Archive for First Time Home Buyers

Jan
13

Getting Started – Homework for Manhattan Condo Buyers

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With an aging housing inventory, new condominiums have quite an appeal in Manhattan.  Luxury amenities like pools and play areas, high end finishes add to the appeal.

New condos have a few drawbacks, however: often higher selling prices and closing costs as well as difficulties in obtaining loans.  New buildings must have offering plans approved by the state attorney general’s office, detailing important points about the building.  This complex document can be intimidating to the lay person. 

Bringing in a good attorney familiar with new construction to review the offering plan early in the process can save a client thousands of dollars by identifying taxes and fees that can be negotiated.

Tax abatement is another point that bears close scrutiny.    While it is a great selling point because it keeps monthly costs lower for a while, an attorney can help determine the time span of the abatement and what the tax bill could be when the abatement expires.

Closing costs are much higher on new construction.  Expect to pay the transfer tax and the seller’s attorney fees in addition to the customary closing costs for established apartments.

Be sure the building has a temporary certificate of occupancy, required before you can close on an apartment in a new building.  Check the Building Department Website

Financing a new condo can be difficult.  Buyers may be approved for a loan, but it is entirely possible the building will not qualify.   Certain FHA and Fannie Mae requirements may preclude the building, such as flood zone or percentage of sold apartments.  Individual banks may have their own additional requirements.  Many new buildings have preferred lenders and mortgage brokers to overcome this hurdle.

Appraisals must match the purchase price.  It is not unusual to have difficulties finding nearby comparables to the new apartment you wish to buy, causing appraisals to come in lower than expected. 

Inspections are recommended for new construction.  Cost cutting measures like lower-quality windows and problem with floors or exterior stucco may affect the quality of your life.  Significant problems can be addressed in the contract.  Smaller issues like paint drips or broken screens should be addressed on a ‘punch list’.

Doing your homework now can save you a lot of aggravation down the road.

 Inspired by New York Times Article by Jim Rendon, published October 30, 2011

 

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Sep
01

Qualifying for a Mortgage as a Freelancer

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At one point during the credit crunch, getting a loan as a freelancer was nearly impossible.  While it still remains difficult, the loan approval process is one of the biggest challenges.  Be prepared to submit additional paperwork to prove consistent income.

Tips for home-buying freelancers:

  • Pay off other debts, including credit cards, and build a cash reserve.
  • Identify the source of the down payment, whether a gift or loan from your 401(k), and be prepared to show statements.
  • Prepare for a closer examination.  Review at least 3 years tax returns.  If your income increased substantially from one year to the next, be prepared to explain why and whether you expect it to continue.  If your income declined last year, be prepared to explain that.
  • Check with local banks and credit unions which may be more inclined to spend the time necessary to qualify you for a mortgage.

It is always wise to address any credit problems before beginning the house hunt.  With a little preparation and answers to some tough questions, you may be able to get into the home of your dreams.

Inspired by New York Times article by Vickie Elmer, August 26, 2011.

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People tend to find Co-op Board interviews difficult, if not downright stressful.  Some co-op Boards are now requiring applicants to submit their dogs for interviews as well.  Owner/Applicants can also be required to submit letters of recommendation from dog walkers, neighbors and groomers for their pet.

There are a number of trainers who now specialize in preparing dogs who face the scrutiny by New York City co-op boards.  Ms. Renee Payne, owner of Walk This Way , a canine behavior therapist designed an interactive interview process for co-op buildings to evaluate potential canine residents. 

  • Frustration tests to see how easily a dog loses patience and whether or not it acts out if it does not get what they wanted on demand.
  • Separation Anxiety tests to determine if the dog can remain calm when the owner is asked to leave during the interview.
  • An Elevator test to see a dog’s response riding the elevator and strangers getting on and off.
  • Doorbell tests to see how many times the dog will bark when the doorbell is rung. 

Excerpted from New York Times Article by Sarah Kershaw on August 23, 2011.

Jul
08

Square footage: It’s a matter of opinion!

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I remember seeing a cartoon in the New Yorker Magazine Cartoon Bank showing two mice talking about the size of their in-wall apartment. One said to the other “Counting the space behind the pantry shelves, it’s eleven square feet.”

Nowhere is caveat emptor more applicable than when referring to the stated square footage of a Manhattan apartment.  Many real estate sites have disclaimers like this: “Exact Dimensions can be obtained by retaining the services of a professional architect or engineer.” At best all stated square footage and dimensions are approximate. At worst they are deceptive and misleading.

It is part of the overall marketing plan with most brokers: clean up, de-clutter, professional photos, and professional floor plans.  Brokers want to show the property in the most flattering light.  A floor plan in black and white (lately I’ve seen 3D color floor plans), provides a visual that shows walls, doors, fixtures and open space. 

In addition to the stated square footage, does the floor plan show the whole truth?  Are columns shown in the proper location and proportion to the space?  Are radiators and moldings shown?  How about the thickness of the walls?  Sometimes they are, sometimes not.  While technically correct, some graphic designers will measure from wall to wall, without taking into account such things as moldings and radiators.  But, these things eat into usable floor space.  Many times columns and window and door placements, even wall thickness are just estimates based on educated guesses and knowledge of building practices for a particular building.

For more information on how floor plans are created, see the New York Times article here.

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New York City Real Estate is different – and navigating the waters can be difficult without a network of friends or financial resources to help you.  There are many websites you can visit, but here’s a few to help you get started:

StreetEasy has searchable listings and user forums geared towards sales rather than rentals. For $15/month you can get sold prices of coops, condos and townhouses. A must have if you are trying to determine what the “correct” selling price should be.

Trulia  has searchable listings and interesting neighborhood stats.

The New York Times website  has articles and searchable listings.

PropertyShark.com  provides you with comprehensive and detailed data including zoning, permits (Department of Building information), property tax information etc.

Curbed NY  is a cross between commentary and gossip, it is a good place to get a feel for New York real estate and learn about new developments and conversions. Tongue-in-cheek

The BrickUnderground gives practical advice, with current prices and advice on rental apartment living.

Hotpads A search tool with thousands of apartment listings plotted on a map.

NabeWise ranks neighborhoods based on various characteristics.

If you have certain neighborhoods in mind, for rentals,  sites like Naked Apartments and RentHop  provide search tools to narrow preferences

Navigating the waters of Manhattan real estate is not for the faint of heart.  It takes stamina and persistence to find just what you want at a price you can afford.  Educating yourself is a great first step.

 Adapted from a New York Times article by Joseph Plambeck

In Part 1, we discussed the General Principles of a Coop Corproation and the Telltale signs of a GOOD Building.  This post will discuss what to look for in Coop Financials.

Basic Items to Focus on in a Cooperative Financial Statement
  • Liquid Assets.
  • Underlying Mortgage(s).
  • Total Income
    • Maintenance Income
    • Miscellaneous (Other) Income
  • Total Expenses.
  • Income from Operation before Depreciation.
  • Income from Operation after Depreciation.
  • Notes to the Financial Statement.
Liquid Assets
  • Cash and cash equivalents. These constitute money that can be spent irrespective of prepaid items and mandated escrow funds. Cash typically exists in a in an operating account, savings account or is designated as a reserve fund.
  •  A building’s cash accounts should equal at least 2-3 months’ maintenance charges.
Underlying Mortgage(s) 
  • The overwhelming majority of coop corporations have an underlying mortgage as well as a subordinate mortgage. The latter generally appears in the form of a credit line that can be drawn upon as need presents itself.
  • Underlying mortgages are generally 7-15 years in length with the final payment in the form of a balloon payment. These mortgages are considered commercial mortgages and are subject to higher interest rates than found in a conventional mortgage and are subject to pre-payment penalties. Additionally, mortgages of this type are commonly interest-only mortgages and seldom self-amortizing mortgages.
  • When the purchaser of a coop applies for a mortgage, the lender needs to ascertain to what extent the purchase price of the unit relates to its pro rata share of the underlying mortgage. Most often the pro-rata share of the underlying mortgage is usually less than 20% of the purchase price, and in such case, there is no resistance from a lender to lend.

To determine the pro rata share of the underlying mortgage: divide the amount of the underlying mortgage by the total number of shares issued which equals the amount of mortgage per share and multiply that number by the number of shares allocated to the unit in question.

For example:

$8,000,000 (underlying mortgage) / 22,000 (total shares) = $363.63 per share x

147 (unit’s shares) = $53,454 (pro rata share of the underlying mortgage)

$53,454 / $650,000 (purchase price) = 8.22%

Total Income
  • Maintenance income is sometimes referred to as rental income. It represents the sum of money paid to the corporation by the shareholders. Maintenance can be stable, it can increase from year to year, and in some instances, it can go down.
  • A maintenance increase of up to 5% over the previous year would be considered normal whereas an increase in the vicinity of 10% would be considered high; however, every maintenance increase must be looked at within the context of the overall financial condition of the building.
  • Miscellaneous income is income received from non-maintenance sources such as assessments, tax refunds, interest, dividends, flip taxes, proceeds of un-sold shares, commercial income, and laundry income. In most instances, income from non-maintenance sources should not exceed 20% of a building’s total income otherwise it will be a breach of the 80/20 rule and create a tax consequence for the building. In some instances where a building is receiving too much miscellaneous income, it has become necessary for the building to increase their maintenance to comply with this rule.
    • In the past year or two, the 80/20 rule has been made more flexible to allow exceptions to the rule if certain conditions exist. One such condition would be when no more than 20% of the building is allocated to non-residential occupancy, the building may receive more than 20% of its income from miscellaneous sources.
Total Expenses
  • This is the sum of money the coop spent for such items as debt service, utilities, repairs, insurance, service contracts, real estate taxes, management fees, legal fees, and salaries etc.
Income from Operations before Depreciation
  • This is the difference between total income and total expenditures. Ideally,the total income should be equal to or slightly more than the expenditures. Realistically, the income flow might be slightly more or less than the expenditures.
  • The significance of a negative cash flow before depreciation must be assessed in relationship to the existing maintenance level, the level of cash assets and the anticipated need for additional income. A negative cash flow of 5% or more would cause concern if it were the result of normal expenditures and not an extraordinary event. At times a coop may purposely budget a negative cash flow in order to absorb substantial cash reserves, and in doing so, would eliminate the need for a maintenance increase which might have a negative impact on values.
Income from Operations after Depreciation
  • Income after depreciation is a “phantom number” and has no significance as long as it remains a negative. Should it be a positive number, the coop will be liable for federal income taxes.
Notes to the Financial Statement
  • Pay notice to any items that might impact the coop’s need for additional cash flow or asset accumulation such as:
    • Terms of the underlying mortgage(s).
    • Land lease escalations.
    • Rental income variances.
    • Tax liabilities.
    • Late shareholder payments.
    • Assessments.
    • Capital improvements.
    • Impending lawsuits.
Miscellaneous Items
 Sponsor Ownership
  • Ideally, a low percentage of sponsor ownership is preferable to a high percentage of sponsor ownership. The latter places the possibility of a material default in the hands of a single shareholder and restricts or even inhibits a bank’s willingness to lend in the building.
  • In cases where a sponsor or investor entity owns 10% or more of the shares, New York City mandates that such entity provide an annual affidavit that illustrates the differential between the rental income received (if any) and the maintenance due on the units in question.
  • Other issues aside, the essential concern of shareholders is “Does the sponsor pay his maintenance in a timely manner?” The answer to this question is yes in 99% of the situations.
Future Repairs
  • Coops seldom conduct a study to determine the remaining useful lives of the building’s systems and major components. Additionally, coops are seldom required (if ever) by their governing documents to accumulate funds in advance of the need of such repairs.
Ground Rent
  • Ideally, it is better for a coop to own its land rather than to have to lease it. Leasing land is never a positive situation but not necessarily the reason to forgo purchasing in such a building. When evaluating a land lease building; notice the remaining term of the land lease, rent escalations, and renewal options. Pay particular note to when the property is going to be re-appraised for purposes of determining future ground rent.
  • Land lease buildings do not necessarily have high maintenance charges, although they usually do.
  • Land rent does not contribute to the tax deductibility of the maintenance.
  • A “too short” land lease term (15 years or less) with no renewal option would severely impact the values of units in the building. In such an instance, a unit’s value could be defined as the difference between the fair market rental value, less the maintenance charge, multiplied by the number of years remaining on the land lease.
  • It is always advisable for a purchaser to have an attorney review the land lease prior to signing the contract of sale.
Obtaining Updated Information from the Managing Agent
  • Most financial statements reflect the state of affairs on December 31st of the preceding year. Such statements are usually issued between March and May of the following year.
  • It is advisable to obtain updated information with regards to maintenance increases, assessments, and capital improvements when the purchase is to be made between June and December, otherwise, the buyer would be relying on information that is 6-12 months old.
High Maintenance / Low Maintenance
  • Too often, buyers and brokers are apt to state an industry standard for the cost of maintenance in terms of $X.00 per square foot. This way of thinking is erroneous because there are many variable items that comprise maintenance and the amount of people that share in these expenses varies from building to building. For example: a building with 250 shareholders has the same expense for a 24-hour doorman as a building with 25 shareholders.
  • Other variables include:
    •  Terms of the underlying mortgage: amount, interest rate, interest only payments vs. amortized payments, amortization term.
    • Improved building systems versus the status quo.
    • High service versus low service: concierge, elevator operator, lobby attendants, handymen, porters, resident manager.
    • On-site amenities versus no amenities.
Reserve Fund

The lack of a reserve fund, or cash cushion, is not necessarily a negative condition. Having money in reserve is relative to the need of having money in reserve. If there is high need, then a reserve fund is important. If there is low need, then a reserve fund is not as important.

Additionally, money can only be accrued if the coop takes measures to create such a fund from the following sources:

  • Positive cash flow (income over expenses prior to depreciation).
  • Assessments
  • Cash-out refinance of their underlying mortgage,
  • Secondary financing or credit line.
  • Flip taxes.
  • Sale of un-sold shares (if any).
Assessments
  • Assessments are a viable means to create needed cash to pay for improvements or supplement cash flow in lieu of increasing maintenance or borrowing money. Assessments tend to be considered single events (sometimes ongoing) in which case they are less likely to inhibit values as does “too high” maintenance frequently does.
  • Unlike a maintenance increase, an assessment accrues towards the building’s cost basis and in doing so adds favorably to the building’s ability to depreciate against income.
  • Many coops choose not to accrue such funds until the actual need for such funds arises. Coop documents typically do not impose mandates on the accrual of such funds.

In Part 3 we’ll discuss Assessing a Coop’s Financial Condition.

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The IRS earlier this month released the new form that eligible homebuyers need to claim the first-time homebuyer credit this tax season and announced processing of those tax returns will begin in mid-February. The IRS also announced new documentation requirements to deter fraud related to the first-time homebuyer credit.

The new form and instructions follow major changes in November to the homebuyer credit by the Worker, Homeownership, and Business Assistance Act of 2009. The new law extended the credit to a broader range of home purchasers and added new documentation requirements to deter fraud and ensure taxpayers properly claim the credit.

With the release of Form 5405, First-Time Homebuyer Credit and Repayment of the Credit, and the related instructions, eligible homebuyers can now start to file their 2009 tax returns. Taxpayers claiming the homebuyer credit must file a paper tax return because of the added documentation requirements.

The IRS expects to start processing 2009 tax returns claiming the homebuyer credit in mid-February after it completes the updating and testing of systems to meet the law’s new requirements. The updates allow the IRS to put in place critical systemic checks to deter fraud related to the homebuyer credit.

Some of these early taxpayers claiming the homebuyer credit may see tax refunds take an additional two to three weeks.

In addition to filling out a Form 5405, all eligible homebuyers must include with their 2009 tax returns one of the following documents in order to receive the credit:

  • A copy of the settlement statement showing all parties’ names and signatures, property address, sales price, and date of purchase. Normally, this is the properly executed Form HUD-1, Settlement Statement.
  • For a newly constructed home where a settlement statement is not available, a copy of the certificate of occupancy showing the owner’s name, property address and date of the certificate.

In addition, the new law allows a long-time resident of the same main home to claim the homebuyer credit if they purchase a new principal residence. To qualify, eligible taxpayers must show that they lived in their old homes for a five-consecutive-year period during the eight-year period ending on the purchase date of the new home. The IRS has stepped up compliance checks involving the homebuyer credit, and it encouraged homebuyers claiming this part of the credit to avoid refund delays by attaching documentation covering the five-consecutive-year period:

  • Form 1098, Mortgage Interest Statement, or substitute mortgage interest statements,
  • Property tax records or
  • Homeowner’s insurance records.

The IRS also reminded homebuyers that the new documentation requirements mean that taxpayers claiming the credit cannot file electronically and must file paper returns. Taxpayers can still use IRS Free File to prepare their returns, but the returns must be printed out and sent to the IRS, along with all required documentation.

Normally, it takes about four to eight weeks to get a refund claimed on a complete and accurate paper return where all required documents are attached. For those homebuyers filing early, the IRS expects the first refunds based on the homebuyer credit will be issued toward the end of March.

The IRS encourages taxpayers to use direct deposit to speed their refund. In addition, taxpayers can use Where’s My Refund? on IRS.gov to track the status of their refund.

http://www.youtube.com/watch?v=GkzB03uuGlg

More details on claiming the credit can be found in the instructions to Form 5405, as well as on the First-Time Homebuyer Credit page on IRS.gov.

Dec
04

What’s The Difference Between a Co-op and a Condo?

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Coops Condos in Manhattan NYCCaught in the maze of buying an apartment in New York City? The rules are different in New York City than in other parts of the country! For the inexperienced some of the differences may be perplexing, however, we can guarantee that if you do your homework and keep this guide handy, the process will flow much more smoothly.

New York is a city comprised mainly of cooperative and condominium apartments with a smaller selection of private homes, which we call townhouses or brownstones. Most important is understanding the differences between the types of apartments you will find in Manhattan.

Co-operative Buildings

Cooperatives are not a new concept, although they seem to be a type of ownership that is more common in New York City than elsewhere in the United States. In New York City, approximately 80% of our apartments available for purchase are in cooperative buildings, while 20% are in condominiums. This means two very simple things to potential buyers in New York City:

  1. There is more inventory to choose from if the buyer includes co-ops into the mix of properties, and
  2. Prices are, in general, more attractive for cooperatives – simple supply and demand.

Cooperatives are owned by an apartment corporation. Individual tenants do not actually “own” their apartments as they would in the case of “real” property. Owners, (shareholders) of co-op apartments, actually own “shares” in the corporation which entitles them to a long-term “proprietary lease.” The corporation pays the total amount of the building’s mortgage (importantly, a cooperative may have an underlying mortgage on the entire building, whereas a condominium building must be owned outright), real estate taxes, employee salaries, and other expenses for the upkeep of the building. The tenant-owner, in turn, pays a portion of these expenses as determined by the number of shares the tenant owns in the corporation. Share amounts are dictated by apartment size and floor level.

The considerations when buying a cooperative are:

  1. The Board of Directors has the right to “approve” or “reject” any potential owner. The board, elected by all of the tenant-owners of the co-op, interviews all prospective owners. It has the responsibility of protecting the interests of all tenant-owners by selecting well-qualified candidates.
  2. The quality of services and the security of the building are kept at high standards.
  3. Portions of the monthly maintenance are tax deductible. Each building has its own tax structure, but all co-ops offer a tax advantage. Shareholders can deduct their portion of the building’s real estate taxes, as well as their proportionate share of the interest on the building’s mortgage.
  4. The amount of money that may be financed is determined by each cooperative. Some buildings require substantial down payments. Generally speaking, in Manhattan prospective purchasers should be prepared to “put down” at least 20 to50% of the purchase price (depending on the building) when purchasing a cooperative apartment.
  5. Subleasing a co-op must be approved by the Board of Directors of the cooperative. Each corporation has its own rules, and they should be examined if a potential owner intends to sublet.

With this in mind, it is important to remember that co-ops are the norm here in Manhattan, not the exception. However, before beginning a search for a cooperative apartment, think about the financing limitations and the application and interview process.

Condominium Buildings

While condominiums are quite common throughout the country, they are a rather new concept for New York City. A condominium apartment in Manhattan is real property. The buyer gets a deed just as if he were buying a house. Since this is real property, there is a separate tax lot for each apartment. Hence, this means the buyer pays his own real estate taxes for the property. An owner will also pay common charges on a monthly basis. Common charges are similar to maintenance in a cooperative. However, they will not include real estate taxes since these are paid separately, nor will they include the building’s mortgage and interest given that a condominium, by law, cannot have an underlying mortgage. Condominiums are attractive for a variety of reasons:

  1. Financing the purchase of a condominium apartment is governed by the financial markets not a board of directors and thereby much more flexible than in a cooperative. In the past, a buyer could finance up to 90% or more of the purchase price. However, with the current  conservative credit practices, you should be prepared to “put down” about 20% or more even for a condo.
  2. An approval process is usually required, and most condo boards are requiring application packages with financial disclosure. Generally, however, the requirements are not as rigorous as the co-op boards. A board meeting may or may not be required. The length of time for approval varies from building to building, but it is usually not as long as a co-op approval process.
  3. There is greater flexibility in sub-leasing your apartment. This makes condominiums the better choice for investment property.
  4. They are the ideal choice for non-U.S. citizens or for those with their assets held outside of the United States given that co-ops are unlikely to approve a buyer whose funds are not in the U.S.

Given that there are fewer condominiums than cooperatives and that they are “easier” to purchase, they are generally more expensive than co-ops. Additionally, monthly combined common charges and real estate taxes in a condo are typically less than a co-op’s monthly maintenance charges, again resulting in higher purchase prices.

Excerpted and modified from Prudential Douglas Elliman.

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Fed housing credit?

Fed housing credit?

Local media has been commenting since last August that New Yorkers seem to be blasé about the Recovery Package offer of $8,000 toward a new home. However, it was so popular nationally that Congress has extended that, and added a $6,500 offer for current owners who move.

Well, I wouldn’t pass it up if I were in the home market right now, and put my team to work finding out what you might buy with that free cash. Some new furniture and décor are obvious choices, and almost everyone needs something for their new home.

Or you could use it for other kinds of fun. Given my favorite pastimes, I might figure out how many lovely restaurant meals I could savor, including cuisine hot spots my wife and I usually reserve for special occasions.

But you have many other options. For about $600 to $1,600 you could score a pair of trendy Christian Louboutin shoes or boots at Saks, which offers 96 choices at your fingertips. Or there’s the current Prada event with hot items coming up, now available for pre-orders. While at Sak’s you could also pick up a steal on men’s watches, such as Breil Milano’s stainless steel chronograph strap watch at $1,250.

Or how about a Hermes bag? For classic Hermes, you can’t go wrong with the Birkin bag, starting at $6,000. Here’s a entire blog dedicated to the Birkin.

Here’s a tidbit from a local fashion blog: “Katie Holmes & Suri: Spotted on Madison Avenue of New York, little Suri had her own pint-sized version of Mom’s orange Hermes shopping bag. Later on, Katie was seen with a rare burgundy Garden Party Handbag that looked more like a boarding bag. The Hermes handbag offset her black pencil skirt and red heels. With all the goodies that could be stuffed into that spacious bag, Holmes was ready for anything.” The Evelyne, starting a bit under $2,500, is très chic now.

You can toast your new home with a rare champagne.  Dom Perignon Oenotheque 1993 is just $399.00 per 750 ml. bottle, limited to one per customer at Astor Wines.  Salon Blanc de Blanc, Le Mesnil – 1997 is more expensive at $459.99, but in greater supply.  You can buy a case of 6 for $2621.94.

Does your new co-op or condo allow pooches?  How about using your savings for today’s most expensive, pure bred, a Samoyed, starting at $3,000 or an English Bulldog at around $2,500.  On the other hand, if you adopt a nice homeless puppy from a shelter approved by the Humane Society, you’ll have lots of money to buy dog food and a really fancy collar, $18 and up from wwww.muttropolis.com.

And let’s not forget the sports fans.  How about season tickets to the Yankees next year?  Despite the World Series victory, top prices will actually decline, with field level seats at $250 per game for season ticket holders, down from $325 this year.

How much more stimulated could you get?  Check out my November 2 post  for housing stimulus dates and details. Go, Feds!

1 -The Numbers

  • Manhattan residential real estate has performed better than the broader U.S. real estate market.
  • Compared with losses of more than 40% for Los Angeles and San Francisco over the past few years, Miller Samuel reports in the third quarter 2009 Manhattan Residential Market Overview that the average price per square foot in Manhattan was $996 vs. $1289 as reported in the first quarter of 2008 , a price reduction of 23% from the peak.
  • Third-quarter 2009 data show prices declined at a lower rate while transaction volume surged 46%, a sign that the Manhattan market is starting to find its bottom.
  • As Donald Trump once said “It’s a water thing”. Manhattan is a landlocked island. While developers in most cities keep expanding outward, developers in Manhattan do not have this alternative.
  • Wall Street firms are expected to pay a record $140 billion in bonuses this year according to The Wall Street Journal. Regardless of whether these bankers deserve their lavish bonuses, their payday will boost Manhattan real estate prices.

2 -Capital of the World

  • Manhattan is a global must-see destination. Emerging markets like Brazil and China are creating wealth at a very high rate and churning out millionaires.
  • New York is often the first international destination new millionaires from emerging countries want to visit. It’s also one of the first places where they want to buy investment property or a pied-a-terre.

3- Diversity of Industry

  • Besides finance, New York has media, hospitality, advertising and professional services like law and accounting firms. These industries will be serving emerging-market economies and will benefit the local New York economy in terms of job creation and housing demand.
  • If not for the diversity of the current New York City economy, the unemployment rate would be even higher than 10.3% that was reported in August.
  • Sectors like education, health, leisure and hospitality have gained jobs, which partly offset the negative impact of the financial job losses.

4 -Quality of Life

  • New York City is one of the safest cities in the US.
  • The legal system is established and there is a better work-life balance compared with countries like China.
  • Transportation in Manhattan via the Subway system is efficient and reduces commuting time for those living in Manhattan.
  • The air in Manhattan is pristine compared to air in other global metropolises like Hong Kong.

Portions excerpted from NuWireInvestor reporting on a story written by Wei Min Tan of TheStreet.com

In addition to last week’s passage of a bill to extend through 2010 Freddie Mac, Fannie Mae and FHA loan limits  to $729,750, the extension and expansion of the home buyer tax credit is the pending business in the Has passed the Senate.

After a long week of negotiation on the credit, an agreement on the scope of both expansion and extension has been reached. The agreement on the extension and expansion of the credit is as follows:

  • Credit available for purchases before May 1, 2010. Prospective purchasers with binding contracts in place as of April 30, 2010 will be allowed an additional 60 days to complete the transaction.
  • Credit remains at $8000 for first-time purchasers. No change to definition of first-time purchaser.
  • New $6500 tax credit for repeat buyers who purchase between December 1, 2009 and May 1, 2010. Repeat buyers must have lived in their homes consecutively for 5 of the previous 8 years.
  • Income limits are expanded to $125,000 on a single return and $225,000 on a joint return. Current law $20,000 phase-out retained.
  • New anti-fraud limitations are imposed.

The White House has indicated that President Obama will sign the has signed the legislation into law.

Here are the details directly fro the IRS.

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Consumer Confidence Indez

All real estate is local.

As I previously discussed here, the S&P/Case-Shiller indices are virtually useless for tracking Manhattan residential sales. Case-Shiller does not include sales of co-op and condo apartments even though those property types account for 99% of what is sold in Manhattan.

The data through August 2009, released today by Standard & Poor’s for its S&P/Case-Shiller  Home Price Indices show that the annual rate of decline of the 10-City and 20-City Composites improved compared to last month’s reading. This marks approximately seven months of improved readings in these statistics, beginning in early 2009.

This perceived improvement of real estate prices, if you can call smaller declines an improvement, is as irrelevant now as when I reported the uselessness of the S&P/Case-Shiller doom-and-gloom report back in June .

What I do believe is significant is that the Consumer Confidence Index as reported today by The Conference Board today dropped to 47.7 from a revised 53.4 in September.  A measure of employment availability deteriorated to a 26-year low.

Unemployment in New York City (specifically in Manhattan) is very high. This fact, in addition to the seasonal slowdown in residential sales, will cause price reductions on properties where the sellers are motivated to move.

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Visiting open houses, scanning the Internet sites and dreaming of where you’ll place your sofa is all well and good, but when it’s time to get serious about buying a new home, there are some basic steps that will position you to find the right place and get the best deal.

Once you’ve decided you want to buy and that your financial basics look sound, the smartest thing you can do is put together your own dedicated search team – a buyer’s broker, a real estate attorney and a bank/mortgage broker.  Choose carefully and make sure they are well-versed in real estate in New York City.  Ask them about their experience.

Buy Into a Buyer’s Broker

A buyer’s broker will help you at every step of your purchase, from helping you figuring out what kind of apartment you want at the price you can afford, to the subtleties of the co-op interview.

Make sure you like your broker – you’re likely going to be spending a lot of time together.  Be sure that he or she listens to you and really hears what you’re saying.  Otherwise, you’ll spend a lot of time seeing spaces you’re not interested in.  Want a big kitchen?  Lots of light?  Outdoor space?  An older, pre-war building with lots of charm or a brand new, sleek and modern place, a view of the Empire State Building?  If he or she can’t get into your head, the search process won’t be as pleasant as it should be.

Be aware that most agents in New York are seller’s brokers.  If you meet an agent at an open house, for example, you need to keep in mind that you’re speaking with the seller’s representative.  Any hints you give about how much you’re prepared to spend will be reported back to the seller – in which case, you’re likely to spend top dollar.

Why?   Because you’re chatting with a seller’s agent, whose top priority is to show the property in its most favorable light and negotiate the highest price and best terms for the seller. New York law is crystal clear on the duty of listing and selling agents – they must provide “undivided loyalty” to the seller.  So if they can figure out how much you’re prepared to spend, their job is to make sure you spend every cent.

The seller’s agent may offer to have another agent at their firm to act as your representative in making an offer and negotiating for the purchase.  That’s perfectly legal, but being asked to step in and assist the buyer at the last minute may not be the ideal scenario.  First and foremost, it doesn’t give the buyer the advantage of having a dedicated advocate for his or her needs nor can he or she negotiate as effectively as a buyer’s broker who has been working with you all through the process.

Be Prepared

The other representatives you’ll need when you want to buy a property are a banker/mortgage broker and a real estate attorney.

Finding a good banker and pre-qualifying for a mortgage will not only make you an attractive buyer to all those folks hoping to sell their homes, but it will also ensure that you’re looking in the right price range.  A loan officer should request your credit score to do a pre-approval letter, stating that you qualify for a mortgage up to a stated amount (you’ll need to pay for a credit check, usually $20 or less), and be able to explain what kind of rates and mortgages her or his company could offer you today along with what information they will need if you apply for a mortgage with the company.  You’ll know exactly what you can – and can’t afford.   You won’t fall in love with something you can’t have – and when you do find that perfect place, you’ll be in a strong position to negotiate for it.

Locating a real estate savvy attorney will also smooth the way. An attorney in addition to being expert in  New York City real estate, should be well-versed in reviewing co-op and condo financial statements (your accountant could help here), should plan to read its board meeting minutes to look for items like upcoming expenses, lawsuits pending etc. and be familiar with the latest inclusions/exclusions in NYC real estate contracts.

So, first things first.

When you decide to start looking, take time to find the right folks to ensure your search is a success– your buyer’s broker, real estate attorney, and loan officer.  You can call around, ask friends – and even ask prospective members of the team to recommend others they’ve worked with in the past.

With your team lined up, you’re ready to look, and to buy.  Now, about that sofa …

Oct
08

Manhattan Rental Market Overview 3Q 2009

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Manhattan Rental Market Overview 3Q 2009

Miller Samuel, an independent appraisal firm,  and Prudential Douglas Elliman real estate today released the Manhattan Rental Market Overview.

The report tracks the 2549  apartment rentals in the third quarter of 2009 and compares the data to second quarter sales of this year as well as the same quarter sales of 2008 thus adjusting for seasonality.

Continued declines in rents may remove potential buyers who feel they are safer renting for a year or two while they wait for the bottom to occur in the residential sales market.

Highlights of the report include:

  • The average rental per square foot was $47.84, down 9.4% from $52.80 in the prior year quarter, but an increase of 8.3% from the prior quarter result of $44.16. This suggests some easing in the rate of decline since the same metric in the prior quarter fell 17.5% year over year.
  • There were 6,527 listings available at the end of the third quarter, 5.4% above the 6,191 listings in the same period last year, but 10.5 below the prior quarter total of 7,290 listings.
  • Downtown had the highest rental price per square foot of the four regions and saw a modest increase over the summer, averaging $45.87 per square foot, up 2.9% from the prior quarter.
  • One-bedroom apartments showed the largest gains over the summer, rising 6.3% to $46.62 per square foot from the prior quarter. Other than 2-bedroom apartments, which saw a 1% increase over the same period, all other types posted declines.

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More and more people are talking about the importance of an excellent credit score,  so if  your credit score is low or just downright bad, there are proactive steps to take that will not only improve your credit score , but increase it enough to turn it into a good credit score.

  1. Check for accuracy. Remember that your credit report is based on information from the three credit reporting companies: Equifax, TransUnion and Experian and you can download a free report from each of them by accessing AnnualCreditReports.com (this is the site with the really annoying TV commercials).   On each of the reports, make sure all credit accounts listed under your name belong to you and make sure that all balances and payment histories are correct. Immediately contact-in writing – the reporting company and the information provider if you see inaccurate or incomplete information.
  2. Lower your debt ratio. When using credit cards or other credit lines, keep your balances low rather than maxing the line out. If your credit card balances are high, pay them down or pay them off to bring the outstanding debt ratio down. Use some of your savings, apply extra payments each month, or get a second job to lower your debt ratio. As you lower your debt ratio, you’ll see your credit score gradually improve.
  3. Make your payments on time. Always make sure that your payments reach your creditors on or before the due date. Making your payments on time is the number one way to increase or improve your credit score. As you continuously do this you’ll gradually see your credit score increase.
  4. Keep accounts open. Many New Yorkers think if they close credit accounts they’re not using their credit scores will automatically improve.  The opposite is true. One of the factors used to calculate your credit score is the longevity of your relationship with your creditors. If you have a credit card or home equity line of credit that you’re not using, the longer you have the relationship established with the creditor, the more of a boost it can give to your credit score. Closing long-term accounts can cause a decrease in your score so only close credit accounts if absolutely necessary.

If you have a low credit score (a score of 760 or higher is considered high by co-op and condo mortgage lenders) or bad credit, use one or all three of these steps to transform your bad credit into good credit. It’ll increase your chance of getting loan approval—helping you to achieve your goal of being a New York City condo or co-op owner.