borrower will qualify for.

When you work directly with one bank you have a loan officer who is hard selling you their products and is not necessarily looking out for the best interests of the borrower.

Banks may change requirements on the mortgage commitment

A mortgage broker is constantly looking at what the bank’s requirements are for the borrower and the property that they are looking to finance. When the bank’s guidelines change and financing may no longer be viable……..the mortgage broker can research the market to find another financial institution to finance the loan.

If you are working directly with a bank and that happens the borrower either has to take what ever new options the bank has to offer or………go out into the market and start the process of finding financing all over again.

Rates many drastically change after a borrower starts the process

Not often but there are times that after you apply to a particular bank that another bank comes into the market that has much lower rates; ½ point lower. If the new bank’s guidelines are ones that work with the transaction and the time parameter still makes it possible that  the bank can close when the sales contract requires……..the mortgage broker will move the borrower’s deal to the new bank. 

If a borrower is working directly with a bank and that bank’s rates are no longer competitive……….

The borrower now is going to have to determine who has the lowest rates. Time is going to be wastedtrying to find that new bank to work with.

Trying to get the financial institution to grant an exception

When you are working with a mortgage broker they will research which banks are most competitive for the borrower.  Sometimes the mortgage the borrower wants is 5% larger than the bank’s guidelines or they don’t have sufficient credit. A mortgage broker will work towards trying to get the bank to grant an exception or finding other documentation that will satisfy the bank’s requirements. Part of that influence, in getting the approval, is the standing that the mortgage brokerage firm has with the bank.  If they have a history of having loans in good standing with the bank; the mortgage broker has a better chance of having their request granted. 

If a borrower is working directly with a bank they need to know if the loan officer they are working with is in a position to have some exceptions granted.  Loan officers at the many banks are not equated with the same credit authority.  It is important for the borrower to understand if their loan officer has the authority to get exceptions approved.

Work with a Mortgage Consultant or Banker who has proven experience in this market place

Now is not the time to work someone who has not worked in this industry for many years.  In years past borrowers had to be qualified in order to obtain financing.  In recent years mortgage brokers and bankers could qualify their borrowers with very little effort. 

Now you need someone who knows how to qualify a borrower and the property that they want to purchase.

Debra K. Bedell has been a Mortgage Consultant for over 17 years.  She originally worked in the industry when the bank’s requirements were very stringent.  We have come full circle and those days have returned.  It is best to work with a Mortgage Consultant who understands the system and can navigate it.

Working with a Bank

According to my loan consultant at a local Manhattan bank, the best deals are usually at a bank   The reason being is because there aren’t a lot of confusing add-on fees and middlemen ie. Mortgage brokers, who touch the loan and have to get paid for the work they do.  Banks do volume business and make money servicing the loan,  not by charging you origination fees. 

Brokers don’t work with every single bank so if a bank is offering terrific rates on a certain type of loan program they won’t have access to it, the consumer will only have access to it through the bank directly.  A mortgage broker is not going to tell you what banks they do and don’t work with. 

In conclusion, whether you work with a broker or a banker you should talk to a professional consultant to talk about your specific needs and goals.  Finding someone that listens and gives you the service that you require is what counts.