Real estate investor from Texas turned real estate agent in NYC! I still cant turn off the real estate investor in me! I have a great opportunity for a real estate investor coming to market soon. The asking is under 1m and the ARV is 1.8m - however the unit needs a full renovation to bring up to value. I am new to co-op boards - can anyone help advise?
Welcome to the BiggerPockets forum and welcome to NYC!
Co-op boards, in general, don't have the best track record with investors.
Cons to co-ops:
- House rules: Some boards only allow purchasers who will occupy the property
- Flip tax: To disincentivize investors from flipping apartments, many co-ops have a 'flip-tax' upon sale of the unit requiring sellers to pay either a flat % of the sale price or a % of the profit from the sale.
i.e. a building with a 25% flip tax will collect $200K from your flip (assuming you purchased at 1M and sold at 1.8M)
- Board approval required: Most Co-op boards reserve the right to accept or deny board applicants. This can prove to be costly (time & money) because you would have to market the apartment for sale, go under contract with a prospective buyer, await board application review, await board interview date, await board approval. Boards can deny purchasers/applicants even when YOU believe the purchasers have a SOLID application.
I have had many clients receive denial letters and one of the worst scenarios was a married couple who were both physicians putting down 30% (only 20% down pmt was required by board) and they had plenty of $ in reserves.
- Alteration agreements: Some co-ops have strict rules around who can work on the rehab (i.e. licensed, bonded and insured GCs) and what type of work can be done on the unit.
Pros to co-ops:
- Some desirable buildings rarely have units hit the market: there is a lot of pent up demand for these!
- Purchasers do not have to worry about repairs or maintenance in most co-op buildings although they do have to pay a monthly maintenance fee... this kinda makes the 'pro' seem like a 'con' haha
- Some co-ops are investor friendly i.e. no flip tax; no occupancy/sublet restrictions; lenient application requirements
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