Co-op vs. Condo
How to buy a co-op or condo apartment in New York City: A comprehensive guide
Condo
Buying a condo means you own the real estate, including an interest in common areas like lawns.
Condos charge maintenance fees, usually on a monthly or quarterly basis. This covers costs like lawn mowing, snow removal, and certain routine maintenance.
Condos usually cost more to buy than a co-op, but you have more flexibility with your investment. It’s usually easier to sell or lease out a condo.
Usually, the condo has a higher appreciation rate.
Co-op
When you buy into a co-op apartment, you’re buying shares that entitle you to a portion of the building. A co-op board will often have to vote you in as a new owner—and approve whomever you sell to, which can be time-consuming.
Co-ops will also charge fees, but they are often higher in a co-op and sometimes include items like utilities. However, co-ops are less likely than condos to charge special assessments for things like capital improvement projects. Either way, maintenance fees should be factored into your monthly expenses. Keep in mind that they may increase over time.
While co-ops will have higher fees, the initial cost of buying into a co-op is usually cheaper than a condo. However, it is usually harder to sub-lease in a co-op, so it’s best to plan on living there.
Usually, Co-op has a requirement that the shareholder can not lease the unit right after purchase, and has limited on the lease term. All actions requirement board approval.
Coop rules
28% DTI and 2yr post-closing-liquidity
- Sublease only after the shareholder stay there 1-2years
- Debt to income ratio must lower 28%
Timeline and process
Minimum downpayment and asset requirements in co-ops vs condos
Most CO-OPS require buyers to put down 20-25% of the purchase price, about the same as what most lenders require these days. But the range can be vast, depending on the co-op—anywhere from 10% down (rare) to 50% or more at higher-end buildings.
Co-ops also expect you to have sufficient money left over (also known as ‘liquid asset requirements’). The required amount can range drastically, from a few months worth of maintenance payments to 1 to 3 times the purchase price of the apartment. Two years worth of mortgage and maintenance charges is about average.
In addition, each co-op will expect you to meet a debt-to-income ratio, usually around 25%-29%. That means your total monthly payments--mortgage and maintenance--cannot exceed the specified percentage of your gross income. An excellent credit score is also required.
Add them all up, and you will find that the average co-op's financial standards are much higher than the average mortgage bank...a primary reason NYC co-ops withstood the last recession so well.
While in recent years, some CONDOS have started to require co-op-sized down payments, most typically don't have any financing minimums. Bear in mind, though, that if you’re getting a mortgage, banks these days often require 20%, unless the building qualifies for an FHA loan, which carries a 3.5% downpayment requirement, or you and the apartment qualify for a SONYMA loan, which has a 3% downpayment.
Many co-ops and condos these days require buyers to put an additional one to two years of common charges in an escrow account as insurance against nonpayment. The odds of this happening to you increase along with the perceived 'riskiness' of your application, as measured in debt-to-income ratio, U.S. citizenship status, or a variety of other factors.
The price of co-ops vs condos: A cost comparison
NYC condos are more expensive, on average, than co-ops. In the 2nd quarter of 2018, for example, condo buyers forked over an average of $1,989 per square foot in Manhattan, approximately 50% more than co-op buyers, who paid an average of $1,319 per square foot, according a report by the appraisal firm Miller Samuel. (The firm's reliable quarterly market reports show pricing trends by size and type of apartment as well as by borough.) That said, those figures are skewed by a number of factors--including the fact that the average condo is about 300 square feet larger than the average co-op (therefore commanding a higher per-square foot price)--shrinking the true price differential on apartments of similar location, size and amenities down to 10%.
Part of the reason co-ops tend to cost less is because they are typically older, lacking the bells and whistles of the tens of thousands of new condos constructed in the past decade. Many newer condos have also secured property tax abatementsthat enable developers to command higher sales prices than if buyers had to pay full tax bills right away.
Another reason co-ops are cheaper is that buyers usually must be approved by a board. That process involves a mountain of paperwork, a personal interview, the possibility of rejection, and the total (and totally one-sided) opening of your financial kimono to folks you will share the elevator with for years to come.
In addition to higher purchase prices, condos also have substantially higher closing costs if you’re taking out a mortgage: You will pay a mortgage recording tax of 1.8% of the mortgage amount for loans under $500k or 1.925% for loans above that. Also, your lender will require you to buy title insurance, which costs about .5% of the purchase price.
(Note: The New York State legislature is trying to extend the mortgage recording tax to co-op purchases as well.)
If you're buying a new condo (versus a resale), transfer taxes (1.825% of purchase price for properties over $500,000, and 1.425% for properties under $500,000) are also your responsibility, though these can often be a point of negotiation with a developer, who is more apt to cover fees like this than reduce the sales price, which can affect future sales.
Planning to sublet? Think twice about buying a co-op
Most CO-OPS have very strict policies about subletting, which does not make them an ideal investment opportunity and can present a serious challenge if your job suddenly relocates to London, for instance. The rules vary, but owners are usually allowed to sublet their apartment for no longer than 1 to 2 years in any 5-7 year period. The board also gets to approve your tenant and charge you a fee for subletting.
CONDO sublet policies are far more liberal. While there may be rules against short-term sublets (say, less than 6 months), there is usually no outside limit nor do boards have the right to turn down a tenant unless they exercise that right of first refusal and lease your apartment themselves. This makes condos ideal if you are looking to buy strictly for investment purposes and rent out your apartment year round. But just like a co-op, the application fees, move-in fees, processing fees, etc., can range from a few hundred to a couple of thousand dollars extra that you or your potential tenant will have to pay. And, if you do make a home in your condo, you will be living in a building with a more transient population than a co-op.
Co-ops versus condos: Lifestyle and other considerations
Now, brace yourself for some sweeping generalizations about lifestyle and other considerations in a co-op versus condo. You will need to do your research to discover which of these statements actually applies to the building you’re considering.
CONDO owners favor freedom and autonomy. Among other things, they don’t want to be told whether they can buy an apartment or to whom they can sell it or sublet it to; whether they can have a dog (or what kind, or the maximum it can weigh); whether they may refinance or take out a home equity loan, etc.
CO-OP owners are more worried about whether the living environment they think they are buying into will live up to their expectations—and they want to protect it.
It can be difficult, and expensive, to find CONDOS in the most desirable areas such as Central Park West or the best parts of the West Village. Similarly, if you’re looking for prewar details, these buildings are almost always CO-OPS--and when you find a rare prewar condo, demand and prices are typically high. (ProTip: If you're not finding enough apartments to view in your target price range or neighborhood, or you want to avoid a bidding war, consider expanding your search to "off-market" listings. NYC real estate brokerage Triplemint, uses technology to mine public records and identify owners who may be ready to sell, meaning you can meet and deal with them before their apartments hit the market.)
For the reasons above, CONDOS may be noisier and filled with a high turnover of renters who don’t care about getting along with the neighbors and may have a greater tendency to neglect the building. CO-OPS, while often more peaceful and better tended, can be micromanaged, inbred, and change averse.
Newer CONDOS that sprang up during the recent construction boom and afterward—the majority of condos for sale today—tend to be located in less convenient or desirable areas, where land was available. In Manhattan, for instance, Harlem, the Financial District and Midtown West in particular saw a disproportionate share of new development.
Newer CONDOS tend to have more desirable amenities both inside the apartment (washer/dryers, anyone?) and outside (roof decks, playrooms, health-club-quality gyms, etc.) than co-ops and older condos. (That said, many CO-OPS have started retrofitting some amenities in order to stay competitive...often with mixed results.)
Tip-offs that you may be the condo type
In addition to the generalizations in the previous section, you may want to focus your search on CONDOS if:
You have a large or feared breed of dog (basis for being rejected from a co-op even if it allows dogs and does not have a stated size or breed restriction)
You are looking for a newer building (1980s through present)
You are buying using a trust or an LLC (though many co-ops have grown more tolerant in recent years)
You want to use the apartment as a pied a terre
You are buying the apartment for your kids
You have sued a landlord or your last co-op or condo board, or you’re generally litigious (or you are an attorney)
You’re a musician
You have a home-based business that involves noise or lots of visitors like teaching music or practicing psychology
You can’t afford a 20-25% downpayment
You’re a foreign citizen
source from: Brick Underground
