Choices

Which one(s) are right for you?

The NYC choices of apartments are comprised mainly of co-operatives (coops), condominiums (condos), and cond-ops (a coop and condo hybrid), with much fewer individual homes, known as townhouses and brownstones. Co-operatives are a more common type of ownership in NYC than any other city in the U.S. Approximately 80%-85% of all NYC apartment homes are coops, with the remaining 15%-20% of NYC apartment homes that are condominiums.

You need to know the differences between the apartment types. A summary of the relative differences between the two most prevalent types – co-ops and condos – is shown in the table below. Co-ops are usually less expensive than condos because there are more co-ops than condos (supply), they are harder to purchase, and their maintenance costs and real-estate taxes are typically more expensive than a condo’s common charges. Due to their flexibility of rules and purchaser requirements, and the straightforward nature of ownership, condos are usually better choices for most buyers, investors, and non-U.S. citizens.

NEW YORK NUANCE: Co-ops are cheaper than condos, can be more difficult to qualify for purchasing through the coop board of directors, require substantially more financial documentation, are not real-estate ownership (you own stock in the co-op corporation), contain restrictions on subletting and tax deductions, don’t appreciate in value as much as condos, take a longer time to close a contract, and have cheaper closing costs.

CO-OPERATIVE AND CONDOMINIMUM COMPARISON

Co-operatives (Co-ops). Co-ops are not owned by individuals – they are owned by a corporation that owns the building and property. You do not own your apartment, nor the real estate that a co-op is built upon. When you purchase a home within a co-op building, you buy shares in the corporation (for which you receive a stock certificates – not a deed) that entitle you, to a “proprietary lease.” Each apartment is allocated a given amount of shares usually based on square footage of the apartment and the floor level. All shareholders pay a monthly maintenance fee to pay for the building expenses including heat, hot water, insurance, building employee salaries, real-estate taxes and the building mortgage. Only a portion of the maintenance fees are tax deductible – shareholder’s proportionate share of the building’s real-estate taxes and interest on the building’s mortgage (if any).

The co-op Board of Directors (commonly referred to as “the Board”) determines who can purchase within the building, how much of the purchase price may be financed, cash reserve requirements, subleasing allowances (or not). Each co-op has its own rules and they should be carefully examined and understood prior to application to purchase. All prospective buyers must prepare a detailed “Board Package” which contains detailed personal and professional financial information (income and assets), last three years’ tax returns, letters of recommendation from landlords and employer, as well as additional personal information prior to the mandatory interview with the Board. The Board has the right to approve or deny any potential owner for any reason – without explanation. It takes its responsibility of protecting the interests of all owners seriously by selecting only extremely well-qualified candidates.

Each co-op Board dictates how much money must be used as a down payment and how much may be financed when purchasing an apartment. Most buildings require a down payment between 20% – 50% of the purchase price. Subleasing is usually not allowed. In some buildings, if may be approved by the Board.

Condominiums (Condos). Most new buildings that are constructed in NYC are condominiums. Condo ownership is usually more familiar to buyers since it is a type of real-estate ownership in which the owner truly owns the real property and shares in the costs associated with the common areas (elevators, hallways, lobby, mail room, laundry room, etc.). Each owner receives a deed, title to their apartment, and an individual tax bill. Monthly common charges are similar to maintenance charges in a co-op. Common charges do not include real-estate taxes (you are personally responsible for the taxes) and are not tax-deductible. Common charges are usually lower than maintenance fees because there is no underlying mortgage for a condo building, as there may be for a co-op building.

When purchasing a condo, there is usually a far less stringent approval process than is required with a co-op purchase. The approval process is administered by the condo Boards requires less documentation and disclosure, and a board meeting may or may not be required. The length of time for approval is less than needed for a co-op approval process.

NEW YORK NUANCE: Maintenance fees and common charges can vary by building. Be sure to obtain a list of what is included and excluded. These costs will be higher for buildings that contain more amenities, and more employees (doormen, superintendents, and concierges). An easy way to compare these monthly fees in different buildings is to calculate a dollar amount per square foot (SF). For example if one building has $2/SF and another building has $4/SF in fees, you need to look closely at what is included. It is possible that one building’s fee contain more expenses, one building may have higher costs for similar expenses, or there are fewer apartments one the building over which to spread the total cost.