Dear Real Estate Adviser,
What’s the difference between a regular co-op and an HDFC co-op? Should I consider the possibility of moving into an HDFC unit? (I live in New York.) It’s almost half the price of my current co-op. What’s the catch?
— Amir

Dear Amir,
An HDFC, or Housing Development & Finance Corporation, cooperative apartment can be a real steal, provided your income level is low enough and you can live with other restrictions. And yes, it’s true that such limited-equity HDFC co-ops typically sell for about half of conventional, or “market rate” co-ops, sometimes even less.

As you know from experience, you don’t own any of a building’s real estate when you buy into a co-op. Instead, you own a membership (or shares) in that co-op’s housing corporation, which owns the real estate. This makes co-ops unlike condos.

As you’d expect, HDFC co-ops have more restrictive barriers to entry than conventional co-ops. For starters, you typically need to make less than 120 percent of the area’s median income to buy in, which is a stumbling point for some would-be buyers.

There is also a built-in “flip tax” charged on profit from sale and some very strict “no-sublease” clauses. Plus, there are rigid down-payment requirements and potential challenges in acquiring financing because of the unusual structure of such co-ops.

Carefully read the controlling documents of the HDFC co-op organization you’re considering. You need to determine if you can live with the restrictions and how much liability you’d share with fellow stakeholders should fellow co-op members default. Once you buy your HDFC co-op, by the way, you can’t get booted out if your income rises in the years to come.

HDFC co-ops are in relatively short supply, but more have emerged on the market in recent years via long-time residents who are finally cashing in on their rising share values. At last count, there were about 1,000 HDFC co-op ownership groups, or “corporations,” in New York.

Roughly 300 more are in the pipeline and pegged for eventual HDFC conversion under New York’s progressive Tenant Interim Lease Program.

Incidentally, the HDFC name is unique to New York City, although other urban areas have similar co-op housing-investment programs that operate under different structures.

HDFCs are less expensive because most were established after the city took control of foreclosed or otherwise distressed apartment units in typically run-down buildings. The city did some rehab work on the complexes before selling the units for a very nominal sum to low-income tenants. The city then trained the tenants in ownership rules and helped establish a self-sustaining cooperative corporation.

If you are in it for the long-term, can meet the requirements and don’t mind having your finances heavily scrutinized, you could go the HDFC route. After all, this could be the last bastion of bargain housing in New York!


Ask the adviser

