It’s June, and your lease is up by July 1. You’ve always lived in a doorman/elevator building, but are now considering a walk-up. You’ve heard some horror stories, but aren’t sure. What are some factors to worry about? Well, have no fear, we at RentHop will dissect the differences and try to assign a monetary value to them. In fact, one of the co-founders recently moved into a walk-up after having spent 4-years in a luxury high-rise – so he’ll be sharing his views.

Walk-Up vs Doorman / Elevator

1) Doorman - How necessary is the doorman? Well, let’s see what a doorman provides:

Pros

• Taking packages – Probably the main value of the doorman. Few of us have the luxury of physically taking packages while at home. And most of us don’t like having our packages sent to work or needing to pick them up at the local post office. Have no fear, the doorman is here. Not only does he take packages, but he also deals with deliveries from Fresh Direct or Poland Springs. Definitely valuable.
• Lost Keys +Lockouts - Ever been locked out and need to ring your neighbors or hire a locksmith? Definitely not fun. Maybe you have an extra set around the office, but having a doorman to let you in is a huge positive, especially for those of us with bad memories.
• Easy Guest Access – You never want to leave your keys under the doormats. I mean, this is NYC after all. A doorman takes care of this. You can leave your guest’s information, and the doorman will let them in – hassle free.
• Helping With Bags – If you’re not a heavy traveler, you might use this service three or four times a year. Not too significant.
• Security - Probably the least important reason to have a doorman. In most apartment units with a locked outer door, there is a very slim chance something bad happens. And to be honest, if some guy shows up with a pistol, there’s not too much a doorman can do.

Cons

• Higher Rent – For a full-time doorman building, you’re looking at an extra $100 – $200 dollars. That’s ~ $1,200 to $2,400 a year. Is that worth it to you?
• Year-End Tips - Aside from the higher rents, you’ll have to deal with the year-end tip. OK, if you’re a complete cheap-skate, you might decide not to tip. There’s nothing the doormen can really do (except give you dirty glares behind your back). However, if you’re a normal New Yorker, depending on the # of doormen and the size of your building, you’ll probably put up $50-100 bucks/doorman or porter.
• Awkwardness - Do you really want someone keeping tabs on your life? Your doorman will know a lot about you, including who comes in and out, your work schedule (and party schedule). Probably not too bad, unless you decided not to leave a tip at all.

How much should you value a doorman? On average, a doorman building will be between $100 – 200 dollars more expensive. This doesn’t include the customary tip on the holidays. Look forward to spending an extra $2,200 for a doorman building.

2) Elevator - Are elevators all they’re cut out to be? So first off, except for the higher costs, there is very little downside to having an elevator. Obviously, an elevator is necessary for most buildings > 5 floors (since only the ultimately athletic will ever want to live on the 6th or 7th floor of a walk-up). For buildings < 5 floors, you might benefit slightly during the move-in or move-out process. If you have a lot of “stuff,” or you’re moving to a large apartment, this might be an issue. Remember, though, that you can always hire movers if you need to. Aside from that, needing to walk 2-3 floors isn’t really as much of an issue as most people think. On the other hand, if you have a baby and need to carry around a carriage, this might be annoying. An elevator might add $50 dollars to your rent – so decide if that’s worth it to you.

Other Things To Worry About

1) Cable/Internet Problems – Newer buildings have better cable/internet infrastructure and wiring. For some walk-ups, you might have haphazardly laid out cables that go onto the roof or into the basement. Routine building maintenance might knock out your cable/internet (which is painful in this day and age).

2) AC - A decent majority of older buildings don’t have built-in ACs. In fact, even some doorman/elevator buildings don’t. This has more to do with the building age than anything else. Not having AC in New York is a killer, especially into the humid summer months. If your building doesn’t have AC, make sure your windows can support one (or if not, you’ll have to get a portable AC unit).

3) Hot Water Issues – Depending on how many people live in the building, your building may have a smaller than normal water boiler/heater. As a result, you might run out of hot water late into the night. Rare this would happen, but beware!

Manhattan real estate seems to be on the verge of a bottom, if not already there.  Sure, you can point to economic data, jobs reports, the S&P rally, inflation expectations, and disappearing landlord concessions.  These are all valid supporting points.  The real giveaway is the return of gratuitous broker gatherings, signaling a return of another gilded age.  Today we received an invitation to New York City’s first annual “Broker Poker Tourney!”

For an event with only 48 players, I’m surprised we made it to the guest list!  Either they’ve heard a thing or two about the founders of RentHop, or we have done very will in our undercover infiltration of the apartment rental market.

What Now?

You’ve scoured the city for the perfect apartment, and now you’ve found that gem. Now what? Is the listing price the last word?

We wrote a short piece last April (How to Negotiate a Lower Apartment Rent) about rent negotiations. In general, haggling down the listing price will depend on the landlord or leasing officer. Provided that you are a qualified tenant (40x rent, good credit score, and no history of delinquencies), you usually have some amount of flexibility in negotiations. But how much can you go?

We’ve found that landlords have about a month of flexibility (they’re willing to give up to one month additional free off the rent – though you might not get anything). Of course, this depends a lot on the landlord. Smaller landlords are generally more flexible than large corporations or luxury high-rises. A building’s vacancy rate and the apartment’s time-on-market is also important. The management office is much more likely to negotiate on an apartment that’s been sitting on the market for a few weeks than one that just hit the market. Finally, if the price of the apartment just dropped, there might be less flexibility in getting a lower price. RentHop tracks the price changes and posting date for apartments, so use that as a guide.

Seasonality and timing is also important in getting a lower price. We’ve talked about off-peak apartment hunting a few months back. In general, managers are more flexible during winter time than during the peak summer months. Some of that flexibility is already reflected in “deals” being offered during off-peak times. However, if you’re willing to move in sooner, you definitely have some leeway.

At the end of the day, while getting the perfect price is important, we wouldn’t get stuck on that. If the unit was simply a great bargain, you’re probably not the only one who is interested. Even now, quality rentals move fast (2-3 weeks), so depending on when you see it, it might not be around for too long. As a rule of thumb, ask for $100 off or an additional month free and see how far you get.

July to August 2009 has been exciting for the Manhattan rental market! The amount of transaction volume has been miraculously high. Landlords everywhere are swamped with renters finally biting at some of the greatest deals in 5 years. Rents have fallen to approximately 2006 levels in Manhattan, but the abundance of no-fee / free rent deals takes net effective rents back to 2004 (sales are a very different story).

The next few months will be truly telling. Will landlords seize on the uptick to reduce concessions, or will the off-peak season scare more managers into marketing incentives. So far, the August data supports both theories. Macklowe Properties and Archstone have abruptly scaled back incentives in Midtown West, as Longacre House on 51st and 8th and Archstone Midtown West both ended the 1 Month OP + 1 Month Free deals. Others such as Rockrose has actually increased their incentives, offering a 1.5 month OP and 2 month free at 2 Gold Street (show up without a broker and you might just get a net effective with 3 or 3.5 months off the gross). Some landlords are carefully managing incentives on a case-by-case basis. Stonehenge recently ended the 1 month OP + 1 month free at Ritz Plaza, but in exchange began offering the deal at Olivia, Stonehenge 56, and 20 Park, among others (not surprisingly, all of the Stonehenge 56 units rented quickly afterwards, with the pace at Olivia brisk as well).

At its meeting last night, the Rent Guidelines Board approved the following rent increases effective October 1, 2009:

Apartments where heat is provided at no cost to the tenant:

1 year lease – 3.0%
2 year lease – 6.0%

However, if the most recent vacancy lease was executed six years or more prior to the date of the renewal lease, the guidelines are as follows:

1 year lease – 3.0% or $30, whichever is greater
2 year lease – 6.0% or $60, whichever is greater

For all apartments:

Vacancy allowance – 0% (the statutory vacancy increases remain in effect).
Sublet allowance – 10%

After managing a site dedicated to no-fee apartments in New York City for so long,  one of the more frequent visitor questions we receive is, “How do I negotiate with the broker or landlord for a lower rent than the asking price?”  Fortunately, we have seen many useful techniques for rent negotiations from all three points of view; the landlord, the renter, and the broker.  For the first time ever, we are publishing the Rent Hop Guide to Apartment Rent Negotiation! read more »

In today’s piece, we take a break from the usual rant about no fee Manhattan rentals lists and focus on the sales market.

The Nasty Closing Cost: Flip Tax

After reading Teri Rogers’s article in the New York Times, The Downside of Condos in a Downturn, many co-op owners must be rejoicing their decision to forgo the subletting optionality and transferability of a condo.  While we agree with the majority of the points in the article, there is a bit of a flip side to the story in which co-ops dependent on high transaction volume are encountering large budget deficits.  Most co-ops impose some transaction fees on all parties during a purchase and sale of an apartment (technically shares of the co-op).  These fees range from perfectly reasonable ($50 messenger service fee), to borderline justifiable ($1,000 in misc. administrative fees), to outright co-op profit (tens of thousands of dollars in flip tax).

What is a Flip Tax?

A co-op is not in the business of making money and paying dividends to its shareholders.  A co-op is simply a legal entity that governs the building, the tenants, and the expenses.  Under normal circumstances, the building expenses such as the doorman wages and common area maintenance are paid by the residents in the form of monthly maintenance fees.  The fees each resident pays is proportional to the number of shares assigned to their unit, so while the fees can rise and fall each year, the ratio of fees an owner pays relative to his or her neighbors stays constant through the years.

In times of inflation and annual price increases for a basket of co-op expenses, we would expect the maintenance fees to increase each year.  Fortunately, several boards discovered a seemingly innocent way to peg their revenues with inflation without charging the owners higher dues: the flip tax.

A flip tax is a fee, usually a percentage of the purchase price of the apartment, paid to the co-op during a purchase and sale of a unit.  For example, a $600,000 apartment in a building with a 3% flip tax means the seller must pay $18,000 to the co-op at closing (some sellers will stipulate that the buyer must pay the flip tax in addition to their bid price, which of course must be negotiated prior to contract signing).  Keep in mind that a typical monthly maintenance fee for a $600,000 apartment is about $1,200, or $14,400 a year, so co-ops that see a healthy turnover of units will collect lots of extra revenue per year.

Benefits of the Flip Tax:

During the Manhattan real estate boom from 2002 through 2007, the flip tax helped co-ops tremendously.  First, the higher transactions costs discouraged home flippers from taking leveraged long housing beta plays (hence a widening of the co-op / condo basis).  A stable community is generally desirable, as it creates more longer term residents who will likely participate in community activities and who may someday serve on the board.  Second, for the units that do change hands, the co-op gains a nice revenue injection, often equal or greater than a year of the subject unit’s maintenance fee.  Finally, the flip tax naturally tracks housing prices, which during the boom period more than beat inflation.  The long-term shareholders get the biggest windfall, for their maintenance fees can stay low, subsidized by the investors and home-flippers who trade in and out of the community.

The Double Whammy:

Sadly, those good times came to a screeching halt in the Fall of 2008, as the housing downturn finally hit Manhattan full force.  Now, the co-op owners will have difficulties selling their units without offering a deep discount from a few months prior.  As buyers become scarce and sellers defiant, the bid / offer spreads widen, liquidity dries up, and transaction volume plummets.  The end result, no one is buying or selling, meaning no flip tax revenues are collected.

For years, co-op boards have been able to budget in flip taxes from a reasonable turnover rate, and now all of those projections have fallen short.  Any co-op that has mysteriously seen flat maintenance fees may begin to see rate hikes, and those with rising fees may see an acceleration.  Until real estate transaction volume resumes, the gravy train of inflation-indexed subsidies have vanished, and the doormen won’t be happy to take a paycut.

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