As you're searching across different apartment listings in New York City you may come across a unique property offering called the Investor Friendly Co-op. At first glance, this concept may feel completely counterintuitive, as co-ops are traditionally perceived as being unfriendly to investors. Most NYC real estate investors generally look towards condos and multi-family dwellings to make their purchases because of the loose rules and regulations related to rental policies in those respective property types.
What is an Investor Friendly Co-op?
These co-ops allow investors to rent the property out from day 1 of the property purchase. With no (or loose) subletting policies in place and often no requirement for a rental board application, these properties can yield massive cap rates for apartment investors. This is due to to the fact that these co-ops are priced much lower compared to normal coops and condos.
Why are Investor Friendly Co-ops Cheaper?
Often times these types of co-ops require an all cash buyer. This greatly reduces the pool of buyers that exist. An investor friendly co-op can be used as a primary residence, a pied-à-terre or as an investment. From an investment value perspective, a buyer of such a co-op still benefits from the same rental value as other condos or co-ops, except the benefit here is that the co-op board will generally not require applications to permit the tenant to rent in the building, which reduces friction, time and costs associated with the rental process.
Why does Purchasing these Co-Ops require all Cash?
Lenders will not lend in buildings that have too high of a concentration of rental units compared to the units occupied by primary residents. Frequently, in such buildings, there may be an owner who owns the majority of individual apartments in the building and rents them out. This forces all other units to not be able to receive financing. Also, a co-op may have poor financials, which is restrictive on financing opportunities. Instead of increasing the monthly costs for all owners, a co-op board may choose to alter the bylaws incentivize investors to purchase the properties to immediately rent them out.
Should I buy an Investor Friendly Co-Op?
It all depends on your investment objectives. If you have the cash on hand and are looking to maximize your cap rate, it may be an exceptional opportunity. However, it's also important to note that these types of co-ops may frequently sit on the market for extended periods of time when you are looking to sell because they require a very specific buyer. If immediate liquidity is something you need, then these types of apartments are not for you. However, if you are looking for a long-term cash flow from collecting rent, and have a low buy-in price and low carrying costs, these types of apartments may be an exceptional opportunity.
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