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Until mortgage rates drop, there is no way to avoid the fact that if you need financing, the monthly carrying costs on your home will be higher than they were just a few years ago when mortgage rates hit historic lows. However, mortgage rates aren't the only factor that impacts monthly carrying costs. In some cases, units are priced well below market rate, yet are still costly due to higher-than-average monthly fees. This article explains why competitively priced units sometimes have higher than average fees and considers the risks and benefits of investing in low-cost/high-fee units.

In this article:

Ritz Tower, 465 Park Avenue
Ritz Tower, 465 Park Avenue Midtown East
The Buckingham Court, 310 West 99th Street
The Buckingham Court, 310 West 99th Street Riverside Dr./West End Ave.
The Beekman, 575 Park Avenue
The Beekman, 575 Park Avenue Park/Fifth Ave. to 79th St.
339 East 58th Street
339 East 58th Street Midtown East
138 East 36th Street
138 East 36th Street Murray Hill

Why some units are priced below market rate and have high fees

In New York City, there are a few common reasons units end up being priced below market rate and yet have sky-high fees:

Unit is in a land-lease building: Most co-ops and condos own the land on which they are located but a few are located on land leased from the city or a private developer. Land leases are usually decades-long, but when the leases expire, shareholders and owners face a difficult decision -- sell, or pitch in to either negotiate a new land lease or buy the land beneath the building (both of the latter two options generally result in assessments that raise fees by several thousands of dollars each month). This also explains why it isn't hard to find great deals on land-lease buildings facing expired or soon-to-be expired leases.

Unit is in a building facing a major capital expenditure: While most assessments, even for large facade repair projects, are minimal, occasionally, a major capital project leads to a larger assessment. Of course, depending on the building and its demographic, what counts as a larger assessment will vary. After all, a $300 assessment in one building may strike tenants as steep while the same assessment in another building may be barely noticed.

Unit is in a co-op or condo with financial problems or poor management: Finally, occasionally, a unit in a neighborhood with average to below-average prices will have sky-high fees due to financial problems (e.g., the co-op or condo's reserve fund has been depleted and the board is attempting to rebuild it). In other cases, the problem is mismanagement or simply a disconnect between the building's value and the aspirations of its board members.

For example, in a still reasonably affordable neighborhood such as Washington Heights, there are many pre-war co-ops, including co-ops where you can still buy a two-bedroom unit for well under $1 million, which is rare in most other Manhattan neighborhoods. While there are certainly uptown buildings where fees are more than $2,000 monthly, if a more affordable uptown coop hiked fees to Park Avenue levels (in many Park Avenue buildings, fees are above $4,000 monthly), it would likely lead to a lack of balance between the unit's market value and fee level, essentially rendering most of the building's units out of reach for most prospective buyers (e.g., few buyers will purchase a unit for $850,000 unit with monthly fees of $4,500). Over time, this lack of balance can lower demand and deflate the unit's value.


Pros of buying an under market value/high-fee unit

The pros of buying a low-cost/high-fee unit are clear on paper:

Lower down payments: A unit priced below market value can save owners tens of thousands of dollars each year.

Less competition: Fees are a deal breaker for many potential buyers, which is why buyers generally find less competition bidding on units with high fees, even when a unit is evidently priced to sell.

Potentially a strategic long-term investment: If the building's fees are high due to a temporary situation (e.g., three-year assessment) and then set to return to regular rates, buying a unit priced under market value with high monthly carrying costs can be an extremely strategic investment.

Cons of buying an under market value/high-fee unit

While there are advantages to buying a unit priced under market value that has higher than average monthly carrying costs, it is important to be aware of the risks:

Long-term problems: Properties are priced under market value and have high fees for a reason -- for example, they are located in land lease buildings, in buildings that need major repairs, or in poorly managed buildings.

Less money to pay down principal: If the monthly carrying costs are high but mostly being funneled into fees, you'll be unlikely to possess the ability to pay down your principal more quickly.

May be difficult to resell: Even after slashing prices, units in buildings with exceptionally high fees can be difficult to sell.

The bottom line is that some units priced below market rate with high fees can offer incredible long-term value to buyers. Other units come with considerable risks. For this reason, buyers are simply encouraged to do their due diligence before investing in units that are priced to sell and feature higher-than-average monthly fees or assessments.

The Excelsior, #41A (Sothebys International Realty)

233 East 70th Street, #11P (Compass)

The Oliver Cromwell, #4GH (Compass)

150 East 61st Street, #10G (Douglas Elliman Real Estate)

40 East 80th Street, #3A (Compass)

The Lombardy, #1103 (ALTA Real Estate)

339 East 58th Street, #7CD (Douglas Elliman Real Estate)

The Omni, #15A (Douglas Elliman Real Estate)

235 East 49th Street, #1C (Serhant)

The Beekman, #1401 (Compass)
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164 East 72nd Street, #13C (Coldwell Banker Warburg)

519 East 86th Street, #1A (Corcoran Group)

The Victorian, #12C (Douglas Elliman Real Estate)

The Armory, #87Q (Douglas Elliman Real Estate)

The Buckingham Court, #802 (Serhant)

345 West 55th Street, #6B (Compass)

40 East 80th Street, #21A (Brown Harris Stevens Residential Sales LLC)

54 East 8th Street, #4E (Corcoran Group)

16 Park Avenue, #7A (Compass)

339 East 58th Street, #10CD (Compass)

59 East 72nd Street, #3C (Compass)

Tower East, #35B (Coldwell Banker Warburg)

Ritz Tower, #34E (Compass)

357 East 57th Street, #20C (Keller Williams NYC)

420 Beekman Hill, #8D (Compass)

330 East 80th Street, #1B (Compass)

The Excelsior, #22E (Berkshire Hathaway HomeServices New York Properties)

301 East 63rd Street, #14J (Corcoran Group)
Would you like to tour any of these properties?
Just complete the info below.
  1. Select which properties are of interest to you:

Or call us at (212) 755-5544
Would you like to tour any of these properties?
Contributing Writer Cait Etherington Cait Etherington has over twenty years of experience working as a journalist and communications consultant. Her articles and reviews have been published in newspapers and magazines across the United States and internationally. An experienced financial writer, Cait is committed to exposing the human side of stories about contemporary business, banking and workplace relations. She also enjoys writing about trends, lifestyles and real estate in New York City where she lives with her family in a cozy apartment on the twentieth floor of a Manhattan high rise.