Condo vs Co-op

New York City Condo vs Co-op Guide

Understanding the difference between a Condo vs Co-op is an essential step prior to beginning your home search.

 
NYC COND VS COOPHome Buyers or investors looking to purchase in New York City face a choice that those interested in other real estate markets don’t have to consider: Condos or Co-ops?

Each choice offers its pros and cons, but many new to the city’s real estate market often ask themselves, “Why on earth do co-ops even still exist?” Those that already own property in the city – whether it be condo or co-op – however, don’t have such a flippant attitude. The coop ownership structure in the New York City effectively added another layer of regulation to the city’s housing industry, thus saving it from the subprime crisis to an extent experienced by no other city in the US.

In all, somewhere between 70% and 80% of all housing in the New York City is co-op housing. While that share is falling steadily, it is a relatively slow trend, and the market will continue to be dominated by coops for some time to come.

That being said, the co-op ownership structure did not exactly rise from the best of traditions: It was a mechanism for large apartment buildings to screen out unwanted applicants of various types, usually of class or social lines – or even racial lines, though never explicitly.

Co-op boards continue to be somewhat snooty, especially the wealthier ones. The process of applying to live in such a place is often more rigorous than trying to get into an Ivy League college.

Fortunately – and perhaps ironically – this snootiness curbs demands for coops, and so their prices are, on average, 10 – 30 percent less than the typical condo regarding price per square feet.

Another barrier to entry that keeps the average price of coops lower than condos is that they often require more money to be put down up front. Sometimes there are even clauses saying this money cannot be money from a bank loan but has to be the buyer’s pre-existing cash reserves.

One good thing about co-ops, though, is that the money you pay your share of the building’s taxes and mortgages is deductible from your income taxes.

Also, once you are actually in one, the arduous admissions process that you went through will have to be completed by all other potential neighbors, thus saving you from the possibility of living next to Kid Rock or some other similarly lovely character.

Also, some of the oldest, most prestigious buildings in Manhattan are coops. Of course, the same can be said about condos, but the point is that many coops have a certain old-money flare to them that condos often eschew.

Other than those benefits, though, there’s little to say in the way of coops. Condos are especially better as investments. They are easier to buy and sell thus are a considerably more a liquid asset.
 

Comparing New York City Condo vs Co-op


NYC Condos

Estimated time to close a Condo purchase 1-2 months

Below you will find a brief Condo overview, if you would like to learn more please visit our comprehensive guide at:
New York City Condos
 
NYC CONDOS

Condo Closing Costs Learn More

In a co-op, owners only own their unit and common grounds until they decide to move, at which point ownership transfers back to the corporation. They cannot transfer title or ownership at any point and in reality never truly own anything.

Condominiums are a different story. When buyers purchase a condo, they receive a deed and yearly taxes and other ownership fees. They can sublet their condo or sell it outright if they so choose.

ADVANTAGES OF CONDOS

  1. Higher visibility and availability for buyers locally and international
  2. Flexible financing options; most condo buyers can finance up to 90% of the condo’s selling price
  3. Easier application process with higher acceptance ratios
  4. Lower common and maintenance charges usually
  5. Condos have flexible sublet policies

DISADVANTAGES OF CONDOS

  1. Closing Costs are generally higher for Condos
  2. Flexible financing and purchasing process can attract less qualified buyers and investors that could be forced to sell at a lower price during distress
  3. Co-ops owners cannot sell for whatever price they want to whomever they want
  4. Most Co-ops charge sellers a flip tax of 1% – 10%
  5. Flexible sublet policies can attract more renters that could cause greater wear and tear on building

A disadvantage of purchasing a condo is the higher overall cost since there aren’t nearly as many condos as there are co-ops. This is changing quickly as new condo developments pop up all over the New York area.

CONDO OVERVIEW

As more and more new buildings are constructed in New York, condominiums are fast gaining in number and popularity. It’s not surprising considering the ease of buying a condo rather than a co-op. As opposed to a co-op, a condominium apartment is “real” property. A buyer receives a deed just as though he or she were buying a house on an individual plot of land. Each apartment in a condominium receives its tax bill. There is still a common monthly charge similar to the maintenance charges in a co-operative.

These charges don’t include your real estate taxes and are not tax-deductible. They also tend to be lower than in co-ops because there is no underlying mortgage for a condominium building. The straightforward nature of buying a condo coupled with the fact, that in some cases, you can finance up to 90% of the purchase price and sublet them at will, makes condominiums the number one choice for flexibility. Young buyers, investors, and buyers that choose to use creative financing are urged to consider condominiums.

NYC Co-ops

Estimated time to close a Co-op purchase 3-4 months

Below you will find a brief Co-op overview, if you would like to learn more please visit our comprehensive guide at:
New York City Co-ops
 
NYC COOPS

Co-op Closing Costs Learn More

With nearly 80% of the ownership opportunities coming from the co-operatives, this method of ownership is the most popular.

Co-ops are owned by an apartment corporation. When you purchase within a co-op building, you’re purchasing shares of the corporation that entitle you, as a shareholder, to a “proprietary lease.” Co-op “shares,” include both the residence and a portion of the common areas of the building, including the laundry or fitness area, lobby, etc.

ADVANTAGES OF CO-OPS

  1. Lower cost to purchase, Co-ops 10%-30% less expensive than like-kind Condos
  2. Owners receive “shares” in the entire building–and therefore own–the building’s common features
  3. Due to strict subletting policies the majority of a co-op is end user thus take better care of the common areas
  4. Owners may be eligible for a number of tax deductions

DISADVANTAGES OF CO-OPS

  1. When financing is allowed the minimum downpayment is 20% or higher
  2. Difficult application process with risk of board rejection
  3. Co-ops impose strict subletting policies
  4. Co-ops owners cannot sell for whatever price they want to whomever they want
  5. Most Co-ops charge sellers a flip tax of 1% – 10%

The corporation first pays the real estate taxes, mortgage of the building, salaries, and maintenance; that cost is then split among the owners of the residences, each owner paying an amount that is in relation to the “share” that he or she has in the building.

In a co-op, the building’s Board of Directors decides whether to accept applicants as owners or not. A potential buyer fills out an application and interviews with a representative of the building. Rules and ownership details vary by building, so ask for additional information before agreeing to buy. Also, ask what the corporation’s tax structure is, as owners are sometimes eligible for tax deductions.

One of the disadvantages of living in a co-op is the final down payment expected. Although financing is an option for some, most will be expected to pay quite a bit more than the traditional ten percent down. 50% is not uncommon, and some co-ops don’t finance at all, expecting full payment up front.

CO-OP OVERVIEW

A phenomenon that’s limited almost entirely to New York City, cooperative apartments have been the traditional form of owning an upscale apartment for close to a hundred years. In fact, in New York City, 70%-80% of all apartments available for purchase – and almost 100% of the grand pre-war apartments on Fifth, Park and Central Park West – are in co-operative buildings.

The larger your apartment, the more shares of the corporation you own. Co-op shareholders contribute a monthly maintenance fee to cover the building expenses.

The fee covers such items as heat, hot water, insurance, staff salaries, real estate taxes and the mortgage indebtedness of the building. Portions of the monthly maintenance fees are tax deductible due to the building’s underlying mortgage interest. Also, shareholders can deduct their share of the building’s real estate taxes.

A co-op Board of Directors can determine how much of the purchase price may be financed and minimum cash requirements. Co-op apartments require a more substantial down payment than most condominium apartments, especially in top buildings, whose ownership requirements may be stringent.

Subleasing a co-op can be difficult. Each co-op has its own rules and they should be carefully reviewed prior to application to purchase.


 

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