When it comes to choosing a home in New York, the choice is usually between a co-op and condo. The two are vastly different in both the legal and financial areas as well as how you buy them. When it comes to co-ops, whether they make a good investment depends on what you are looking to do with it. Are you planning to live in it for many years or rent it out? Whichever one you choose, these are the areas you need to consider.
What is your budget?
The main selling point for co-ops is how much you can save on them compared condos. If you have your heart set on a condo but are on a tight budget, you may need to change your mind. Co-ops in NYC usually sell for 10-30% cheaper than condos of similar size and quality.
Co-ops are also far more plentiful in NYC then condos and in far less demand. Coupled with that you’ve got the co-op board approval process. It can be a long and sometimes frustrating ordeal that puts many people off. This combines to create very affordable prices for co-ops when compared to condos.
If plans change and you need to sell the process is far more expensive and complicated then selling a condo. The high closing costs of a co-op sale coupled with the flip tax discourage many speculative buyers.
How long do you plan to live there?
If you don’t see yourself staying there for the long-haul co-ops, do not make an ideal investment. If you only need a place for a few years or are planning to sublet, condos make far more sense. They’re easier to sell as you fully own the unit and there are usually few restrictions on subletting. Co-ops are more suited for long-term ownership and the most part, are not designed with investors in mind.
Most co-ops, if they allow it at all, require a period of residency before you can sublet your apartment. For example, a co-op board may allow sublets for every two out of five years. Which is still subject to board approval on a yearly basis. The subletting process for co-ops is entirely subject to board approval and a troublesome applications process that differs little from the board package purchase application that you have to go through when purchasing the unit.
How do you feel about disclosing all your finances?
Condo boards also require a financial statement and references, but the process is far more invasive and intense when buying a co-op. The co-op board is going to want to see everything as shareholder finances affect the whole building.
In addition to other things, they’ll want to see proof that you can cover the down payment, know how much money you’ll have after the sale is closed and your debt to income ratio. There’ll also be at least one in-person interview with the board in which they’ll judge whether you would make both a good buyer and neighbor. There’ll be questions about your family, your job, previous homes you’ve had and what your plans for the future are. You’ll need to be comfortable with this because without board approval there’s no way you’re getting that apartment.
Buyers with transparent employment and financial background on a budget who are looking to put down some roots will find co-ops to be an attractive investment. Although the board approval process can be long and intrusive, it does come with a feeling that you are part of a community, one that cares about the upkeep of the building and the kinds of tenants it allows.
However, those who only need a place for the short term or wish to sublet would be better to look at condos. The strict rules on subletting and the high closing costs on a sale make them far from ideal for speculative investors.