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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.













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