One of the most common restrictions for HDFC apartments is high flip taxes intended to keep them affordable and limit potential investment gains. As such, if you are among the select few who qualify for an HDFC co-op, you should evaluate whether or not the purchase is worth it.
Table of Contents
What Is an HDFC Co-op?
HDFC Apartment Pros
HDFC Apartments Cons
HDFC Co-op Rules and Regulations
HDFC Building: Financial Structure
HDFC Income Restrictions
HDFC Coop AMI Levels for 2022-2023
HDFC NYC Co-ops vs. Mitchell-Lama Apartments
HDFC Co-op Apartments Bottom Line
HDFC Co-op FAQs
What Is an HDFC Co-op?
An HDFC co-op is a type of affordable housing available in New York City. HDFC buildings were created in the 70s, and 80s to allow tenants to break free from their “slumlords” to form cooperative buildings. There are currently over 1,100 HDFC buildings in NYC, all of which receive tax breaks and other benefits to lower the cost of ownership. HDFC apartments are also much cheaper than regular coop apartments. To buy an HDFC apartment you'll have to meet certain income restrictions.
HDFC Apartments Pros
- Cheaper Prices
- Lower Monthly Costs
- Great Long-term Investment Potential
1. Cheaper Prices
The biggest advantage of purchasing in a NYC HDFC coop building is that prices are lower than for comparable apartments. You'll need to meet specific income requirements to purchase an HDFC coop apartment, but if you do, you'll be getting a great value.
2. Lower Monthly Costs
On top of the lower purchase prices, HDFC buildings also benefit from lower monthly fees. Because HDFC apartments are subsidized, your monthly mortgage and maintenance costs are typically much lower than traditional co-ops.
3. Great Long-term Investment Potential
HDFC apartments can be a great long-term investment; that is because it can take decades to realize any capital gains when selling an HDFC coop. However, if you’re buying an HDFC unit intending to stay for decades, you’re likely making a great decision. That is because you will more than likely purchase the unit at below market value.
HDFC Apartments Cons
- Flip Tax
- Maintenance Issues
- Risky if You Unexpectedly Need to Move
1. Flip Tax
This is a fee paid at closing to a co-op corporation for selling your co-op apartment. This fee is often used to generate additional income for the building, which is usually needed in HDFC buildings. Typically, the fee is paid by the seller. HDFC co-ops are known to impose high flip taxes on sales. Typically, 30 percent of a seller’s profits will have to be paid to the co-op. And, in some buildings, the flip tax can be as high as 50 percent. Depending on the co-op by-laws, high flip taxes may apply only to sellers who own for a short period of time. (e.g., less than five years).
2. Maintenance Issues
While some HDFC buildings are well-managed and maintained, a lot of HDFC buildings have years of bad management and neglected maintenance. In HDFC apartments, it can be challenging to get maintenance fees increased because the majority of the shareholders are on tight budgets. Therefore, before purchasing an HDFC unit, your lawyer will review the board minutes, which will clue the lawyer in on any issue going on in the building, such as a major roof repair that is needed or a recurring bed bug infestation.
3. Risky if You Unexpectedly Need to Move
Most of the time, when someone purchases an HDFC apartment, said shareholder will have every intention of staying in the unit for a long time. However, young families are especially susceptible to unexpected moves because of career changes or changes in family composition. Since only a small percentage of individuals, qualify for HDFC apartments, these types of units can stay on the market for months at a time. And, because you often are not allowed to rent or sublet HDFC apartments, you may be stuck with all the cost and expenses until the apartment is sold.
HDFC Co-op Rules and Regulations
The rules and regulations for HDFC buildings vary depending on the property and its individual bylaws, but overall, they are fairly restrictive, even compared to other cooperative buildings. One of the most common rules and restrictions in HDFC buildings is mandated owner occupancy, meaning you cannot rent out or sublet HDFC apartments.
- Income limits and restrictions
- High down payment requirements
- Mandated owner occupancy
- Limits on subletting
- High flip taxes when selling
HDFC Building: Financial Structure
Overall, HDFC (Housing Development Fund Corporation) buildings were designed to be affordable housing for families. As such, HDFC buildings receive tax breaks and subsidies, which keep the operating costs and maintenance charges low. Buyers in HDFCs must meet strict income limits. The limits are calculated using the area median income (“AMI”) or, alternatively, a formula based on the utilities and maintenance fees for the apartment. Overall, the biggest difference between a regular co-op and an HDFC co-op is the financial structure.
HDFC Income Restrictions
To qualify for an HDFC apartment, your income must be relatively low. Most HDFC buildings set income restrictions based on the AMI level. More than likely if your family makes over $150,000 annually, you won’t be eligible for an HDFC apartment.
HDFC Coop AMI Levels for 2022-2023
| Family Size | 50% AMI | 70% AMI | 90% AMI |
|---|---|---|---|
| 1 | $41,800 | $58,520 | $75,240 |
| 2 | $47,750 | $66,850 | $85,950 |
| 3 | $53,700 | $75,180 | $96,600 |
| 4 | $59,650 | $83,510 | $107,370 |
| 5 | $64,450 | $90,230 | $116,010 |
| 6 | $69,200 | $96,880 | $124,560 |
| 7 | $74,000 | $103,600 | $133,200 |
| 8 | $78,750 | $110,250 | $141,750 |
HDFC Co-op Down Payment Requirements
Surprisingly, HDFC co-ops require at least 20 percent down just like every other co-op in New York City. However, since a lot of HDFC co-ops are struggling financially, they may require down payments higher than 20 percent all the way to cash only deals. This means that first-time buyer mortgage programs will not work in an HDFC co-op, because these programs typically only require 3 percent to 5 percent down.
HDFC NYC Co-ops vs. Mitchell-Lama Apartments
HDFC apartments are different than Mitchell-Lama apartments. Mitchell-Lama co-ops are formed under Article 2 of the Private Housing Finance Law (“PHFL”). If you own a Mitchell Lama apartment, there are rules and regulations which govern the sale and transfer of the apartment should the shareholder vacate or die.
HDFC Co-op Apartments Bottom Line
If you're looking to purchase affordable housing in NYC, an HDFC co-op can be an ideal option. As long as you meet the income requirements to qualify for the property, you can save a lot of money by purchasing an HDFC apartment. However, you should plan on living in your HDFC co-op, as the building will likely have restrictions and taxes associated with trying to sell the property early or flip it for a quick profit.
HDFC Co-op FAQs
1. Are HDFC coops good investments?
HDFC apartments are great investments if you plan on living in the co-op. When you purchase in an HDFC building you'll save a substantial amount on the purchase price, and you'll benefit from the cost-savings as long as you live there.
2. Can you rent out an HDFC apartment?
It is almost impossible to rent out an apartment in an HDFC co-op. Most HDFC buildings have rules that don't allow subletting or limit it to specific situations, such as when the owner intends to return to the apartment after a short period of time.
3. Can you sell an HDFC apartment?
Selling an HDFC apartment is a bit harder than selling a regular condo or co-op apartment as the building will likely have numerous rules in place you'll have to follow. There are likely to be income limits that prospective buyers will have to meet, and you might also have to pay a significant flip tax on any profits you realize.