I’ve gotten a number of inquiries from buyers who want to look into HDFC apartments, so here is a quick summary. Housing Development Fund Corporation (HDFC) is a program focused on providing low-income housing, primarily through the conversion of city-owned buildings to co-ops. The city hands the building over to the occupants but places numerous restrictions on the use and resale of the properties. To most outsides, they think of HDFC apartments as a bargain like rent control, but the restrictions on HDFC co-ops significantly impair their market value. To make things more confusing, the rules vary a bit from building to building.

Here are some of the general restrictions as I understand them:

* Income restrictions – These are based on a formula and vary from building to building. For a single person could be $60,000, could be $90,000, etc. If you are married the limit is higher for combined income. The limit is usually calculated as a percentage of the area’s average income. It can also be stated as a multiple of the maintenance.
* There is always a hefty flip tax, something on the order of 30% to 40% of your profit when you sell. This percentage can also vary from building to building.
* You may have to live there as your primary residence for a certain number of years, maybe 7 years. If you sell before then, you may pay a penalty.
* The unit must be your or your family’s primary residence, but it seems you can sublet after 2 years of occupancy, and then only for 18 months. If units are vacant it seems the co-op can rent out the vacant units to renters who meet the income restrictions
* You have to be a US citizen or permanent resident
* There are HDFC buildings around the city but they tend to be clustered in lower income neighborhoods. There is less freedom to choose where you live
* It is not uncommon for HDFC buildings to be in poor financial or physical condition. The co-op can increase maintenance and/or experience assessments as a regular co-op would to cover shortfalls and major expenditures
* There appears to be a path out of HDFC status but my sense is that it is difficult / uncommon
* It is not clear to me whether HDFC units would have difficulty obtaining financing. For one, if the building is having financial problems, taxes in arrears, or some other code violation I would imagine banks would balk. Second, a high flip tax typically limits the % of financing permitted. Once converted the co-op is responsible for itself so I don’t believe there is any implied or other guarantee from the city.
* When you sell the unit, the buyer will almost certainly face the same restrictions, so the upside is a somewhat limited. By all accounts HDFC units can sit on the market for a long time. I would expect that to be increasingly the case if the asking prices for HDFC apartments increasingly exceed the budgets of those who qualify for the income restriction

You can go to the NYC.gov website / HPD if you would like to learn more about it.

Sample Listing:

172 Forsyth St, 5B
Asking: $300,000
Location: Lower East Side, a couple of blocks below Houston St, a couple of blocks east of Bowery
Description: Small one bedroom, maybe 350 sqft (estimated), 5th floor walk-up
Maint: $420/mo
Flip Tax: 30%

That does seem like a good deal, but the sqft is not provided, I just estimated based on the floor plan. On a per sqft basis its not all that cheap. And by comparison there is a co-op at 160 E 27th, 1D asking $319,000 for a 400sqft studio with outdoor space. Maintenance is $1499 but 51% tax deductible. 245 W 115th St uptown has a one bedroom condo listed for $319,000, monthly is $567. And in Clinton Hill, Brooklyn at 185 Hall St, unit 1214 offers 753 sqft for $295,000, maint is $687.

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