If you’ve been shopping for real estate in NYC, you may have come across the phrase “sponsor unit” in listings. Getting the chance to buy one of these is very enticing once you know what they are. Here we explain all and why you should care.
What is a sponsor unit?
A sponsor unit is an apartment in a co-op or condo that has been retained by the developer or investor after the other units have been sold. In the 1980’s, when many buildings were converted into co-ops the original tenants had the option to purchase or continue renting their units. Once these owners have moved or passed away the original sponsors may decide to sell the units.
What are the benefits of buying a sponsored apartment?
The biggest plus to buying a sponsored apartment, if it’s in a co-op building, is that you can avoid the troublesome board approval process. So long as you have the money you’ve got the apartment. However, once the purchase has gone through you’ll still have to abide by the rules and bylaws of the building such as restrictions on subletting.
From a financial perspective, sponsor units also tend to be less expensive than other units in the building. The asking price is entirely at the discretion of the sponsor. If they’re ok with less money for a down payment, and financing has been approved, you could get away with a 10-20% down payment, a much better deal than the standard 25-30% required in most co-ops. Lastly, with no co-op board to get passed and fewer financial requirements the buying process tends to go a lot faster
What are the downsides?
A big thing to consider with sponsor units is the far higher closing costs. The developer will expect you to pay the hefty New York transfer taxes. Currently, they stand at 2.05%, and that can be expected to continue rising. Another problem is the possibility of shoddy construction. Sponsor renovations are sometimes less than high-end, so it’s a good idea to have a home inspection done, especially if it’s being sold in an “as is” condition. If the building is pre-war, it may have asbestos problems which will need to be handled by specialists, costing you more money.
How can you buy a sponsor apartment?
So long as you’ve got good credit and have the financing to make the down payment, you shouldn’t encounter any problems. Anyone who might have trouble passing a board interview, such as freelancers and the unemployed, will find sponsor units to be a perfect choice.
Where can I find sponsor units?
You can find sponsor units all over NYC. Most of the pre-war buildings are located on the Upper East Side and Upper West Side of Manhattan. However, with limited inventory and lots of interested buyers, it can take a while to find one. Expect to spend 6 to 12 months looking for a sponsor unit. Enlisting the services of an experienced buyer’s agent will speed things up.
Performing proper due diligence is key. Get as much information as you can about the building such as the number of units the sponsor owns and how many rentals there are. It’s much easier to get financing from a lender if there are more owned then rental units.