My New $100 Mortgage Company — Just in Time for NY’s Tax on $1M All-Cash Home Buys

New York lawmakers are reportedly considering a new 1 percent tax on all-cash home purchases over $1 million. The proposal is designed to raise revenue and help close New York City’s budget gap. 

Under the plan, buyers who pay cash would be penalized simply because they are not obtaining financing. So naturally, I have decided to start a mortgage company.

Not a traditional mortgage company, of course. That would require underwriting, appraisals, loan committees, debt service coverage analyses, reserves and all sorts of unnecessary complexity. 

No, my new company will specialize in one product and one product only: the $100 mortgage. 

If you are buying a $5 million townhouse in cash, we will lend you $100. If you are buying a $12 million condominium in cash, we will lend you $100. If you are buying a $40 million penthouse overlooking Central Park, congratulations, you qualify for our elite Platinum Program, where we lend you… $100. Thirty-year term. Interest only. No prepayment penalty. Twenty-four-hour approval process. 

The entire purpose of the loan is simply to allow buyers to check the magical box that says “Financed Purchase” instead of “All-Cash Purchase.” Problem solved.

And, honestly, the fact that this workaround immediately comes to mind tells you everything you need to know about the policy itself. This proposal is another example of government attempting to solve financial problems by creating taxes that sound politically appealing, but fail the common-sense test once you examine how markets actually behave. 

The irony is that “all-cash buyers” are not some sinister category of market participant who deserve punishment. In many cases, they are simply buyers trying to create certainty in a transaction. Sellers prefer all-cash deals because they close faster, involve fewer contingencies, and are less likely to collapse during the financing process. In competitive markets, certainty has value.

This is especially true in New York City, where transactions can already feel like Olympic endurance events. Mortgage underwriting timelines have become longer. Lenders have become more conservative. Deals die during financing. Appraisals come in light. Interest rates move. Buyers lose confidence. Additional documentation is requested. More delays occur. Sellers become frustrated. 

Cash eliminates uncertainty. And uncertainty reduction has always commanded a premium in real estate.

Ironically, New York’s political leadership appears to understand this concept perfectly when it comes to taxation. That is why they increasingly target assets, transactions, and people that cannot easily leave. Real estate is geographically trapped. Buildings do not move to Florida. At least not yet. 

But what policymakers consistently underestimate is the creativity of market participants once incentives become distorted. Real estate people are remarkably adaptive. If you tax one behavior, people adjust behavior. If you penalize one structure, lawyers create another structure. If you create arbitrary distinctions, the market immediately begins engineering ways around them.

That is exactly why this proposed tax reminds me so much of the “flip taxes” that are common in many co-ops and condominiums throughout New York City. Technically, flip taxes are designed to generate revenue for the building when apartments trade. In practice, however, they often distort pricing negotiations, create structuring games, and become another transactional friction point layered onto an already expensive process. 

And New York already has no shortage of transactional friction. Mansion tax. Transfer tax. Mortgage recording tax. Title costs. Attorney fees. Brokerage commissions. Move-in deposits. Flip taxes. Mansion tax “cliffs” that create bizarre pricing behavior around arbitrary thresholds. Now we may be adding a “cash tax” to the list.

At some point, policymakers need to ask themselves an important question: When does taxation begin actively discouraging the exact activity that produces tax revenue in the first place? 

Because transaction volume matters. A healthy real estate market creates enormous economic ripple effects. Brokers earn commissions. Attorneys generate fees. Movers get hired. Contractors renovate apartments. Furniture gets purchased. Retail spending increases. Transfer taxes are generated. Mortgage taxes are generated. Title companies generate revenue. Employment expands across dozens of industries connected to housing activity. 

Transaction volume is economic velocity. Policies that slow transaction activity ultimately reduce that velocity.

And there is another problem here that nobody seems to discuss enough: fairness. Why should a buyer who has the financial capacity to close without financing be penalized for reducing risk in a transaction? Why should the government effectively say, “We prefer that you borrow money”? That seems like an odd public policy position, particularly at a time when economists continue warning consumers about debt levels and affordability pressures.

The unintended consequences here could become almost comical. If this proposal becomes law, do not be surprised if thousands of supposedly “financed” transactions suddenly appear across New York involving tiny symbolic loans whose sole purpose is tax avoidance. 

Which brings me back to my mortgage company. I already have the slogan prepared: BKREA Home Loans — Financing dreams… One hundred dollars at a time.™ 

Robert Knakal is founder, chairman and CEO of BK Real Estate Advisors.