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With average Manhattan rent prices still hovering around $4,000 dollars, some young adults living in New York City now turn to their parents for assistance in rent payments. Parents who can afford to, sometimes decide that it’s better to simply purchase a unit for their adult child than helping to pay their rent. However, this type of transaction can be more challenging than a typical apartment purchase.
Here are some tips on what to expect and how to prepare for buying a New York City apartment for your adult child.
Set Clear Expectations Before You Begin
Will your child contribute to the downpayment? Who will pay for carrying costs, utilities, and repairs? Is it a roommate situation, and if so, who is choosing them and how? Will you have a say? And the spare bedroom or the pull-out couch – if you visit town, can you stay in the unit? All of these are important questions to discuss with your child and get on the same page with them.
Agree on the ‘Must Haves'
Knowing what your child absolutely needs in a unit and what would just be nice to have will help you focus your search. Think about which neighborhood you want the unit to be in – should it be close to school or work? An easy distance from the subway station? Consider safety too – is a doorman a must have? Amenities are also something to think about: do you have to have a gym, in-unit laundry, or outdoor space for example? Be realistic though – you will be paying for these amenities so make sure they’ll actually be used.
Be Upfront With the Board
Tell the board about what your intentions are from the start and let them know if you and other family members plan to stay there for an extended period of time or whether your child plans to have roommates. If you’re not honest about how the apartment will be used and who will live there, you may face legal repercussions.
Not All Co-ops Allow Parents to Buy for Their Children
While cheaper than condos, co-ops tend to also be stricter about who lives in them, often only allowing the owner to reside in the unit. This policy is because co-ops tend to be very careful of taking on unnecessary risk. Make sure to read the fine print in the listing and ask the listing agent to verify with management. If you do find a co-op that will allow it (they usually tend to be smaller co-ops, not the fancy ones on Park Avenue), consider adding your child as a co-purchaser. This could reassure the board that the responsibility is shared between both parent and child. But be aware, some co-ops don’t allow co-purchasing either.
Co-purchasing Makes the Most Sense—if the Board and Your Lender Allow It
As a parent, you should strive to list your children on both the purchasing and loan agreements, rather than just yourself. When you don’t, this type of an arrangement doesn’t technically fall under the category of an investment property or a second home, especially if you live out of state. This can get messy in terms of tax deduction. Make sure your real estate agent and mortgage professional advise you on all of all the buying and borrowing possibilities before signing a contract or loan application. If your child is on the loan paperwork, they should be in their current career for at least three years. In the current sales market, putting down a substantial amount to offset a higher mortgage rate is an important strategy that can help reduce the monthly payment your child is responsible for. Some co-ops will want all borrowers to be on the stock certificate, and others may require that your child meet a certain debt-to-income ratio regardless of the income and asset position of the parent, which may be different than what the bank requires. Some banks may just refuse to take out this kind of loan altogether. You’ll have to find a lender who allows 'non-occupying co-borrowers' to be on the loan.
Whatever you do, if you choose to proceed with a purchase for your child, make sure you use a real estate agent who has expertise in this kind of transaction. A good broker should research a board’s requirements and know ahead of time how to avoid a problem, and they’ll also help you assemble an application that has the best chance of being approved.
Source: Brick Underground