As a first time home buyer in New York City, before buying a co-op apartment, it is very important to understand pros and cons of a Co-op (Cooperative Housing Corporation), which makes up the majority of New York City Real Estate. Condo vs Co-op is one of the most asked question, since your alternative choice for the most part would be to buy a condo.
What is a co-op?
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Co-op Housing Financial Requirements
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Co-op Housing Board Package
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What is a Condo?
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Timestamps
0:00 - Intro
1:36 - What is a Co-op?
4:09 - Pros of a Co-op Apartment
7:25 - Cons of a Co-op Apartment
12:16 - Examples
Since the majority of NYC residential real estate market consists of co-ops unless you are completely excluding co-ops from your search, chances are high that the apartments that fit your needs and look very appealing to you just happens to be in a co-op buildings.
That’s why it’s very important to understand the pros and cons when buying a co-op apartment.
One important note here, pros and cons largely depend on your specific situation. For one person something can be an advantage and for another, the same thing can be a disadvantage.
Let’s start with pros of a co-op apartment. The first pro would be that co-ops are typically less expensive to purchase than condos. The apartment in a co-op building can cost anywhere between 10-30% less compared to the same type of apartment in a condo building.
The second pro is not only the purchase price is low, but the closing costs for the most part are also less. The biggest cost that you are saving when buying a co-op with financing is the mortgage recording tax. Co-ops are not subject to a mortgage recording tax in NYC.
Depending on the building, in general co-ops also cost less to carry, comparing to the same type of apartment in a condo building. In a co-op you have only 1 bill, called a maintenance bill, which includes the cost of maintaining the building plus your real estate taxes.
With condos, you’ll have 2 separate bills, 1 for your common charges, which will cover the maintenance of the building and the maintenance of the common areas, staff salary, etc. and separate bill for your property taxes.
This is a little bit of a generalization here, because there are some co-ops that have a very high maintenance bill, but for the most part co-ops are overall just less expensive to carry.
The other pro is co-ops have much more stability and there is a community in a co-op. Because every shareholder in a co-op has to go through a long and thorough financial review process, co-ops make sure that people are qualified to carry the apartment without any financial problems in the future, and most of the time people that buy in a co-op are buying a primary residence to live there long term, instead of investors that plan to buy and rent it out. Most buildings have rental restrictions and if there are some apartments which are occupied by renters, those renters also have to go through a board approval and interview process.
The bottom line is co-ops are selective on who can live in their building and become their business partner and part of the cooperative community.
And when it comes to cons of a co-op, the first one is the strict financial requirements. Those are the minimum down payment, post-closing liquidity and your Debt-to-Income ratio. Every building is different. For some buildings those requirements can be very strict, which means the down payment minimum can be high, they might require very low DTI ratio and a significant amount of a post-closing liquidity, and some buildings are more lenient.
If you are planning to use your apartment as a pied-a-terre, which means a part time residence, in some co-ops pied-a-terre is not allowed, so if you are coming to NYC a few times a year on a regular basis and want to buy a place to stay instead of staying in a hotel, you need to look for an apartment in a building where pied-a-terre is allowed.
Co-ops also have sublet policies, which again depending on the building can be very strict.
The next con is the potential board rejection.
Closing usually takes longer in a co-op, because of the extra step of board package and interview process. Again, this depends on the building.
Another con for most co-ops is the flip tax. When you are trying to sell your co-op unit, in addition to the city and state transfer taxes, a lot of co-ops might also require the sellers to pay what’s called a flip tax.
And the last one I can think of is since co-op is an older type of ownership than a condo. A lot of co-ops are older type of buildings. If you would like to live in a new contraction luxury building made of glass, with a typical floor-to-ceiling windows, you’ll most likely need to buy a condo.
