Cooperatives (Co-ops) are not a new concept for New Yorkers, but many out-of-towners are unfamiliar with this type of ownership. In NYC about 65% of apartments available for purchase are in cooperative buildings, while 30-35% are in condominiums or townhouses. This means that there is more inventory to choose from if a buyer includes co-ops in the mix of properties; typically, prices are more favorable for cooperatives because of supply and demand.
Cooperative buildings are owned by an apartment corporation. Individual tenants do not actually “own” their apartments as they would in the case of “real” property. Tenants own “shares” in the corporation which entitles them to a long-term, ongoing “proprietary lease” for a specific apartment. The corporation pays the total amount of the building’s expenses including mortgage payments (a co-op may have an underlying mortgage for their specific apartment on the entire building, whereas a condo must be owned outright), real estate taxes, employee salaries, and other expenses for the upkeep of the building. The tenant-owner, or “shareholder,” pays a share of these expenses as determined by the number of shares the tenant owns in the corporation. Share allocations are usually dictated by apartment size, view and floor level – space on a higher floor will have more shares associated with it than its counterpart on a lower floor.
Important considerations when buying a co-op:
• Each building has its own tax structure, but all co-ops offer tax advantages. Shareholders can deduct their portion of the building’s real estate taxes, and their share of the interest paid on the building’s underlying mortgage.
• Each cooperative determines the maximum amount of money that a buyer may be use to finance a purchase. Some buildings require substantial down payments(or all cash) ranging from generally from 20-50% of the purchase price.
• Subleasing must be approved by the Board of Directors of the co-op. Each corporation has its own rules, and they should be examined if a potential owner intends to sublet.
• Purchase Requirements: A purchase application usually consisting of a financial statement with supporting bank statements, tax returns, personal and business letters of reference is required by the Board of Directors.
Co-ops are generally not for investors.
Condominiums (Condos) are quite popular throughout the U.S., but arrived in New York in the late 1970s. A condo apartment is real property. Buyers get a deed just as though they were buying a house. The owner of record receives a separate real estate tax bill for their apartment.The owner is also responsible for paying monthly common charges representing their interest in the costs associated with operating the building(staff, common utilities, insurance, amenities etc.) There is no underlying mortgage on the building.
Condominiums are attractive for the following reasons:
• Financing the purchase of a condominium apartment is not restricted as it is in a coop. Financing is strictly an issue between the purchaser and a mortgage lender. It is theoretically possible to finance up to 100% of the purchase price.
• Purchase Requirements: When purchasing in a new development, there is no application. For re sales, a purchase application usually consisting of a financial statement with supporting bank statements, tax returns, personal and business letters of reference is required. However it is not as difficult as in a cooperative. The condominium has a right of first refusal to purchase an apartment if it chooses to do so at the same price of an outside buyer if the condominium wants to reject the sale. Condominiums are not in the business of collecting apartments, therefore passing the application process is much easier.
• There is greater flexibility in sub-leasing your apartment. This makes condos a better investment choice than co-ops. Most often, condominiums require a 1 year minimum sublet.
• Condominiums are the ideal choice for foreign buyers or for those with assets held outside of the United States. Condos are generally more expensive than co-ops.