All Forum Posts by: Jason Lee

@Alyn Shek on purchase the appraisal is assigned by the bank. Unison has nothing to do with the appraisal and they don't have "their numbers." They rely entirely on the bank or mortgage broker for underwriting. Our appraisal actually came in above the contract sale price. 

@Alyn Shek your takeaways are all incorrect.

1. They make 3.5% upfront.

2. If you want to sell before 30 years and the appraisal comes in lower than FMV they make less money and you make more.

3. You have 30 years to repay.

@Alyn Shek FYI it's not a "loan," but you can repay the amount at any time. If it's before 3 years they will not share in any loss. If you sell, they will go by the contract price. If you just want to buy them out they will go by a third-party appraisal to determine market value. Not sure how the appraiser is assigned in that case. For our purchase the appraisal was assigned by the lender and Unison was not involved at all.

There have been several threads started here by folks asking questions about Unison but no responses from anyone that’s actually used the program. Just closed a deal in Brooklyn representing buyers using the Unison Home Buyer program and figured I’d share the experience.

Unison is a real estate equity sharing investment company. There are several similar companies but Unison is the largest and has been around the longest. Basically, they will provide a portion of the down payment in exchange for a percentage of future appreciation. If prices go down they will also share in a loss. Because they are co-investing and it’s not a loan, there are no additional principal or interest payments, so their contribution doesn’t affect your monthly payment or debt-to-income. Unison gets 3.5% of future appreciation for every 1% of down payment they provide and they will provide up to 20%. They also take a transaction fee of 2.5% of the amount they provide at closing. NYC buyers will also have to pay 1.8% mortgage recording tax on the Unison down payment amount (even though it’s not a mortgage). If prices go up a lot they could make out with up to 70% of the appreciation (if you do the max 20% down payment). The most they’ll invest is 500k. If prices go down a lot they could lose the entire amount of their contribution. They take a second lien position to cover their co-investment.

They will only invest in owner occupied SFH, condo, or two family (so you can house hack). They will not invest in 3-4 family, co-op, or land lease. They won't give you credit for capital improvements made within the first 3 years and so you can't really flip. After 3 years you can get a renovation adjustment so you get credit for improvements. They work in 30 states but each specific address must be approved through their local lender partners. Approval happens pretty quickly. Not sure how they do it but I'd guess it's by zip code, ppsf, and number of rooms. All the addresses I've sent them in Manhattan and Brooklyn were approved and I'm guessing you'll have a much easier time in high appreciation areas. If you sell within the first 3 years Unison will not share in any loss. You can sell anytime after that but the program only runs for 30 years and if you don't sell by then you must pay them back their initial investment plus the share of the appreciation (based off an appraisal).

The program and all underwriting is done through local lenders that have partnered with Unison. They have two that work in NYC (a fairly large regional bank, and a well known mortgage broker). Each lender has a specific loan officer that specializes in working with Unison and you have to work with that person. As long as Unison approves the address, and the buyer and property pass underwriting by the lender, then Unison will co-invest. The process was very smooth and not much different than the typical sale. You do have to educate everyone involved as most are initially skeptical (selling agent, seller, buyer attorney, seller attorney, etc). In a competitive bidding situation I can see where an offer that includes Unison could put a buyer at a disadvantage just because no one’s ever heard of it.

My clients bought a 2 family in Brooklyn. They put down 10% and Unison contributed over 300k. My clients would not have been able to buy this particular house without Unison as their debt-to-income with just 10% down would have been slightly too high to get a mortgage and they didn’t have enough liquid to increase the down payment to move the needle and certainly not another 300k. The contribution from Unison also improves the cash flow on the rental unit by quite a bit, and they don’t have to share any of the rental income with Unison. In the end, the Unison investment made the house much more affordable for them and gets them much better rental income. In return they are giving up a huge percentage of future appreciation but my clients feel the market is at a peak in this part of Brooklyn, with slow to no appreciation for the foreseeable future, and so they’re fine with the large split. This program is definitely not for everyone but it can work really well for those that aren’t that liquid or don’t want to increase their debt.

Let me know if you have any specific questions and I’ll do my best to answer. Please feel free to PM.

You don't need a property manager. You need an attorney that specializes in tenant/landlord and evictions.

Where in NYC is the co-op? Most co-op's limit leases to 1-2 years. What does your lease say? Most standard co-op subleases contain provisions for following the co-ops rules, alterations to the apartment, etc. You don't need to contact anyone on the board or the management company. You need to contact a competent attorney.

Are you trying to flip a contract, or renovate and then sell?

Option 1 is customary. Tenant is incentivized to keep the apartment clean, ready to show, grant access, etc. Hopefully it shows nicely with their stuff. You can always use prior photos from when it was vacant.

In NJ you cannot refuse to renew a lease without good cause. You could if you're going to occupy one of the units. You also might not be a able to automatically evict a tenant because they refuse to pay an increased rent. Also the different municipalities have different laws covering rent control, which is some cases is very very strict. I'd start by finding out if this property falls under rent control. Hopefully when you say "signed" it wasn't the contract. Yes, you need to hear from your attorney.

I would ask your management company about procedures for refis or helocs. For the refi you'll be limited by the co-op's max LTV and/or whatever your DTI qualifies you. I would still explore the heloc. For helocs the max LTV might actually be set lower by the co-op (I've seen it set to 50%) but the approval process might be much simpler and it would cost much less than a refi, and the heloc structure would be much more flexible. There are plenty lenders that will do co-op helocs in NYC.

As with any financing the final numbers hinge on the appraisal. For helocs and refis appraisers tend to play it very conservative but I would still declutter, lightly stage, turn on all the lights, etc so the apartment shows at it's best. I would also cherry pick recent comps of higher priced sales and hand them to the appraiser.

Lastly, curious if you paid off a mortgage or purchased all-cash to begin with. If it was all-cash do you know if the co-op is actually warrantable? Meaning do they have high enough reserves, insurance, low enough percentage of investors units, enough individual owners, etc to make it easily financeable.

Hi Justine! If you haven't already, you should confirm your co-op will allow home equity loans or helocs (many do not, and you would need the co-ops approval to do either), and find a lender that will work with co-ops (many will not do helocs on co-ops). If the co-op allows loans, they would most likely look at your total debt-to-income including the payments on the loan, and not take into account the potential future rental income. Keep in mind they might want to review all of your current financials to confirm your DTI. If they allow helocs then they might or might not review your current financials since opening the heloc in and of itself doesn't change your DTI. This really all depends on how strict the co-op is. In any case, the heloc would be the preferred method since you can open it and not pay interest until you actually deploy the funds, you don't have to use all of it, and you can pay it off and reuse it multiple times, etc (much like a credit card). If your board doesn't allow loans or helocs you could do a cash out refi which they would most certainly allow (again if the new DTI with the mortgage payment falls within their guidelines) and pretty much any bank would do for a co-op.

Aside from that, tapping the equity in your primary residence is a fairly common strategy and you can find numerous posts outlining the many benefits and potential risks.