What is a co-op?
There’s a big difference between co-ops and condominiums. Condo buyers own the property they live in. A co-op apartment is a share in the corporation that owns the building. The purchaser of a co-op is a shareholder, not an owner. Here’s a breakdown of the pros and cons of co-op living:
PROS
- Cost: Co-op apartments are less expensive than condos. Buyers jump through hoops to get their co-op apartment. There are also restrictions concerning renovations and selling. This discourages people from buying co-ops. Therefore they cost less than condos.
- Low Maintenance Fees: In most co-op buildings, workers handle all repairs, maintenance, and security. Co-op owners save money over the years.
- Stability: Co-ops are more stable than condos. The vetting process is a con. But it’s also advantageous. Co-op boards review each buyer’s finances and references. Owners cannot freely use their co-op as an investment rental property. The board also considers if the buyer is good for the building. Therefore the building avoids an influx of guests.
- Less Risk of Value Depreciation: Co-ops outperform condos in market downturns. The vetting process eliminates the risk of investors buying shares and liquidating in times of hardship.
- More Options: More than 70% of NYC housing stock is co-op.
CONS
- Occupancy Rules: Co-ops do not allow part-time residence. Buyers cannot purchase their unit as investment-only. The co-op prioritizes stability within the community.
- Locals Only: International purchasers are usually prohibited.
- Interview Process: The interview digs into buyers’ personal and financial lives. You can read about the co-op board interview process in this Elika Insider blog.
- Rejection: You may be rejected. Then you start at square one once again.
- Financing: Co-ops require higher down payments than condos. Some co-ops reject buyers using loans to finance their purchase.
- Renovation Restrictions: The co-op board controls changes to units. Some prohibit renovations, like adding another bathroom. Others do not allow a washer and dryer.
- Flip Tax: Co-op owners pay a flip tax. The amount ranges from 3-5%. This money builds up the building’s financials.
- Selling Restrictions: The co-op board approves to whom you sell. You may lose a buyer if the co-op board says no. Then you’re back on the market.
