Is it a mistake to buy an HDFC coop apartment in Brooklyn?
April 22, 2010 11:54 AM Subscribe
I'm strongly considering putting in a offer on an income-restricted HDFC coop apartment in Brooklyn. I just straddle the income limits for 2009, but am well below it for 2006, 2007, and 2008, and the agent has assured me that won't be a problem, given the board an lawyer for this building (meeting the spirit of the regulations, if not the letter). I can afford to put down a large enough down payment so my monthly costs end up being slightly less than what my rent is now (with significantly more stability in cost from year to year). So I'm pretty sure this makes sense for me, but my only question is: is this a mistake in terms of eventually reselling the place?
It crossed my mind that with mortgage rates so low right now, and likely bound to be higher when I eventually sell (7 years from now? 15?), will the price at which the apartment can be sold likely drop in value as the cost of borrowing goes up, since the income restriction -- while pegged to the city's median income -- will still be in place and so there'd be a limit to any eligible buyer's purchase power?
The places I'm looking at are in a desirable neighborhood, so it has also crossed my mind that young adults with trust funds but little income would be eligible buyers. Should I be creeped out that selling eventually to one of them would follow the letter but not the spirit of the regulations?
For what it's worth, the income restrictions on these places range from 52k/year to 64.5k/year (which I do qualify for outright, even in 2009). (One agent said his building's restriction was above 70k, but he wouldn't tell me that number until I told him my income level, so I'm not sure I trust it.) These range from 1 to 3 bedrooms.
Thanks. (Anonymous for personal reasons.)
It crossed my mind that with mortgage rates so low right now, and likely bound to be higher when I eventually sell (7 years from now? 15?), will the price at which the apartment can be sold likely drop in value as the cost of borrowing goes up, since the income restriction -- while pegged to the city's median income -- will still be in place and so there'd be a limit to any eligible buyer's purchase power?
The places I'm looking at are in a desirable neighborhood, so it has also crossed my mind that young adults with trust funds but little income would be eligible buyers. Should I be creeped out that selling eventually to one of them would follow the letter but not the spirit of the regulations?
For what it's worth, the income restrictions on these places range from 52k/year to 64.5k/year (which I do qualify for outright, even in 2009). (One agent said his building's restriction was above 70k, but he wouldn't tell me that number until I told him my income level, so I'm not sure I trust it.) These range from 1 to 3 bedrooms.
Thanks. (Anonymous for personal reasons.)
It crossed my mind that with mortgage rates so low right now, and likely bound to be higher when I eventually sell (7 years from now? 15?), will the price at which the apartment can be sold likely drop in value as the cost of borrowing goes up, since the income restriction -- while pegged to the city's median income -- will still be in place and so there'd be a limit to any eligible buyer's purchase power?
Oh, and this is a critical point. Generally, when interest rates rise, debt-financed assets, of which residential real estate is a type, does decline in value, because the capital used to finance the purchase has become more expensive. More succinctly put, price moves inversely to yield. Your intuition is correct, and it is an intuition that far too few people buying residential real estate appreciate. Kudos to you.
posted by dfriedman at 12:15 PM on April 22, 2010 [2 favorites]
Oh, and this is a critical point. Generally, when interest rates rise, debt-financed assets, of which residential real estate is a type, does decline in value, because the capital used to finance the purchase has become more expensive. More succinctly put, price moves inversely to yield. Your intuition is correct, and it is an intuition that far too few people buying residential real estate appreciate. Kudos to you.
posted by dfriedman at 12:15 PM on April 22, 2010 [2 favorites]
Well, you could maybe try to make a formula and plug your relevant numbers in. I'm awful at this sort of thing, so hopefully you or someone with more background in mortgages and math can correct me, but, if I understand correctly:
You are buying the coop for 100 dollars, with 5% interest in a 1 year mortgage, making it 105 dollars total.
You will have to sell it for 105 dollars, regardless of mortgage rates.
If interest goes up to 10% you will only be able to sell it for 95.37
Thus, if you're saving 2 dollars a year living in the coop, and definitely won't move for 5 years, it's a good deal, but it might not be a good deal if mortgage rates go up to 20%.
If you plug your own numbers into this (don't forget the assorted mortgage fees, especially in the short term) and use real mortgage terms you might be able to make a more informed decision.
posted by fermezporte at 3:50 PM on April 22, 2010
You are buying the coop for 100 dollars, with 5% interest in a 1 year mortgage, making it 105 dollars total.
You will have to sell it for 105 dollars, regardless of mortgage rates.
If interest goes up to 10% you will only be able to sell it for 95.37
Thus, if you're saving 2 dollars a year living in the coop, and definitely won't move for 5 years, it's a good deal, but it might not be a good deal if mortgage rates go up to 20%.
If you plug your own numbers into this (don't forget the assorted mortgage fees, especially in the short term) and use real mortgage terms you might be able to make a more informed decision.
posted by fermezporte at 3:50 PM on April 22, 2010
This thread is closed to new comments.
(1) I assume you have your own lawyer for this transaction and that he or she can advise you on the relevant law regarding selling apartments aimed at low-income buyers
(2) From a purely theoretical sense, yes, reselling one of these apartments can be tricky because the income thresholds place a theoretical cap on a future selling price.
posted by dfriedman at 12:14 PM on April 22, 2010