Anyone Buy Condos or Coops in NYC for Investing?

[Steve Candor]

I'm looking at Coops and Condos to invest in. I am looking to do some purchasing and then renting the units our and maybe resell a few of them. Does anyone else here do that? How's your experience in it?

Most of the deals i'm seeing are in the 3.5% cap rate. And deals in the 4% cap rate closing fairly quickly. Is that reasonable or should I be seeing higher rates? 

[Frank Chin]

I lived in condos in NYC. I invested in rental condos in MA.

There's no short answer but it all depends on how the HOA and coop board run things. In the case of the NYC condo I lived in, if I was an investor, I would of stayed away because of the way the HOA run things. I can't blame them entirely, but they don't charge enough monthly fees, so on numerous occasions, the utilities are in danger of being cut off so emergency fee assessments are made to pay them and paid immediately, or they don't have enough funds to do minor elevator repairs.

My condos in MA has somewhat of an anti tenant HOA board. I had approval for my condo purchased as a rental originally, and things ran OK for the first several years. Then they demanded that they have to approve tenants and leases, which adds considerably to the cost of vacancies. Fortunately in the ten years I owned it, bought it as a foreclosure at around $40K, and prices zoomed to 100K when the problems with the HOA started so I sold it at a considerable profit.

As to coops, I looked at quite a number of them at market bottoms in NYC. Usually its buildings that converted to coops, and tenants who bought them then sell it to reap the profits. The problem in buying them is sometimes another investor bought a large number of units in the building, then try to rent or flip at a profit. No problem there, but unlike condos, there is an underlying mortgage. When this large investor stop paying the monthly fees, others in the building has to make up for it, or the underlying mortgage can be foreclosed on. A few years back, during the market bottom of 2008, I read of a few cases where banks have foreclosed on entire coop buildings, when the underlying mortgage is not paid. As you only own shares in the building, the foreclosure means your shares are wiped out.

So for condos and coops, there's more than just cap rates. For condos, there are HOA rules that can trip you up. For coops, there's further issues. My mom in law a few years back sold a duplex she lived in and moved to a coop. We had to assess the financials of the building. In turn, they check the purchasers finances, and in some cases demand a years fees paid in advance as security, especially if you're retired. Remember, you put everyone else in danger if you can't pay your fees. This is even if you paid 100 percent cash on purchase. I never heard of this for condos. They can also reject your purchase as they famously did to Richard Nixon when he tried to buy coops in Manhattan.