In this section we answer either very frequently asked or unusual questions we hear that we think our readers would benefit from learning about. In this issue, we’re tackling the question of: What are some of the considerations I need to think about when looking to purchase the unit next door?
Indeed, the dream of most NYC property owners is that some day, some way, they will have the opportunity to purchase the apartment next door. Not only would this increase their square footage while maintaining the original cost basis of the first purchase, but they could benefit from the general premium that gets tacked on to larger footprints. In this case, 1+1 usually equals 2.5 or 3.
Although every situation is very different and there are more nuances that we could possibly touch upon in one issue, here are some of the top-line considerations to keep in mind:
Combine right away or keep separate and rent? The first question is: are you looking to immediately combine the units upon purchasing or will you be looking to rent the new addition out for some time? The decision you make will have significant financing implications. If combining, you’d be looking to combine both loans into one large one, and treat the property as a primary residence, thereby getting you the best loan-to-value requirement and the best corresponding rate. Note that the financing terms would be contingent upon your beginning the combination during a short window of time post closing, and needs to be backed up by architectural plans and costs. If, however, you want to rent it out for a while, or merely not combine the units, your new purchase will likely be treated as an investment property, meaning a likely 65% loan-to-value and a rate higher by at least 35 basis points. This would have a material impact on how much cash you need to put down at closing.
Condo or Coop? As you probably know by the relative ease or pain you encountered when initially purchasing your place, board approval is a significantly different experience at condos vs. coops: relatively easy for the former, onerous for the latter. Make sure you account for the time it takes to get any renovation/combination approval, along with the requirements of you.
Certificate of Occupancy (CofO): Often, this piece doesn’t surface in the process until very late, but it’s of great importance. If you live in a condo building that’s 5 years old or less, you need to find out whether the building has yet received a permanent CofO or still has a temporary one. “Who cares?” you might ask. Well, the difference is significant. If you only have a temporary CofO, each and every exception to it, each and every request for a renovation that requires board approval, delays the process of getting to that permanent one. The docket needs to be clear of all exceptions and requests before a permanent CofO can be issued. This means that your board may not actually approve your combination in the timeframe the bank wants it done, resulting in potentially severe ramifications.
Is the resulting layout worth it or not? Sometimes, the idea of combining two apartments sounds better in intention than it is in practice. Often times, things like wet walls, vent shafts, or merely odd shapes get in the way of a dream setup. If the resulting apartment is a Frankenstein of a property, even if it works just fine for you, you may wish to consider the impact on the overall value once you sell. Would other buyers be interested in your creation? Make sure you understand what is and isn’t possible prior to your purchase.
The bottom line to these considerations, as you can probably garner from reading the above, is that it takes a village. Many of the steps you need to take in consideration of the factors we mentioned happen simultaneously. Often times lawyers need to insert the protections you need, while banks churn their numbers against their appraisals, and architects work their magic to determine what’s possible. Often, there is an interdependency among them … and brokers are the glue, the magic that makes it all work together as a symphony. There are many people to manage, many delicate steps in the process, and you want to make sure that you are careful along the way, lest your NYC property dream turn into a nightmare.
We want to hear from you! What questions do you have that you’d like answered in our next issue? Inquiring minds want to know! Email us at margolisteam@elliman.com
