Featuring real estate articles and information to help real estate buyers and sellers. The Nest features writings from Georges Benoliel and other real estate professionals. Georges is the Co-Founder of NestApple and has been working as an active real estate investor for over a decade.
A “Pied-à-Terre” is a French phrase that translates to “a foot on the ground.” It is commonly used to refer to a crash pad in the city, occasionally used by the owner. A Pied-à-Terre is a smaller apartment for weekend stays or a couple of nights during the week. A Pied-a-Terre in NYC is not commonly considered a vacation home; instead, it is more of a crash pad for an owner to feel at home while away from their primary residence. Buying a Pied-a-Terre in NYC: is it worth it? What are the benefits of buying a pied-à-Terre in NYC? There are several benefits and some disadvantages of owning a Pied-a-Terre, which we will briefly discuss below.
A French term translates to English as “a foot on the ground” that doesn’t explain what a pied-à-Terre is in and of itself. But let’s think about that: a foot on the ground means it’s just somewhere to land for a short time.
We will explain, in essence, what a pied-à-Terre is in NYC. It’s a fancy apartment in NYC whose owners only use it for short periods, such as a weekend getaway or second home for occasional visits. Essentially it’s a vacation home, and the owners do not intend to use the unit as a primary residence.
It sounds like a luxurious second home that only the wealthiest people can afford, right? And for a lot of the apartments in NYC.
Even though they don’t necessarily have to cost millions of dollars, having a second residence in the middle of the city will not be cheap. However, we’ll get into what they cost a bit later.
So why would anyone want to buy one in the first place? Let’s take a look at four of the main reasons that people purchase these properties in NYC.
Owners intend to use a Pied-à-Terre occasionally. Generally, a buyer should spend under a thousand a month on maintenance costs and mortgage payments.
For the most part, pied-à-Terre apartments in NYC are costly.
This is true for a secondary residence where you will not spend much time. Most people who make a standard income and live a relatively everyday life will not afford one.
What does Pied-à-Terre mean in NYC real estate? … A French term translates to English as “a foot on the ground.”
But even if they can, they cannot justify spending so much on a second residence.
Prices can range all over the place for apartments in NYC. We’ll try to give you an estimate of what you can expect to pay. The cheapest high-quality properties in NYC will run about $300,000 – $500,000 or more. From there, the price rises and reaches the millions rather quickly.
For celebrities and the 1%’ers out there, they can spend more than $100 million on the city’s fanciest penthouse apartments. So they can certainly cost a pretty penny. So what about the pied à terre taxes involved?
Yes, you can finance a Pied-à-Terre in New York City. However, investing will be slightly more complex, and our loan options remain limited. Specifically, it’s more of a risk for your lender. Specifically, if you fall on hard financial times, you would probably stop paying the mortgage for your Pied-à-Terre first.
This is one of the main reasons why interest rates will be higher when financing your Pied-à-Terre.
Overall, a Pied-a-terre buyer must be ready for a stricter approval process, higher interest rates, and higher down payment requirements. Also, lenders typically like to see a buyer’s debt-to-income ratio lower than 30% when purchasing a pied-a-terre.
Lastly, banks usually require that pieds-a-terre be 60 miles away from the purchaser’s primary residence. This is a condition to benefit from for a fixed-rate interest loan, although this is not always the case.
Even after a buyer obtains financing, buyers must be prepared to pay additional taxes and fees for their purchase. Apartments in NYC priced higher than $1 million will be charged a mansion tax, which starts at 1% and goes up to 3.90% depending on the price.
Finally, buyers must remember that if they live in New York City more than six months out of the year, they will be classified as New York State residents and therefore be responsible for paying income taxes.
The key to buying a pied-à-Terre is remembering it is a second home, not a primary residence. They are not subject to the same taxes as a primary home, which means that dollar-for-dollar, buying a pied-à-Terre saves buyers a significant amount of money on taxes.
This has caused a debate among NYC people on whether they get taxed at a higher rate, especially after hedge-fund billionaire Ken Griffin famously purchased a $228 million pied-à-Terre in 2019. Since it isn’t his primary residence, he didn’t have to pay as much in taxes as he usually would.
This might end up representing the straw that broke the camel’s back, as the idea of increasing the taxes on pied-à-Terre apartments (incl. mansion tax and transfer tax) has gained more and more traction.
It’s expected that a new tax bill will pass that will affect how owners of those apartments pay taxes in NYC at some point in the next few years.
This is primarily because co-op buildings in NYC typically have strict rules or disallow Pied-à-Terres ownership altogether.
On the other hand, condos usually have much friendlier rules regarding Pied-à-Terre purchases. Primarily, if the owner can meet the condo’s financial requirements, the condo board won’t object. Additionally, condos have much lenient sublet rules should you rent your apartment to someone else or let friends or family stay there occasionally.
However, keep in mind that some condo buildings only allow buyers to sublet their apartments after residing in the building for a certain amount of time. By comparison, if they even allow subletting, most co-ops will only permit it for a maximum of 1 to 2 years within five years.
Whether or not you’re able to rent out your pied-à-Terre when you’re not there will depend on the property itself. No laws in NYC prohibit owners from renting out their apartments, but some buildings and their staff do not allow guests to rent out units from the owners. This is especially true of the higher-end luxury buildings in the city.
But for many pieds-à-Terre throughout the city, especially those in a condo (rather than a co-op), you can rent it out while you’re not there. Short-term rental opportunities are some of the best ways to recoup the money you spent on getting the property in the first place.
So if you aren’t planning on living in the unit for a while and you’re allowed to offer a short-term rental, you should take advantage and get some cash flow coming in! This is why foreign buyers like this asset class.
Depending on what you are using your apartment for, you may require various building amenities. For example, if your Pied-à-Terre is for work purposes only, only the basic amenities will be required. On the other hand, if your apartment will be used for entertainment or as a vacation home, you may not mind forking over additional money for extra amenities.
Moreover, if you plan to be in your new apartment for extended periods, more cabinet space or a chef’s kitchen may be necessary. Overall, even buyers not looking for luxury accommodations typically enjoy the perks of having a doorman building, which adds an extra layer of security when you are away.
Finally, buyers should consider how they will be getting to their Pied-à-Terre. Will you be visiting after work and can you take the train? Or will you be driving to it on the weekend, and will you need garage space? Depending on what type of transportation you will be relying upon, you should ensure the apartment is close to a train or a garage nearby.
The first step to Buying a Pied-a-Terre in NYC is to locate an experienced real estate agent. It would help if you specifically had a buyer’s agent, and a veteran buyer’s agent knows how to narrow down your requirements. They know how to evaluate your lifestyle and goals to find properties and neighborhoods for you to consider.
Once you find the right property, it typically takes up to three months to close on your new apartment after you’ve signed your purchase contract. Specifically, the offer and negotiation phase takes approximately two weeks. After that, you will hire a local real estate attorney who will conduct due diligence and advise you to sign the contract if everything checks out.