Cooperatives or co-ops is a home ownership type that is more common in New York City than elsewhere in the United States. In NYC, 80% of the apartments available for purchase are in cooperative buildings, while about 20% are in condominiums (condos). So, for you as the buyer, two simple things mean to you, there is more inventory to choose from if you include co-ops in the mix of properties and prices for co-ops are more affordable (simple supply and demand).
When buying an apartment, you may not know there are differences between a condo and a co-op and what it might mean to you as a prospective buyer. The most important difference you should know is that co-ops are owned by an apartment corporation. When purchasing an apartment in a co-op, you do not “own” the apartment but own a “share” in the corporation. The corporation pays the mortgage, real estate taxes, and other expenses for the upkeep of the building. As a shareholder, you pay a portion of these expenses as determined by the number of shares each shareholder own in the corporation (the maintenance). Apartment size and level determine share amounts.
A condominium apartment (condo) is your property; you have complete ownership. When you purchase a condo, you get a deed just as if you were buying a house. Since this is real property, there is a separate tax lot for each apartment in the building. Hence, this means you will pay your real estate taxes for your apartment as well as the common charges. Common charges are like monthly maintenance charges in a co-op. However, unlike the maintenance in co-ops, real estate taxes are not included. Nor will the common charges include the building’s mortgage and interest since a condominium, by law, cannot have an underlying mortgage (whereas a co-op building might).
Condos vs. Co-ops – The considerations when buying:
- The process of buying a co-op is much more rigorous than buying a condo. The Board of Directors in co-op buildings hold interviews with all prospective buyers and have the right to approve or reject any potential buyer. The Board, elected by all the shareholders in the building, protects the interests of everyone by selecting well-qualified candidates. You will need to provide a board application package with all your financial, professional, and personal information.
- When financing, the amount of money you can finance is determined by each co-op building and might require a substantial down payment. Some co-ops require 20-50% down payment of the purchase price.
- Portions of the monthly maintenance are tax deductible. Each building has its own tax structure, but all co-ops offer a tax advantage. You can deduct your portion of the building’s real estate taxes, and your portion of the interest on the building’s mortgage.
- Generally subletting is not allowed in co-ops. And if it is allowed, there are restrictions and must be approved by the Board of Directors. Each co-op is different and has its own rules, so be sure to check if you intend to sublet.
- Most condo boards require application package with financial disclosure and require an approval process. However, condo requirements are not as rigorous as the co-ops boards. A board meeting may or may not be required. The time for approval varies from building to building but will be less time than with most co-ops.
- Condos offer more flexible financing options than co-ops. Unlike co-ops, the amount of money you can finance is determined by the financial market and not the board of directors. You can finance up to 90% of the purchase price of a condo. Most banks, however, allow financing up to 80%.
- You have more freedom in subleasing your apartment. Though you still must go through the board approval, there’s greater flexibility than in co-ops. This makes condos the better choice if you’re looking to invest. They are also ideal for international buyers since many co-ops are unlikely to approve a buyer whose funds are not in the U.S.
- With fewer condominium inventory available and with their easier approval process, the prices for condos are more expensive than co-ops. In many circumstances, the monthly combined common charges and real estate taxes in a condo are less than a co-op’s maintenance charges, again resulting in higher sale prices.
Before you begin your search for your new home, keep in mind the financial limitations, building policies, and requirements for each type of building and then decide the best fit for you.
For more information or if you have specific questions you would like to discuss, contact me and my team here.