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Old 01-20-2012, 08:14 AM
 
1 posts, read 7,648 times
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HDFCs are poorly understood. The co-op itself may own and rent out (in most cases there is no rule saying they can't rent at market value) the apartments. Sometimes the building buys the apartments back from the original shareholders. Example: an 85 year old Dominican woman bought her apt for $250 in 1995. Now she wants to go back to DR. The building pays her $200,000, and she can sit pretty on the beach for the rest of her life. The building then can rent out the apartment. You have to remember that HDFCs are corporations--- small businesses that must stay afloat just like any other small business. If the board members are embezzling money for their private use, that is definitely illegal, but otherwise, the HDFC corporation/small business is going to do whatever it takes to make itself thrive. There are rules in place to nudge them in the direction of serving "low income" families, but, for better or worse, there are legal work arounds that people use to bypass these rules. Example: a 30 year old artist makes $40,000/year, qualifying her as low -income. She is not married but her boyfriend makes $150,000. He gives her the cash to buy the $200,000 HDFC. After the sale, they get married. This may seem "wrong" but in legal terms, it's not illegal.

Finding out the flip tax is important when buying an HDFC, but with the market slowing down it may make less of a difference, because flip taxes are USUALLY paid on the profit on the sale. So if you buy in 2011 for $100,000 and sell in 2015 for $150,000, you pay flip tax on your profit, which is $50,000. If you buy for $100,000 and sell for $100,000 (remember, prices are actually going DOWN now in many of the neighborhoods where HDFCs are located) YOU DON'T PAY FLIP TAX. ALSO- make sure you check because I believe there are HDFCs where you pay a tax on the entire sale price and not on the profit. This sounds like bad business to me and I would not get involved with that kind of building.

Some buildings that have finished their 25 year term of imposed flip tax CONTINUE to keep a flip tax in their rules. (They may lower it to 30% or any other number). You may think "why would they do that when it is making the value of their own apartments lower?" But for people who have been living in the buildings for 25 years, maybe they have no intention of selling or moving, and they want to make sure the building profits from other individual owner's sales. We our coming out of a period in history when there was a huge housing bubble and many people were buying apartments as investments, but in this day and age there are definitely better investments than apartments. So the reason many people still buy apartments is because they want a HOME, and not because they expect to make loads of money on the resale.

In my opinion, one of the most important things to look at when buying an HDFC is the board of directors. Meet them, figure out who they are and if they think like you do. These are people you may have to interact with for the next decade or more. Look at the common areas of the building- you may not care if the plant in the hallway is parched or flowering, but if things are in disrepair, this can be a very bad sign about the way the building is being run. Profits from the maintenance/rent are may be going into the board president's kid's college fund instead of maintaining the building safe, pleasant and secure.

HDFCs are very complex animals and it takes a lot of time and study to really understand them. They can save you a LOT of money in a time like now, when rents in the city are very high. But they probably don't make sense if you want to buy now and sell 2 years later when you have that baby and want a bigger apartment. If you qualify for the income restrictions and have the money (or qualify for a mortgage -- another problem is people who do qualify for the income restrictions will often have trouble qualifying for a mortgage precisely because of their low income) it really can be a GREAT deal. Because you are getting an apartment for less than an equal, non-HDFC apartment is worth. So you can enjoy the same quality of live as the guy next door who makes a lot more than you do. Again, though, you really need to think about your future plans and crunch the numbers to see if it's financially worth it.

To conclude- there is no ONE TRUTH about HDFCs. Some really are a mess. Some, in very fancy neighborhoods, will NEVER let a new shareholder buy, because they can rent the apartments for $4000/month and they feel no need to let you in on their riches (that's wrong but it's not clear that it's illegal as long as no one is putting the rent money into his pocket.) But many are really well run by a conscientious group of shareholders who wants the best for their building but is also concerned with providing "quality housing for affordable prices." Find an apartment in a well-run building that you look forward to making home and it's definitely worth it and a great service for New Yorkers who are not millionaires.

Last edited by Wildstrawberrynyc; 01-20-2012 at 08:20 AM.. Reason: spelling error
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Old 08-23-2012, 02:18 AM
 
1 posts, read 7,422 times
Reputation: 10
The advantages of HDFCs are a roof over the heads of people who NEED it.
Read the Law below - printed exactly as stated on the record this July in Supreme Court by City Council -quoting Public Housing Funding Law XI

The bottom line is HDFC buildings are developed to be HOUSING PROJECTS for low income individuals that meet the 120% to 165% guidelines (depending on building). Anyone other than the HDFC corporation selling you one and profiting from the sale or as anything other than your primary residence and when you are over the income limit is probably violating Public Housing Funding Law XI including section 573.3.

HDFCs sign regulatory agreements enforceable for a period of 25-40 years depending on the building and in exchange for a tax exemption. Access and read agreements through ACRIS on the DOF website by searching the address for block and lot and then all documents deeds and agreements (some are in deeds most of these regulatory agreements are renewed a few times with mortgages on buildings).
Many of these agreements include assets in the income limits and are restrictions on subleasing and resale (the co ops may not enforce them, but the City and State have the right to).

You are not really buying shares as you would in a regular co op. If you look up the exact name of the HDFC corporation you want to buy into on the DOS site; you will find the corporation shares value. As these buildings were bought for $250. each apartment - they may have 10000 shares but with a $1 per share par value.


Read the law below and the agreements and decide if you truly meet the requirements.


A. HDFCs Are Designed to Protect the City’s Low-Income Housing Supply
The Debtor is an HDFC, a corporation organized and incorporated expressly to provide
low-income housing pursuant to Article XI of the New York Private Housing Finance Law (the “PHFL”). Mot. ¶ 2. Article XI of the PHFL was enacted in response to New York’s “seriously inadequate supply of safe and sanitary dwelling accommodations within the financial reach of families and persons of low income,” a condition which “is contrary to the public interest and

An HDFC’s certificate of incorporation must limit the
HDFC’s purpose to “develop[ment of] a housing project for persons of low income” and prevent
income or earnings from “inur[ing] to the benefit or profit of any private individual, firm,
corporation or association.” Id. at § 573.3. The New York City Department of Housing
Preservation and Development (“HPD”), tasked with overseeing HDFCs on behalf of the City, “protects the existing housing stock and expands housing options for New Yorkers as it strives to improve the availability, affordability, and quality of housing in New York City.”
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