I could really use your advice
I was supposed to sign the contract for a co-op just yesterday, but after reviewing the financials of the building I decided to take a couple of extra days to make a decision. I would really appreciate the advice of someone here with more experience than me. The building has 35 units, of which 12…
I was supposed to sign the contract for a co-op just yesterday, but after reviewing the financials of the building I decided to take a couple of extra days to make a decision. I would really appreciate the advice of someone here with more experience than me.
The building has 35 units, of which 12 are sold and the rest are rent stabilized units. (I only found out about it yesterday. The broker assured me that 75% of units were sold… when in fact less than half actually are). The deal needs to be all cash, the building has almost no reserve, and a wrap-mortgage payable for $1,250,000 (and to be honest, I don’t even know what that means). I have the financial statement of the building here with me. The statement indicates that the building’s income for 2005 was $188,653 and the operating expenses were $236,088. Although I’m no expert, I can tell something is not right. My maintenance right now would be $440 but it is increasing to $580 from January.
Now the good side… the building is exactly in the location I desire, the apartment is big, has original details, large kitchen, sunny exposure, and it costs a lot less than other apartments in the same area. I love love love the apartment and the price is a steal. But I’m very afraid of making a big mistake and perhpas ending up with an apartment that I won’t be able to sell in a few years unless a buyer is willing to pay cash too. I’m also afraid because of the lack of reserve and the building’s underlying mortgage.
What would you do if you found an apartment you loved, in the exact location you wanted it in, and for an extremely good price… would you take a chance?
Buy the home you want to live in. Talk to other owners. Look at the condition of the building… if the residents all seem to respect the building, keep it fairly clean, it’s probably a good place to live regardless of the ratio of ownership to rental Decide why you’re buying… as an investment or to live where you want to live. Most importantly, never use that broker again… and post their name so that others will stay away as well.
A friend of mine bought two investment apartments back in 1992 from the sponsor in a coop building with just those kind of finacials. But he only paid, beleive it or not, $50 grand for each, (lots of old rent controlled tenants operating expences greater than the rental income). In the end, he made out great because the neighborhood, Lower East Side, continued to gentrify. They were two bedroom prewar walkups but they must be worth $1.5 million by now. He lived in one and rented the other out and it covered all his living expenses. BUT I WOULD CONTINUE DIGGING and TALKING TO YOUR LAWYER.
Prudent decision to check the ’06 financials before making any decision. The devil is in the details. A good lawyer will give you sound advice. And it may not seem like it, but walking away is not unusual.
Nor is panic and buyer’s remorse 😉
Good luck!
I know you’ve made your decision, but we were faced with a similar situation this year (small co-op, more RC tenants than owners, a loss on financial statements…but we did take a chance, and so far things are looking better than we thought, financially. We just had a full engineer’s report, and while basically everything needs replacement, there’s nothing particularly urgent. I do worry that our maint. will have to go up to address some of these underlying need, and a boiler failure would wipe out our reserves. But we did get a good price in a good location…
…as a corollary, our previous co-op was big, had good financials etc., but the maint. rose 25% over 3 years as a costly elevator renovation and major plumbing issues chewed up the reserves. So you just never know.
Thank you for your comments. I did talk with my lawyer. He is the reason why I didn’t sign the contract. He wasn’t satisfied with the financial statements for 2005 and is now trying to obtain the statements for 2006 (to see if there is any improvement).
Regardless, I made my decision and I will not buy the co-op. I guess I just needed a day to come to my senses and let go.
Your comments definitely helped, so thank you once again.
No, it sounds like the real estate broker LIED, what a surprise.
It sounds like your real estate broker was lazy and did not check the info she gave you. Yet she probably expects a full commission if the transaction goes thru. What other vital information did she leave out?
It is your money and you have to be careful.
Take a chance? No. Move on.
Sounds like a horrible arrangement all the way around – no reserves, rent stabilized tenants, agent misrepresenting the situation, expenses exceeding revenue (BIG flag here!), possibly no way for owners to ever gain control of the Board…To pay all cash is very unwise, by the way, for a variety of reasons.
Have you had your own appraiser check it out? I sure as hell would. (If you were getting a mortgage the bank would certainly do this to protect themselves.)
Has YOUR lawyer reviewed this deal? Have you thought about the fact that your apartment might not be worth what you are about to pay? Or that your maintenance might go up even more than they are telling you after you buy?
You must be a 1st time buyer. Please stop what you are doing and learn more while you still have your money.