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NestApple's Real Estate Blog

Featuring real estate articles and information to help real estate buyers and sellers. The Nest features writings from Georges Benoliel and other real estate professionals. Georges is the Co-Founder of NestApple and has been working as an active real estate investor for over a decade.

Condo Vs Coop in NYC: What to buy?

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Real estate 101: before buying or renting in New York, you need to master these concepts. Condo vs co-op in NYC: what to buy? If you’re in the process of buying a home in NYC, it’s essential to understand the pros and cons of purchasing a “Condo” versus owning a “Co-op.” Condo Vs Coop in NYC remains a major topic. There are benefits to each. Our guide will explain the differences between them. We are going to go over the following questions:

  1. What is a co-op?
    • Pros of Co-ops: 
    • Cons of Co-ops:
  2. What is a condominium?
    • Pros of Condos:
    • Cons of Condos:
  3. What are condops?
  4. What is the difference between condo and co-op boards:
  condo vs coop in nyc

1. What is a co-op?

If you buy an apartment in a cooperative building, you won’t own your specific unit. Instead, you’ll own shares of a co-op corporation that owns the building. These shares come with what’s called a proprietary lease. This lease gives you a right to live in the unit. The larger your home, the more shares you own within the corporation. Monthly maintenance fees in coops cover building expenses, including utilities, insurance, and staff. Another difference is that instead of receiving individual tax bills for each unit, the entire cooperative building receives one. To account for this part of the monthly maintenance charges, go towards paying the building’s property taxes. As monthly maintenances include taxes, you’ll typically see higher maintenance charges in coops vs condos vs NYC, albeit this will be a wash when you combine condo maintenance fees and property taxes.

  • Pros of Co-ops:

The most significant benefit of purchasing a coop is that co-ops are somewhat less expensive than their condo counterparts. There are a few reasons for this. To start, they make up about 75 percent of New York’s housing inventory. They also require an additional layer of approval. Coops are more restrictive with who they let in. Co-ops have higher owner-occupancy rates than condos since most co-op boards typically disallow investors. Due to this, conventional wisdom says that there is more stability in a co-op. As a matter of fact, co-op boards rigorously vet potential buyers and have the right to approve or deny each purchase.

  • Cons of Co-ops:

Co-op buyers will endure a more rigid approval process. It includes an in-person interview with the co-op board. After searching for an apartment for months and going through the grueling approval process, a buyer can get rejected for any reason. Foreign buyers typically cannot purchase co-ops. They don’t have the necessary history with U.S. banks. They also generally lack sufficient U.S. credit history. Co-op boards also require higher down payments. Most coops require a minimum of 20% of the purchase price. Some more selective co-ops require even more (up to 50%), while others don’t even allow purchasers to get loans.coop boards in nyc: hard to get passed the interview

Each cooperative property has its own rules. Most tend to be restrictive with regards to how you can use your unit. You will often be limited or forbidden from subletting your apartment. Some co-ops will also disallow use as a pied-à-terre. When you decide to sell your co-op apartment, the extra level of approval can make it more of a hassle to sell the place. You could lose a great buyer due to a board rejection, and you’ll have to go back on the market.

Additionally, most co-ops have what’s called a flip tax, which is due at closing and can range from 1 to 3% of the sale price. This tax beefs up the building’s financials. Keep in mind that even with a high flip tax, co-op closing costs are significantly lower than condo closing costs

  coop_vs_condo nyc: what are the benefits of buying a coop vs a condo

2. What is a condominium?pros and cons of coops

Condos are “real” property. Each condo unit has a deed and an individual tax bill. You own a condo free and clear. Like with a condo anywhere, you are subject to the rules and regulations that the condo board sets.

Monthly common charges cover the condo building’s operating costs while property taxes get billed separately.

  • Pros of Condos:

If you purchase a condo, you own the property as opposed to owning “shares” in a cooperative corporation. This means that you will not be subject to approval by the board or the many highly restrictive rules that are common in co-ops. As you own your condo, instead of being a member of a corporation, the condo board cannot dictate things like the minimum down payment amount, subletting policies, or investor rules. Owning a condo is like owning real estate anywhere else in the U.S. You own it, and you can typically do whatever you want with your property.

However, we recommended that you review the condo declarations and house rules for any condominium building since the fine print can always reveal some interesting information. You can purchase condos as investment properties, and unit owners can freely sublet or lease out their units. As there are fewer to no use restrictions, condos are much easier to sell. They also appeal to foreign buyers.

One thing to note is that most condo boards will disallow any rentals of less than 30 days. Some will even frown upon shorter-term rentals under one year. In some instances, when a condo has too many investors compared to owner-occupants, getting a loan may become more difficult. In the event this happens, the condo boards may try to disallow non-owner occupant buyers.

  • Cons of Condos:

While the incredible flexibility condos allow makes them much more desirable, it also makes them more expensive. Another factor that makes them even more costly is the limited supply and insatiable demand, particularly from foreign buyers who are unable to purchase co-ops, and who all want to own a piece of highly-coveted NYC real estate. Buying a condominium also means higher closing costs. For example, if you get a loan, there will be a mortgage recording tax, something that is not required when you buy a co-op. As there is fewer condo Vs coop in NYC real estate market available, your options may also be limited. 

   

3. Condo Vs Coop in NYC: and what are condops?

condop in nyc: diagram of a condop

Condos and co-ops make up the overwhelming majority of New York City’s residential real estate market. However, it’s also possible that you’ll encounter something a bit different during your home search: a condop. A condop is a co-op that got formed inside of a condo building. Generally speaking, the bottom of the property is typically a single condo unit that houses a mix of commercial and retail space. However, condops operate under condo rules. Above, all of the residential areas are part of a single, giant condo unit in which a co-op is formed.

As a result,  individual apartments can get divided via shares among the owners. The co-op residents in the condop will operate under co-op rules, but the co-op has to abide by the condominium’s rules. That means that both sets of regulations are in effect for condop owners. In general, it’s fair to say that condops function more like co-ops when it comes to the application and approval process. Like co-op owners, condop owners will own shares in the building, while also paying HOA’s that include taxes.

4. Condo Vs Coop in NYC: what is the difference between their condo and co-op boards

“Condo Vs Coop in NYC”: that is the question, as Shakespeare would say. Owning a condo is like owning a house. When buying into a condo, you receive a deed and specified pieces of real estate. On the opposite, when buying into a co-op, you maintain shares of corporations that own the buildings where their units are. Condos are typically more expensive by at least 25%.coop vs condo: pros and cons and condos are more welcoming

Both condo and co-op boards will require buyers to complete and submit a complex financial application after signing a contract, frequently using a REBNY Financial Statement. While both condos and coops will need a board review and approval of any potential purchaser, there are some crucial differences:

  • Co-op boards can deny a prospective purchaser without disclosing their reasons. Should they reject an applicant, the seller will need to put the property back on the market and search for a new buyer.
  • Condo boards have what’s called a “right of first refusal”. While condo boards take advantage of this right and use it as an opportunity to review each’s prospective buyer’s application, they can only exercise their right of first refusal if they have a problem with the sale or the buyer. Even though they can delay the process, they can’t simply reject a purchaser for no good reason.

If you’d like more information on this or want to discuss if a condo Vs coop in NYC is right for you, please contact us at nicole@nestapple.com.



Georges Benoliel Founder of NestApple - NestApple NYC cashback rebate

Georges Benoliel

Georges has been working in Wall Street for the last 16 years trading derivatives with hedge funds. He has been an active real estate investor for over a decade. Georges graduated from HEC Business School in Paris and holds a master in Finance from ESADE Barcelona.