Should I sell or hold my Midtown Co-op with an ARM loan

Question

Hi all,

I'm in the process of selling my co-op located in midtown near Grand Central. I would like to get some advice on whether to continue selling or hold it for a bit longer.

The co-op has been listed for about a month. My agent has held a couple open houses but currently there hasn't been any offer. I'm slightly worried that I will have to leave the place vacant for many more months before there is a buyer.

I currently have a tenant living there and her lease is expiring in March. I have a five-year ARM loan on it with an extremely good rate (below 3%), which is set to change on 1/1/2020. I wanted to sell it before the rate changes. I've been told that the rate won't skyrocket but I don't want to risk it.

There are about 20 active sales out of 450 some apartments in my building according to my agent. She also listed a number of other factors that's making the sale difficult.

The market price for similar co-ops around the area has dropped since I bought it in 2015. I would be thrilled if I can break even.

My question is, should I continue with the sale or renew the lease with my tenant for another year? If I continue the sale, there is no guarantee that I will find a buyer in the coming months. If I renew, I risk a higher interest rate.

Do I have any other options?

Would love to hear your input. Thanks in advance!

Brandon Cohen · Answer

@Jinyu Shao judging by the size of building and apartments available sounds like you might be in Tudor City? I know some folks who have had a hard time selling simply because it’s so saturated (if that’s where). You have to stand out someway, either making the apartment look incredible - which could be hard with a tenant) or being the best price. You may be able to get a 30 fixed for not much more than you have right now.

Ronan Donnelly · Answer

It's a tough market for sellers in NYC right now. If you have to sell you will likely need to compete on price. It might be better to refinance as much as possible while still maintaining cashflow and subsequently getting a HELOC in case you find a use for those funds that deliver a better return than the cost of borrowing. Good luck!

Jinyu Shao · Answer

@Jason Lee Thanks for the reply. I’m not sure if the agent’s firm is a member of REBNY. She works for REMAX and her office is in Brooklyn. I don’t think she has much experience with co-ops to be honest. But she seemed knowledgeable and eager enough that’s why we hired her. We’re paying her the standard 6%.

Jinyu Shao · Answer

@Jaysen Medhurst Thank you for the reply. I'm selling because I paid a pretty significant down payment and I want to take it out to invest elsewhere. The co-op isn't making much return. I'm just about break even. I can hold it for another year and still break even but the rates will change in less than a year since it's a ARM loan. I will likely pay more in mortgage and that might put me in negative return. The co-op is priced around 33ok right now and I purchased it for 325k. It's a co-op and I've heard co-ops generally don't appreciate that much and I don't really expect it to.

Jason Lee · Answer

If your property isn't listed with a REBNY member firm and it's not on the REBNY RLS (the Board and MLS that covers Manhattan) then your listing will not be seen by the majority of buyer's brokers that work in Manhattan. FYI those 20 other sales are all on the RLS. Choosing a non-REBNY member brokerage that's based deep inside an outer borough is not ideal for a co-op sale in Midtown (I won't even ask how much experience they have with co-op sales). Next, if you're offering less than the typically expected broker commission, especially at this low price point, you can expect buyer's brokers will not be as motivated to show your property to their clients. I get that you're trying to net more from your sale but in this market and in particular in your building where inventory is very high it would be in your interest to incentivize brokers, not the opposite. There are developers now that are actually increasing commissions for buyers brokers because the market is the way it is. Lastly, how about decluttering (yes even with a tenant in place), and taking professional photography, or virtually staging, or at the very least opening the blinds and photographing during the day. The presentation strikes me as very lazy and it's not helping you. You're competing with over a dozen other studios in your own building... you need to show as best in class and price.On the bright side, January has seen a very unexpected uptick in entry level buyers. Hopefully you can capitalize on that.

Jaysen Medhurst · Answer

Hi, @Jinyu Shao. I work just North of GCT, we're neighbors! First question: why are you selling?We don't have enough information to give you any thoughtful advice. We need to know:Purchase Price:Expected Sales Price:Sales costs (%):Current Rent:Mortgage:HOA:Taxes:Insurance:Other OpEx:My general thoughts are that I'd be nervous about holding for the short term. There are A LOT of units coming on line in Manhattan and this is compressing sales prices across the board. It will take several years for all of that inventory to get absorbed. Over the long term, I think NY RE is always a good bet. But if you're losing money each month, how long can you do that while you wait for the market.