Co-ops vs Condos - Which is Better?

The New York City residential real estate market is so unique that one of our main types of home ownership doesn’t even exist in most of the country – co-ops. Before you can choose a home, you need to know what a co-op is and how it differs from a condo. Some people say co-ops are too restrictive and condos are the better choice, but are they right?

The Basics

CONDOS:

When you buy a condominium (condo) you buy Real Property, just as you would when you buy a house. You own the square footage of the apartment and a percentage of the common areas of the building and owned land and receive a deed. 15-25% of the apartments for sale in New York City are condos.

CO-OPS:

When you purchase a cooperative apartment (co-op), you are purchasing shares in a corporation that owns the building and either owns or leases the land. You receive a stock certificate for your shares and a Proprietary Lease which gives you exclusive rights to use the apartment. About 75-85% of the apartments for sale in New York City are co-ops, including virtually all buildings built before the 1980s.

Purchasing & Finances

CONDOS:

The purchase of a condo is similar to the process of buying a house and less complex than a co-op. They tend to have higher purchase prices than co-ops, but often allow lower down payments, and they don’t require board approval. Condo boards do have Right of First Refusal, which means they can choose to purchase the condo for the contract price instead of allowing the purchase to go through. However, this rarely comes up. In most cases, if you have the cash or can get a mortgage, you can buy the condo.

CO-OPS:

Co-op purchases are subject to the cooperative’s Board of Directors’ approval, which can add several weeks to the purchase timeline. You need to fill out an application and provide all your financial information and several business and professional references.

Co-op boards are fiduciaries, which mean they are legally required to act in the best interests of the corporation, not themselves. They have a responsibility to ensure that all buyers can afford the ownership costs of the unit and will be good neighbors. Boards often require down payments of 20% or more, a debt to income ratio of under 30%-35%, and want to see 12-36 months’ worth of mortgage and maintenance payments in the buyer’s bank accounts after closing. That’s called Post Closing Liquidity. High end co-ops tend to have higher requirements than less fancy buildings.

Owning & Living

Condos:

Condos offer a lot of freedom. There are fewer rules about how you can use the property. You can usually rent them out right away and to whomever you want, so they are a good choice for investors.

Co-ops

The co-op board sets house rules that dictate how apartments and common spaces can be used. This usually includes limitations on renting it out, which would be considered a sublet because co-op shareholders have Proprietary Leases. They can set any rules they want, but a typical scenario would be allowing 2 years of subletting after living in the unit for 2 years. There are usually more rules that you have to follow in a co-op, but the same is true for your neighbors, which makes Co-ops great if you are looking to live in the home, instead of renting it out.

TLDR - Bottom Line

There are a lot more co-ops in NYC than condos. All things being equal, condos will generally have a higher purchase price, but you may need to have more cash on hand to buy a co-op. If flexibility in renting the unit is most important to you, a condo may be your best option, but if you are looking for a place to live with a sense of community, a co-op might be the perfect fit.

Every situation is different. If you’re not sure if a condo or a co-op is right for you, set up a call with me to discuss your situation and I can explain your options.