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Would small Co-op benefit or not from FLIP Taxes? And who should pay seller or buyer?
Join the Conversation Comments (4)They are an excellent resource for raising money for capital improvements. However, for accuracy sake, they should be referred to as transfer tax since few apartments are flipped and the fee you want to charge is not a flip tax which refers to a buy and sell in a very short time created solely for the purpose of making a profit. A transfer tax is used when the traditional buy/seller transaction takes place. It is an easier way to reaise revenue than constantly raises maintanence fees. Buyers would need to understand that it is just a cost of getting into the building and preserving the amount of increases to the lowest level and owners, that it is an expense for the profit made on the unit as a result of the quality of the building. This must be done using an excellent attorney who deals predominently with co ops. Your average real estate attorney might not know how to do this and protect your community. The charge can be to either the buyer or the seller or both and should go into the capital reserve account or a similar one so that there is no question as to the purpose of putting this into play and where the money will be used. Good luck, this is a smart decision.
flips taxes really only beneffited buildings in the first few years after converion to coop when there was lots of apartment turnover. otherwise they just add to costs and can turn off buyers. afterall, we have enough taxes, dont we?
I would think flip taxes also help small co-ops avoid people buying just to flip the place and as investment properties.It's important for small co-ops to have people who really want to be there.
I'll answer your second question first. Unless your proprietary lease or house rules state otherwise, there is no reason why the buyer and seller can't work that out among themselves. The seller needs to be aware that there is a flip tax so they can discuss it with the purchaser. The final results of the negotiation are usually included in the Rider to the contract of sale.
As for if it is beneficial, I would say it is. Especially for a small co-op that does not have a large base over which to spread costs like capital improvements, it can be a way of increasing capital reserves. Just make sure your board attorney is involved with implementing a flip tax. There are a lot of rules which need to be followed, and if you don't have any enabling language in your governing documents, an amendment to your proprietary lease may be needed. There have also been a number of recent legal rulings regarding flip taxes, so your attorney is the best one to help.
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flips taxes really only beneffited buildings in the first few years after converion to coop when there was lots of apartment turnover. otherwise they just add to costs and can turn off buyers. afterall, we have enough taxes, dont we?
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