Good Deal or Not? “$50,366.79 underlying mortgage will be deducted from the final sales price” edition

This Coop is located at 1669 Columbia Rd, NW:

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The listing says:

“Recently renovated, updated kitchen – granite countertops, SS appliances – hardwood floors, crown molding, high ceilings, and reserved parking! Walking distance to metro, restaurants, shops and more! Coop fee includes: OC & Taxes $615.36; Ground Rent $60.92; Parking $11.06; UM $277.50*; for a total of $964.85. *Note $50,366.79 underlying mortgage will be deducted from the final sales price*”

You can find more photos here.

This 2 bed/2 bath is going for $400,000.

28 Comment

  • Eh, I don’t know that I’d call that a super good deal.

    I looked at a 1 bedroom here for $175k (granted, it was a short sale). The thing about this building is that the common areas aren’t well kept (in fact, one friend noted that it smelled like urine throughout the building). Plus, you have your standard cons about living in a co-op (can’t rent your unit if you needed to move out, etc.)

  • I looked at an apartment to buy in this building about 4 years ago. They have an unfortunate no pet policy, from what I remember, and there were issues with mice (not abnormal for any building or house)… but otherwise, it seemed like a nice-ish building. Good location, if you’re not too worried about traffic/people-walking-to-metro-after-partying noise. I was too wary of the co-op situation to make an offer, but that’s just me.

  • I don’t know how coops work, but that’s an incredible deal for a 2br/2ba at that location — even if there are always hobos hanging out at the bus stop right out front.

    • I think that’s the problem, though. It’s an excellent deal for a condo at that location, but for a co-op, it’s pretty on par.

  • A $965 monthly condo/coop fee sounds pretty high to me (given the asking price that is, I realize coop fees tend to be higher than condos), but since I can’t afford this place anyway I don’t know whether it’s a good deal. It appears that the building allows cats but not dogs – I looked at renting a 2BR here in 2008 and it seemed like a pretty nice building (I did not notice that it smelled like urine or that common areas were poorly maintained).

  • If I were looking at this as a 2bed/2bath option at this price, it would seem a pretty decent deal (w/o knowing what the building is like or seeing it in person). However, the monthly fee ($965) is absurd. I also think $500/month is pushing it, depending upon what above-the-norm amenities that fee gets, but I know of a handful of condos/coops with monthly fees in that range. Coop and condo fees should not be so disproportionate, and coop fees should not necessarily be higher. I would be concerned about the underlying mortgage, even if they deduct it from the final sales price. This in combination with the absurdly high monthly fee would make me concerned about how the coop manages their finances. Some differences between coops and condos are that you need to put less down for a coop. (Please check this out, as this may have changed with all the financing requirements that have changed in the past few years.) Additionally, the tax break that coop buyers/sellers received during the transfer of property no longer exists…when you buy/sell a coop, you also pay for the taxes, as is true with other property transfers. I believe this changed in 2010. Really, the difference that exists now is that when you buy an apartment in a coop, you own a share of the cooperative.

  • I’m not sure why there’s a charge for “ground rent” in the monthly fee, but if this co-op is also a lease-hold (e.g., the building is on land that is owned by someone else and “leased” for 99+ years) then forget about a market rate mortgage for the purchase.

    A few banks will make co-op loans for lease-hold properies, but not too many. And you better have a close-to-perfect credit score to get one.

  • Coöps have higher monthly fees because your property taxes are included in the fees; the association pays all taxes to the city, and you reimburse the association. Additionally, instead of condo assessments (mandatory subsequent one-time charges to effect large-scale renovations or repairs), coöp associations can borrow money. This buffers the owner from the shock of a 5 figure assessment, but the debt service gets added to the monthly fee.

    • Actually, cooperatives may also do “special assessments” if there are large repairs to do, as an example, and there is not enough money in the reserve fund, which is what, in part, some of that monthly fee should go to.

  • jburka

    I had a share in this co-op back in ’99-’02. One bedroom with patio and parking, which I got for the absolute steal of $80k. The single biggest problem with the building is that the parking is only accessible by walking up Columbia and then taking Harvard to the alley in which the spaces were located. My parking space as about 25′ from my front door but I had to walk about 3 blocks to get there. Still, it was a great building. Nice and solid with no issues from noise/smells from other units. I’m sure I would have stayed there a heck of a lot longer than 3 years if I hadn’t decided to buy a house with my (now) husband.

    One thing to remember is that the “high” co-op fee of 964.85 (which, if I remember correctly, is 100-ish more than I was paying) includes $277.50/month for the underlying mortgage on the co-op. whatever part of that $3330/year is going toward interest is deductible. Further, while 400k might sound high, they’ll deduct the remainder of the underlying mortgage from the purchase price, so if you sign a deal at 400k, you only need to bring a deposit on 350k to the table.

    • While I understand that the deduction of the underlying mortgage means that the prospective buyer has to bring less cash to the table (350K instead of 400K), my concern is that the cooperative has an underlying mortgage.

      • Why is that a concern? Half the NYC housing market is made up of co/ops with underlying mortgages.

        As long as the interest rate is reasonable on that underlying mortgage, it shouldn’t be a concern at all. It may intimidate buyers on resale, but the pot-sweetener to the savvy buyer is that they need to bring less cash to the table.

        • I know that many cooperatives do have an underlying mortgage. When you buy into a cooperative, you do not own your apartment, you buy a share of the cooperative and essentially “lease” out your apartment. You also become responsible for the assets and liabilities of the cooperative, so wouldn’t you prefer to buy into a place without an additional (underlying) mortgage?

          • I understand how co/ops work, but I’m grounding this in my own personal experience. I have a 2 BR/2 BA unit in a 6 year old co/op building. The underlying mortgage is massive because it is a new building. But it is currently financed at 5%.

            Mine operates exactly like a condo — I’ve made some upgrades (some kitchen remodeling, modest electrical/ work, installed new flooring) with minimal (read: none) interference from the board. The entire thing is hands off. Sure, I can’t just knock down walls everywhere, but I’m not comparing it to a SFH — it’s a condo equivalent. Condo associations can pose problems for owners as well, so there isn’t a substantive difference between my shares with “proprietary lease” and someone owning their physical unit.

            Like I said, that is based on my personal experience. I have heard horror stories with other (mostly older) co/op buildings. So your mileage may vary. Co/op ownership may present burdens on the buyer in researching the cooperative, but any smart condo buyer should be doing the exact same thing.

  • I live in a coop relatively near here. Many coops have underlying mortgages that pay for major building additions such as re-pointing all the brickwork, a new roof, elevator etc…but reserve money is supposed to help pay for them. That being said, this building must have really mismanaged their money, because the underlying mortgage (for the whole building) must be over $1 million to have an underlying mortgage payment that large.

    • The misinformation that flies around about Co-op’s always astonishes me.

      1) Underlying mortgages: A cooperative–unlike a comparable condo building–operates as single corporate institution, meaning it can borrow money directly from banks for things like capital repairs or even to buy the building. Condo buildings can’t do that, so if there is a big repair you will get hit with an assessment. It’s very common for Co-op’s to have underlying mortgages, and the existence of one doesn’t necessarily tell you anything about the financial health of the Co-op. Sometimes it makes sense to borrow for capital repairs, esp. if your building has some lower income residents who couldn’t afford a special assessment. A $1 million underlying mortgage should be considered in relation to the assessment of the building itself. Per DC’s tax office, this building has an assessed value of $8.5 million. That doesn’t seem like a bad loan-to-value figure to me. The Co-op I live in (not too far away) has a $1 million outstanding underlying mortgage and an assessed value of more than $10 million. Our mortgage is actually a hold over from the late 80s/early 90s when the original residents took the tenement they were living in Co-op and took out construction loans to fix the place up. (We are unfortunately barred from pre-paying the mortgage off until 2014 due to the terms of the loan).

      2) It’s harder to get a mortgage because most banks don’t lend for Co-op share purchase: Not true, at least not any more. Yes, maybe 10-15 years ago it was much harder to finance a share loan, today most of the big banks offer them. Our co-op has loans from BofA, Wells Fargo, PNC, Citibank, among others. Yes, you will be slightly higher interest rates (prob about 1/8th to 1/4 of a % point higher).

      3) You need to put more/less money down for a mortgage – It’s really the same as buying any other place. Some Co-op’s have their own financial restrictions and may require a minimum of 20% down, but I think this is mostly a NYC co-op thing (totally different world than DC Co-op’s). Our co-op has a minimum of 5% down. FYI, in DC Co-op’s are only 10% of the market. In NYC, it’s something like 75%, last I heard. And you still get the full mortgage interest deduction on your taxes.

      4) The fees are too high: This might be true, but how do you know until you see what you’re getting for your money? Your Co-op fees will include ALL of your real estate taxes. Since Co-op’s own buildings and therefore they don’t ever turnover from a sale, they tax assessment is different and sometimes wacky, but usually to your advantage if you are a Co-op. There may also be utilities and other shared services paid for by the fees. The sellers should be able to provide the most recent budget if you want to see how fees are being allocated).

      What you wont see in real estate listings is a comparable history of special assessments. Building A with $200 fees/month might seem like a better deal than Building B with $500 fess/month, until you learn that Building A has averaged a $10k special assessment per unit per year while Building B has never had one. Which is the better deal now?

      That being said, I’m not sure this is a good deal or not. I’d want to find out of the terms of the underlying mortgage before assuming that much of one. And I don’t understand the ground rent at all. At least at our Co-op we own the land and the building. I’d want to see full financials, budget, history of special assessments, etc, before making a decision.

      There are plusses and minuses for every purchase, and a Co-op is no different. Generally the prices are 10-15% less than an equivalent condo, so it’s a good option for first time home buyers who want to live in certain areas of the city (this part of Adams Morgan as a lot of Co-op’s).

      I wouldn’t be be afraid of something just because it is a co-op. Complete your due diligence and ask to see reports on the property like reserve studies, ask for the audits, and then go from there. If the seller can’t/won’t provide such info, that’s a red flag. Just my 2 cents.

      • I don’t think you’re saying much that is all that different from what I’ve been saying, though you may think otherwise.

        The majority of DC cooperatives do have underlying mortgages, so it is fairly unusual to find one that does not have an underlying mortgage. While having an underlying mortgage could be a beneficial option in some instances (for example, instead of slapping residents with a special assessment, maybe the better option would be to take out an underlying mortgage for major repair/renovation, especially if there are low-income residents living in the cooperative). The question I have is that when you own an apartment in a cooperative, since you technically do not own your apartment but instead own a share and are leasing your apartment and also become responsible for the assets and liabilities of the cooperation, would it not be preferable to buy into a cooperative that does not have an underlying mortgage?

  • so, to make this comparable to my condo.. The way I see it is that this is a 2bedroom, 2bathroom with parking for $350K and ~$700 condo fee, which happens to include the property tax.

    Looking at the pictures, the place looks to be in decent shape, no washer/dryer, but it does have CAC. While I’m not sure I can every live in a place where I have to haul laundry down to the basement, this seems like a pretty nice deal to me.

    On the other hand, that “ground rent” is worrying. If the co-op doesn’t own the property, then no deal. No way in hell would I pay $350K for this place.. Maybe $150K.

    BTW, my understanding is that fewer banks will lend money for co-ops and that when they do, the down payment requirements are a bit higher.

    • This was true back in the 90s and early 2000s but more banks were doing loans for cooperatives. During the latter part of 2000, when mortgages and financing often required 20% down, cooperatives only asked for 10% down (and that can be a huge difference when it comes to making a down payment) so cooperatives were an appealing option to some for that reason alone. As things are changing in the financing and mortgage lending road, today this could be different.

    • The ground rent issue is much more significant than the underlying mortgage issue. For me, it makes it a non-starter.

      • I do agree with you.

        As I said originally, if this were just a 2bed/2bath in the neighborhood (with parking), I would say a pretty decent deal. Being that this has a ground rent, an underlying mortgage and a high monthly fee – all those things combined would make me say, “No way!”

  • 1000 bucks for a condo fee? Pass.

    • It isn’t a condo fee. It’s a portion of your mortgage and your property taxes rolled into a seperate payment.

      I have a co/op with an “fee” of $1562. Of that, the portion that is analagous what you call a condo fee is only about 350 bucks (inclusive of a pool, concierge staff, etc) The rest is propoerty taxes and about a 1000 a month is the underlying mortgage which is backed out of what I had to bring to the table at closing. I only had to bring about 60% of the total value of the property to the table at closing. So it all evens out. The only difference is that I’m writing one check to the bank and one check to the co/op every month, as opposed to one huge check to the bank(including taxes) and a small check to a condo board.

      Don’t let these co/op fees fool you. It all works out in the end. It actually used to be even more beneficial because you didn’t need to pay the tax on real property title transfer upon resale. DC fixed that though, and you now need to pay something similar to that tax designed for co/ops.

      Co/ops make up a huge portion of the housing market in NYC. They were attractive for a number of reasons, although cities have found ways to even the score between co/ops and real property.

  • Hey PoP….is this also a pop-up?

    The top floor of this building looks like a really bad addition.

  • What? I can’t rent this out to the dozens of MS-13 members who have overtaken that block, particularly that corner? Pass…..

    • I’ve owned two co-ops and a condo and have been involved in the governance of all three buildings. Adams-Morgan has many co-ops, including the two where I lived–one high end, the other lower end. they tend to be “Best Address” or rather minimalist buildings.

      I skipped over this place because of the co-op fee. Typically the co-op fee of most buildings will be similar to what you’d pay in monthly condo fees and the monthly equivalent of your property taxes. Most co-op feels will be more or less in the same ballpark as a condo but w/o the prospect of condo special assessments. Because you pay down an underlying mortgage, the 50K at purchase might be substantially less when you sell, so it gives you additional equity above and beyond the equity from the sale value and the paydown of your principal mortgage. Co-ops generally have more involved owners and the rules for renovation usually are no more/less restrictive than a condo.

      Co-ops make more sense for someone who intends to remain in place for a couple years. The buildings tend to have more “community” and the restrictions on renters is a plus inasmuch as an owner-occupied building is usually better maintained. Usually renters are permitted, but to keep mortgag s eligible for FHA restricted to 20% of the units; condos also run into problems if > 20% of the units are rented and some condo buildings do restrict renting). FHA eligibility helps with conventional mortgages. There have been periods where lenders have required bigger down payments for co-ops (this was the case 2008-9).

      The underlying lease would concern me here and I’d want to know what improvements were made (and when) because of the size of the underlying mortgage.

  • If you would like to see this unit in person, there will be an open house on Saturday 3/24 from 1-4 pm!

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