Can, Should and How You Can Buy an HDFC Co-Op

By: ROS Team

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Although New York City is one of the most expensive cities in terms of housing, the city still provides renters with several relatively affordable options, thanks to the Housing Development Fund Corporation (HDFC). HDFC co-ops are considerably cheap apartments compared to average New York City apartments. If you’re interested in an HDFC co-op, it’s important to understand what the HDFC is and the corporation’s buying requirements and procedures.

What is an HDFC Co-Op?

HDFC co-ops are affordable housing for moderate and low-income New Yorkers. The rise of HDFC co-ops began during the 1970s and 1980s when New York City realized the abundance of abandoned apartment buildings. Most owners could no longer afford the buildings for one reason or another, so the HDFC acquired the buildings, fixed them up, and then rented the units to tenants as affordable co-op housing. Today, there are more than 1,100 HDFC co-op buildings.

The owners of HDFC co-op apartments are referred to as shareholders, and each shareholder gets equal shares in the building. Moreover, shareholders hold the right to elect a board of directors to run the co-op. Shareholders of HDFC co-ops are not like typical co-op shareholders; the affordability of co-op must be ensured before shareholders can sell their shares or units for a profit. To earn maximum profit, you can’t raise the HDFC co-op price to a level that would make it difficult for low-income purchasers to purchase shares or units.

There are also real estate tax exemptions that contribute to the affordability of New York City’s HDFC co-ops. HDFC apartments in NYC face some governance hurdles like resale and income restrictions as outlined in Article XI of the New York State Private Housing Finance Law and New York State Business Corporation Law.

Who Can Buy an HDFC Co-Op?

Almost anyone at any income level can buy an HDFC co-op unit. Shareholders range from retirees to people who have received an inheritance. In other words, HDFC housing is available to anyone who has a low income but substantial assets. If you’re contemplating buying an HDFC co-op, come prepared; you’ll need a 20% down payment to initiate the buying process.

Who Can Buy an HDFC Coop
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If you can’t pay in cash, there are limited financing options available for HDFC co-ops. It is a complex process; loans for HDFC co-op buildings often don’t get approved quickly. Banks usually hesitate to finance co-ops because the bank would have to follow restrictions on the building’s resale and income if the building was ever in foreclosure. The underlying problem here is that people who qualify to buy an HDFC property usually don’t have that much cash.

Don’t rule out buying an HDFC co-op if you have low income; if you have assets, enough cash, or can find a lender who’s willing to finance your purchase, you can buy an HDFC co-op.

How to Find an HDFC Co-op to Buy

You can find an HDFC co-op as quickly and in the same way as any other co-op. Review real estate listings on websites, ads posted by non-profit organizations, and housing lottery portals. It may be worth your time to find a real estate agent to assist you in your search because the search process can be challenging and overwhelming.

How to Find an HDFC Coop to Buy
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Before finalizing any HDFC co-op purchase, be aware of everything owning an HDFC co-op can entail. Make sure that the down payment and income requirements suit you. Review all rules and regulations and ask whether the building can be financed. The Urban Homesteading Assistance Board (UHAB) can assist you by providing resources about HDFC co-ops.

A real estate agent who has expertise in HDFC cooperatives can also make finding a co-op building more manageable for you. Real estate agents can help you navigate negotiations with the seller and buyer’s paperwork.

Why Should You Buy an HDFC Co-Op?

HDFC co-op owners enjoy multiple benefits. Some of those benefits include:

  • Affordability: Undoubtedly, HDFC co-ops cost much less than comparable market value apartments in the area.
  • Low Mortgage: HDFC units provide the tenant with significant mortgage relief; in some cases, the mortgage of an HDFC co-op unit can be less than the monthly rent of an apartment.
  • Low Maintenance Cost: HDFC co-ops have fairly low maintenance costs, which is a big benefit for residents with a lower income.

Why Should You Not Buy an HDFC Co-Op?

HDFC co-ops are notoriously not good investments if you’re looking to generate profit. Some additional drawbacks to buying an HDFC co-op include:

  • Excessive Flip Tax: Although flip tax is one of the key factors in keeping the HDFC coops affordable, it has another side (if you’re not familiar with flip tax, we’ve covered it in detail below – keep reading). You have to share around 30-50 % of your profit with HDFC. That’s why HDFC co-ops are not great for property investment purposes.
  • Lack of Proper Management: Good HDFC co-op management is more important than in other co-ops. Lack of proper management could result in complex resident issues.
  • Poor Upkeep: Lots of people are attracted to HDFC co-ops because of their lower maintenance costs, but it damages your investment in the long term. Lower maintenance costs could translate to difficulty in properly maintaining the building.

What is Flip Tax?

A flip tax is money owed to the HDFC from the profit made from selling your co-op. Before determining the flip tax, a shareholder can check HDFC’s governing documents to get an idea of the tax breakdown. Some HDFCs also deduct renovation expenses, but it mainly depends on the condition of the building.

Where do Flip Tax Dollars Go?

Flip taxes are one of the primary ways HDFC co-op building maintenance costs are low. The HDFC uses money generated from flip taxes to complete building maintenance and capital repairs.

What Are the HDFC’s Income Restrictions?

In the State of New York, a family that earns $150,000 a year or more would not be eligible to purchase an HDFC apartment.