Start Spreadin' the News -- Finer Points of NYC Real Estate

As a former New Yorker (is one ever a “former” New Yorker?), I had to take a crash course in NYC real estate when I arrived there a few years back.  It’s a whole world unto itself.  Since New York City is such a popular destination for development officers and home to so many prospects, I wanted to offer a couple of tidbits and some information that might help you put a more accurate value on NYC real estate holdings.

First, the tidbits.  If you see an apartment number like 16PH, the “PH” means penthouse.  For apartment numbers like 3BC, the “BC” means apartments 3B and 3C have been combined into one.  The owners have to pay the fees for both apartments.  There are even special numbers for apartments that take up half of a floor (or more), but those escape me.

If you think NYC real estate is expensive, there are a few things that make it even more expensive than it appears.  For renters, apartment brokers often charge a 15% fee – that’s 15% of an entire year’s rent.  If the rent is $3,000 per month, the fee would be $5,400 and it is due when you move in, along with first and last month’s rent.  So just to walk in the door, you need $11,400 in cash.  Craigslist has changed the rental market quite a bit, but brokerages are still around, especially for high-end apartments.

When it comes to apartment ownership, there are two main types:  condos and co-ops, with co-ops being more prevalent.  Without going too far into the weeds, it’s safe to say that co-ops tend to be less expensive than condos, but they have a more stringent approval process (tax returns, bank statements, pay stubs, personal references, business references, dog references, etc.) and more rules about things like sub-rentals and remodeling.  Co-ops also require a down payment of at least 20 percent and sometimes up to 50 percent (with some exclusive buildings not accepting any financing).  Condos have minimal financing requirements, no board approval, and low down payments.  There are more permutations, such as cond-ops and sponsor units, but that’s for another time.

The thing to know for research purposes is that if a prospect owns a co-op apartment, he or she had to pay 20-50 percent as a down payment and had to have enough liquid assets in the bank to cover mortgage and maintenance for at least one year (sometimes multiple years).

Speaking of maintenance,  apartment owners have to pay a monthly fee to cover the upkeep of the building and amenities such as doormen, exercise facilities, pools, roof decks, etc.  I saw a listing recently for a $1,000,000 apartment with a $2,200 monthly maintenance fee (half of which is tax-deductible).  That $2,200 fee is in addition to the monthly mortgage payment and can’t be financed.  With 20 percent down, the owner would have a mortgage payment of $3,819 per month for 30 years at 4%.  Add maintenance and the total monthly payment is $6,019.  And he or she would have to have $72,228 liquid in the bank (a year's worth of mortgage and maintenance).  If you were to treat the maintenance fee as if it were part of the mortgage, your prospect in that $1,000,000 apartment would actually be paying for an apartment worth $1,450,000. (For super-high-end apartments ($25,000,000+), buildings often require the owner to have 300 percent of the sale price liquid in the bank.)  Maintenance fees vary, but it is safe to add 25 percent to the property value just to have a better idea of what the apartment costs.  To sum up, knowing what a prospect can afford and having an idea of the minimum he or she is required to have in the bank are telling when it comes to wealth capacity.

New Yorkers (current or former), please share your insights into the NYC real estate scene!

Mitch Roberson, Communications Director, APRA MidSouth

communications@apramidsouth.org