Buying a home in New York City is a complex process—however, if you work with the right real estate broker, they’ll be able to walk you through each step. One of the main points to understand for real estate in New York City is the difference between a cooperative and a condominium. They are two completely different types of homes with unique purchase processes.
Paul Purcell, managing director of William Raveis New York City discusses the main differences between the two:
Cooperatives are not a new concept for New Yorkers, although they seem to be a type of ownership that is more common here than elsewhere. In NYC, about 80 to 85% of our apartments available for purchase are in cooperative buildings, while 15 to 20% are in condominiums or townhouses. This means that there is more inventory to choose from if the buyer includes co-ops in the mix of properties; and, prices are, typically, 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. One owns “shares” in the corporation which entitles them to a long-term “proprietary lease.” The corporation pays the total amount of the building’s mortgage (a co-op may have an underlying mortgage 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, in turn, pays a share of these expenses as determined by the number of shares the tenant owns in the corporation. Share amounts are usually dictated by apartment size 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:
- The tenant-owners have the right to “approve” or “disapprove” of any potential owner.
- The Board of Directors, which is elected by all of the tenant-owners of the co-op, interviews all prospective owners. They have the responsibility of protecting the interests of their fellow tenant-owners by selecting well-qualified neighbors.
- The quality of services and the security of the building are kept at high standards.
- Portions of the monthly maintenance are tax deductible. Each building has its own tax structure, but all co-ops offer a tax advantage. Shareholders can deduct their portion of the building’s real estate taxes, as well as the interest on the building’s underlying mortgage.
- The amount of money that may be financed is determined by each cooperative. Some buildings require substantial down payments. Generally speaking, in Manhattan prospective purchasers should be prepared to “put down” at least 20 to 25% of the purchase price. Importantly, this could be higher in some buildings.
- Subleasing a co-op 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.
- Most cooperatives only accept buyers who intend to use the apartment as their primary residence. Co-ops are not for the investor!
Condos are quite popular and common throughout the rest of the U.S., however they are a rather new concept for the Big Apple. A condo apartment is real property. The buyer gets a deed just as though he/she were buying a house. Since this is real property, there is a separate tax lot for each apartment.
Hence, this means you pay your own real estate taxes for your property. An owner will also pay common charges on a monthly basis. Common charges are similar to maintenance in a co-op. However, they will not include real estate taxes since these are paid separately, nor will it include the building’s mortgage and interest given that a condo, by law, cannot have an underlying mortgage.
Condominiums are attractive for the following reasons:
- Financing the purchase of a condo is much more flexible than in a cooperative. Generally, a buyer can finance up to 90% of the purchase price.
- While there is an application process, this is not as formal as in a cooperative. The likelihood of rejection is minimal.
- There is greater flexibility in sub-leasing your apartment. This makes condos the choice for investment property.
- They are ideal choices for non-U.S. citizens or for those with their assets held outside of the United States, given that co-ops are unlikely to approve a buyer whose funds are not in the U.S.
There are fewer condos than co-ops, and they are easier to purchase. As a result, they are more expensive than co-ops. Additionally, monthly combined common charges and real estate taxes in a condo are typically less than a co-op’s monthly maintenance charges, again resulting in higher purchase prices.