When it comes to buying a home in New York City, one of the most common dilemmas faced by potential homeowners is whether to invest in a condominium (condo) or a cooperative (co-op). This decision is particularly relevant in NYC, where around 70% of all residential buildings are co-ops, while condos constitute the majority of apartments built in the past 20 years. This article aims to provide a comprehensive comparison between condos and co-ops, highlighting their key differences and factors to consider when making a choice.
|Condominiums (Condos)||Cooperatives (Co-ops)|
|Ownership Structure||You own a specific unit outright, plus an undivided interest in the common areas. You can sell, lease, or mortgage your unit at your discretion.||You’re buying shares in a corporation that owns the building. You receive a proprietary lease or occupancy agreement for your specific unit, but you do not own real property.|
|Sublet Policies||Generally more lenient. You typically have the right to rent out your unit without needing to obtain approval from the condo board.||Generally stricter. Co-op owners often need to get approval from the co-op board before they can sublet their unit. The board may also limit the duration of the sublet and set other conditions.|
|Financial Requirements||Down payment of at least 20% of the purchase price, proof of sufficient income, budget for closing costs.||May require higher down payments, post-closing liquidity, a debt-to-income ratio of no more than 25-30%, and additional fees such as co-op application fee and flip tax.|
|Costs and Expenses||Generally higher closing costs. You’re responsible for paying your unit’s property taxes directly to the government.||Generally lower purchase prices, but a co-op’s maintenance fees include charges for a percentage of the building’s property tax.|
|Amenities and Location||Many newer developments are condos and often include luxury amenities. Condos are commonly located in areas like Battery Park and the Financial District.||Many classic, “Old New York” pre-war buildings are co-ops. Often found around Central Park, on the Upper East Side, and in Gramercy Park.|
|Board Approval Process||More straightforward. Some condos require a board review, but the board’s power is usually limited to a “right of first refusal.”||More complex and invasive. The co-op board has significant power to approve or reject potential buyers.|
|The Condop Option||Condo units are typically retail spaces in a condop building.||Residential apartments are identified as co-ops in a condop building.|
Condo Vs Coop in NYC: Ownership Structure
The ownership structure is one of the most fundamental differences between condos and co-ops. When you purchase a condo, it’s similar to buying a house. You receive a deed to your apartment and a share of the interest in the building’s common areas. On the other hand, when you purchase a co-op, you technically do not own your apartment. Instead, you’re buying shares in a corporation that owns the entire building. The number of shares you receive usually correlates with the size and cost of the apartment.
When you purchase a condo, it’s similar to buying a house. You receive a deed to your specific unit, plus an undivided interest in the common areas of the property, such as the lobby, hallways, roof, and any amenities like a gym or pool. This means you own your specific unit outright and can sell, lease, or mortgage it at your discretion, subject to any restrictions in the condo association’s bylaws.
The condo association, typically managed by a board of directors elected by the unit owners, oversees the maintenance and operation of the common areas. As a condo owner, you’ll pay monthly fees to the association to cover these costs.
When you purchase a co-op, you technically do not own your specific unit. Instead, you’re buying shares in a corporation that owns the entire building. The number of shares you own corresponds to the size and desirability of your specific unit.
Along with the shares, you receive a proprietary lease or occupancy agreement that gives you the right to occupy your specific unit. You don’t receive a deed, because you don’t actually own real property – you own shares in a corporation.
The co-op corporation, managed by a board of directors elected by the shareholders, oversees the maintenance and operation of the entire building. As a co-op shareholder, you’ll pay monthly maintenance fees to the corporation, which cover your share of the building’s operating expenses and often also include property taxes and underlying mortgage payments.
Sublet Policies in Condos and Co-ops
Subletting, or renting out your apartment to another person, is a common practice in many cities, including New York City. However, the policies and regulations around subletting can vary significantly between condominiums (condos) and cooperatives (co-ops).
In general, condos tend to have more lenient subletting policies. As a condo owner, you typically have the right to rent out your unit without needing to obtain approval from the condo board. However, it’s important to review the bylaws of your specific condominium association, as some may have restrictions on the duration of sublets or require that the board be notified of any sublets.
On the other hand, co-ops usually have much stricter subletting policies. Co-op owners, or shareholders, often need to get approval from the co-op board before they can sublet their unit. The board may also limit the duration of the sublet and set other conditions. Some co-op boards may even prohibit subletting altogether.
The reason for these stricter policies in co-ops is due to the nature of cooperative housing. In a co-op, you’re not just buying a unit; you’re buying shares in a corporation that owns the building. This means that all the shareholders have a vested interest in who lives in the building, and the board often has the power to make decisions on behalf of all shareholders.
Financial Requirements for Condos and Co-ops
When purchasing a home in New York City, whether it’s a condominium (condo) or a cooperative (co-op), there are several financial requirements and considerations to keep in mind. These requirements can vary significantly between condos and co-ops.
When buying a condo, the financial requirements are generally more straightforward. Lenders typically require a down payment of at least 20% of the purchase price, although some may offer loans with lower down payments. You’ll also need to demonstrate that you have a sufficient income to cover your mortgage payments, property taxes, and condo fees.
In addition to the down payment, you’ll also need to budget for closing costs, which can include fees for a home inspection, appraisal, attorney, and title insurance, as well as a mortgage tax. These costs can add up to several percent of the purchase price.
Co-ops often have more stringent financial requirements than condos. In addition to a down payment, which can sometimes be as high as 50% of the purchase price, co-op boards typically require buyers to have a certain amount of post-closing liquidity. This means that after the purchase, you should have a certain amount of cash reserves, often equal to two years’ worth of mortgage payments and maintenance fees.
Co-op boards will also look at your debt-to-income ratio, which is your monthly debt payments as a percentage of your monthly income. Most co-op boards prefer a debt-to-income ratio of no more than 25-30%.
Furthermore, when buying a co-op, you’ll also need to budget for the co-op application fee, the cost of a home inspection, and potentially a flip tax, which is a fee charged by some co-ops when a unit is sold.
Costs and Expenses
In terms of purchase prices, co-ops in NYC are generally less expensive than condos, offering more square footage for your money. However, buying a condo can mean higher closing costs since you’ll be required to purchase title insurance and pay a mortgage tax if you choose to finance your new home. These costs are not required when purchasing a co-op.
Monthly expenses for both condos and co-ops include charges for the operation and maintenance of the building’s common areas. However, a co-op’s maintenance fees include charges for a percentage of the building’s property tax, calculated according to the number of shares you own. In contrast, if you own a condo, you are responsible for paying your unit’s property taxes directly to the government.
Amenities and Location
Many of the newer developments in NYC are condos, which often include luxury amenities such as fitness centers, spas, pools, and concierge services. In contrast, most of the classic, “Old New York” pre-war buildings are co-ops, often featuring larger apartments with more ornate décor. The location may also play a factor in your decision. For instance, many buildings in Battery Park and the Financial District are condos, while many of the buildings around Central Park, on the Upper East Side, and in Gramercy Park are co-ops.
Board Approval Process
Both condos and co-ops have a board of directors to make decisions regarding the maintenance and upkeep of the building. However, the co-op board wields much greater power and can even evict a shareholder deemed disruptive. When buying a co-op, you must go through a potentially arduous approval process, where the board reviews your finances, credit, and debt-to-income ratio. In contrast, the condo board does not have the right to reject a buyer.
When purchasing a condo, the approval process is typically more straightforward and less invasive than for a co-op. After your offer is accepted, you’ll need to apply for a mortgage (unless you’re paying cash). Your lender will then conduct an appraisal of the unit to ensure that the loan amount is appropriate.
Once your financing is in place, you’ll need to review and sign the condo contract, which will be prepared by the seller’s attorney. This contract outlines the terms of the sale, including the purchase price, the amount of the deposit, and the closing date.
While some condos do require a board review, the board’s power is usually limited to a “right of first refusal,” meaning they can purchase the unit on the same terms as your offer if they don’t want you to move in. However, this is rarely exercised.
The approval process for purchasing a co-op is more complex and invasive. After your offer is accepted and your financing is in place, you’ll need to prepare a detailed application package for the co-op board. This package typically includes financial statements, tax returns, reference letters, and other personal information.
The co-op board will review your application and, if they deem it satisfactory, you’ll be invited for an interview. The board will want to ensure that you’re financially capable of maintaining the unit and that you’ll be a good fit for the building’s community.
Unlike a condo board, a co-op board has significant power to approve or reject potential buyers. They can reject an application for almost any reason, as long as it’s not discriminatory under federal, state, or local laws.
The Condop Option
A unique type of building in New York City is the condop, a fusion of condominium and cooperative units. In a condop building, retail spaces are classified as separate condo units, and residential apartments are identified as co-ops. Condops account for less than 5% of all residential buildings in New York City.
Condo vs Coop NYC: Conclusion
The decision between a condo and a co-op is a personal one, with both options having their advantages and disadvantages. Condos often cost more but allow a greater degree of freedom and flexibility than co-ops, and an easier approval process. With co-ops, you can save on closing costs, afford more square footage, and have lesser monthly fees, but you may lose the flexibility that is offered by condos.
Regardless of your choice, it’s essential to consult with an experienced NYC real estate attorney to understand the specific legal considerations and intricacies associated with buying either a condo or a co-op.
Born and raised amidst the hustle and bustle of the Big Apple, I’ve witnessed the city’s many exciting phases. New York is not just a city to me; it’s a living, breathing entity. When I’m not exploring the city or penning down my thoughts, you can find me sipping on a cup of coffee at my favorite local café, playing chess or planning my next trip. For the last twelve years, I’ve been living in South Williamsburg with my partner Berenike.