If you love your current building and neighborhood, but find it short on space, one great solution is to buy the adjacent apartment and combine it with yours. The apartment combination is a unique New York phenomenon that you’ll often see across the five boroughs. It can take the form of either a vertical or horizontal combination or even an entire townhouse combination! With space being such a premium in the city this is no surprise. Most buyers who chose this path only do so after an unsuccessful search for a larger apartment. It also makes the most sense if you don’t want to give up the perks of where you currently live. For instance, the school zone, proximity to public transport, or community engagements.
However, be warned, apartment combinations are not for the faint of heart. This will be a long journey with a host of considerations to make and red tape to overcome. Boards (especially co-ops) can be very strict about what kind of work they allow, and you’ll need to file for numerous building permits and make detailed plans before you can even go to them for approval. There’s also no guarantee that you’ll get the result you want. Some apartments will combine beautifully, but others will result in awkward layouts. The sooner you can involve an experienced architect in the job the better your expectations of cost and the final result will be.
If you still think an apartment combination is a right choice for you, then this deep dive into the subject will tell you everything you need to know. Better put some coffee on for this one because there’s a lot to cover here.
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Financing should be your first priority. Fortunately, this shouldn’t be too difficult if you’re just looking to buy the unit next to the one you already own. But if you’re looking to buy two new units and combine them at once then things can get a little more complicated. Not many banks will finance combinations. But for those that do, they tend to structure mortgages in one of two ways.
The first way works well if you already own equity in one of the units. This can be used for a cash-out refinance allowing you to buy the new unit as an investment property. Technically, it’s a combination loan, but it’s done in two separate transactions. Once the combination is complete you can refinance as one mortgage. The one drawback to this method is that it will likely mean taking on a higher interest rate.
The other way is with a single combination loan that appraises both units separately and then also as a combined unit. For instance, if your current apartment is valued at $1.5 million, and the unit you’re buying is worth $1 million, the combined value might be $2.8 million. This can leave you with the cash needed for the renovation. This option is sometimes available when buying two apartments at once, but usually only when you plan to combine them right away. To prove this, you might be asked to put 1.5 times the combination cost into an escrow account until you’ve received a letter of completion from the DOM (explained below).
Co-op, Condo, and City Regulations
Before you can start making offers, you need to check what sort of regulations you might be up against. If the building is a co-op, then you need to enquire if it even permits combinations. Some don’t and those that do tend to have very strict rules in place for regulating the process. You can find the rules on renovations and combinations in the alteration agreement. Most co-op boards will want to see detailed plans for the renovation before approving. Try to be on good terms with the board before you start as it could help a lot with this. All buildings will consider each project on a case-by-case basis and their decisions will, to a degree, be based on the number of units already in the building.
For condo buildings, buyers face a different problem. Since condos constitute real property, buying a second unit also means buying its tax lot. Depending on how your condo runs things, you may not be able to combine the two tax lots. Most combinations will also require the consent of the condo board. A requirement that’s not unreasonable since any combination will involve an amendment to the condo declaration. Do plenty of research into your building’s bylaws and regulations before proceeding.
The city also has an interest in deciding on unit combinations. Start by consulting the official guide to Combining Apartments Guide, which will outline all the steps, forms, and approvals you’ll need. This may feel tedious, but at least it’s gotten a little easier than it was in the past. Some changes will require a Certificate of Occupancy (C of O). As with any apartment renovation, the Department of Buildings will want to review your plans and conduct inspections before issuing any permits. By the end of this, the DOB will issue you a letter of completion stating that you meet the requirements and can get started.
Demolition and Construction Costs
Unfortunately, combining two apartments isn’t as easy as knocking a wall down and calling it a day. City regulations say that an apartment can’t have more than one kitchen at a time so the second one will have to go. Demolishing a kitchen will likely set you back $5,000 to $10,000 and that’s only the start of what’s to come. Further demolition and construction work will likely be needed for the plumbing and electrical. Also, you’ll want to have a sense of seamless connection between the units. This will likely mean redoing the flooring, ceiling, and millwork so that there’s no sense of disconnect between where one-unit ends, and another begins. New windows may also be needed, which can cost between $1,500 and $3,000 for just one installation. If you’re doing a vertical combination, then you’ll need a structural engineer plus some other specialists to get the job done.
Regular home renovations are well known for being expensive, time-consuming, and, more often than not, going over budget. An apartment combination brings this to a whole new level and adds extra-legal requirements and permissions to consider. With that in mind, you’ll want to have an honest estimate of what this will cost you in the long run. At the least, you should expect to pay $400 per square meter. It can go a lot higher, but on average, this is what you can expect to pay on even a small project.
Don’t overlook the higher fees you’ll likely be paying once the project is complete. For co-op buildings, purchasing an extra unit means purchasing extra shares, which means higher monthly maintenance fees. This is also the case for condos. While you may be living in a single unit, it will still be treated as two separate units for the sake of taxes and fees. Do some research and determine what you’ll be paying in monthly fees once the project is complete.
There are also future tax liabilities to consider. As it’s no longer possible to deduct state and local taxes (SALT), your apartment combination could land you with a significant tax burden. But if you’re combining with the plan to turn the new unit into a separate office, then you may have a way of reducing this tax burden. The IRS permits deductions in this regard of $5 per square foot up to a maximum of 300 square feet. A percentage of related expenses (utilities, insurance, and repairs) is also deductible. But if you don’t use the new unit as an office then the unit will be considered a capital expense. With this in mind, it would be wise to consult a tax attorney before deciding on the combination.
Lastly, you have to consider resale value if you ever plan to sell in the future. Considering the costs of a project like this, you’ll likely want to hold the property for at least a decade or more to make your money back. But even if you do wait more than a decade, the resale value may still not be enough to make back your investment. Ultimately, resale value for a combined apartment comes down to one question, how seamless is the combination?
Buyers certainly want apartments with more space, but they also want to feel like it’s one single unit. If all you’ve done is knock a hole in the wall, then that will be reflected in low resale value. This is why it’s a worthwhile investment to ensure the combination looks seamless. Buyers who are looking for a spacious and beautiful home will take notice and be willing to pay more.
Laws for Combining Apartments in NYC
In 1968, the New York Charter changed to make combining apartments in New York much simpler and with a lot less hassle. A Certificate of Compliance or Occupancy is no longer required as long as the total number of families in the dwelling decreases, and the bulk of the building does not increase.
Additional requirements must be met, but none are too restrictive for most situations. Combining apartments is allowed if:
- They are on the same floor or, adjacent floors with interior access stairs
- They occupy no more than two stories and have an equal or less numb of rooms
- Natural light and air requirements met
- Egresses not altered
- The second kitchen removed, and all plumbing capped
A few approval forms are necessary, such as a Plan/Work Approval Application (PW1), Cost Affidavit (P3), and a Technical Report (TP1). You’ll also need to provide a lot of diagrams and a few other pieces of information, and you’ll be on your way.
Combining Apartments: Is it Worth it?
There are benefits and drawbacks to any endeavor, especially one involving renovations. You’ll get more space, have more breathing room, and increase the number of bedrooms and common areas. You also get the benefits of moving without having to go anywhere. Kids can go to the same school, you’ll have the same neighbors, and you’ll still be in the same building. While you aren’t building from scratch, you’ll be able to configure the space to meet your needs. You can create a home that is truly yours.
But there are drawbacks and difficulties in combining New York apartments. Your co-op board is likely going to scrutinize your plans more than the city will, since moving load-bearing walls and changing water, gas, and electric lines can cause damage to the building as a whole. Costs are always going to be higher than expected as unforeseen developments occur.
Having a more substantial space also means additional maintenance and higher utility costs. Plus, making significant changes by combining two apartments takes time. You’ll need to know where you’ll live during construction, which can take anywhere from three months to a year, on average.
Ask any New Yorker, and they’ll tell you that New York is the greatest city in the world. Prod a little more, though, and you’ll likely hit on a litany of complaints, the biggest one usually being space. By any standard, New York apartments are small. If you’re having trouble finding a larger space and refuse to become part of the “bridge and tunnel” crowd, left with few options. Luckily, New York allows you to combine two apartments without a lot of red-tape.
Combining two apartments in New York is a popular way to gain a larger footprint in a city where square footage is at a premium. It is expensive, averaging around 20 percent of the cost of the units themselves, but it can be worth it. Larger apartments can get a premium in a market saturated with smaller apartments. And in the meantime, you can enjoy your new, gigantic New York City apartment.