Condo vs. Co-op in NYC: What's Best for You? - YouTube

The topic of condos vs coops in New York City real estate is one of the most debated topics

in the city.

Both condos and coops have different considerations when it comes to the initial purchase, lifestyle

when you're in the property.

as well as the various cause associated with buying and selling.

In this video, we will be talking about specific differences between a condo and a coop both

when you're purchasing, when you're living in the unit and when you're selling.

This is Nick from Hauseit. If you have any questions about today's video or if you have

any ideas for topics give us a shout, you can contact us via email [email protected].

The spelling is down below in the description.

Now back to the topic of condos vs coops.

The most important consideration when you're thinking about what property type to buy in

New York City really comes down to the cost.

The main benefit of buying a coop apartment is in fact the actual purchase price can be

anywhere from 10 to 40% less expensive than what you would pay for a comparable condominium

in New York City.

Now the reason for that is there are many more cooperative buildings in the city, compared to

condos. Therefore the supply demand dynamic dictates that the prices should be lower for coop apartments.

The other reason why coops are less expensive is due to the various rules and restrictions

associated with owning a coop apartment.

Specifically when you purchase a coop, you must submit an application to the Board of

Managers, and the cooperative board has the complete discretion as to whether or not to

approve your purchase.

It's this additional quirk in the purchase process that is not the same thing as you

would have in a condominium and it makes coop slightly less attractive to investors as well

as people who don't necessarily want to go through such an exercise when buying an apartment.

So the buyer base for coops is also smaller.

You don't have investors.

You really only have people to intend on living in New York City for the foreseeable future.

Another reason why coops are less expensive is because they have various rules and additional

cost associated with subletting.

More specifically, the coop has the authority to vet and or approve or deny any perspective

tenant for your coop apartment.

What this means is that it's not necessarily going to be automatically approved if you submit

an application for somebody to rent your apartment.

Furthermore, coops also have outright restrictions on how often you can sublet your apartment.

The most common coop sublet policy in New York City permits subletting for 2 out of

every 5 years usually when the requirement that you initially occupy the unit for at

least 2-3 years.

Coops do exist that permit unlimited subletting and investors do consider purchasing those

types of units but they are far less common and it is much riskier as an investor to purchase

a coop compared to a standard condominium.

Now you maybe thinking so if I buy a condo, I have to pay more money.

What's the benefit?

Well the benefits are numerous.

Number one the condominium board while they will require that you submit an application

in most cases, they cannot reject your offer to purchase the apartment

unless the condo corporation itself actually purchases the unit instead of you at the same

price.

The condo generally also has literally no restrictions on renting.

The condo board cannot reject your applicant for the rental and generally speaking condominiums

have slightly lower fees in few restrictions sorrounding renting as a whole.

While a condo may indeed have restrictions on renting.

They're usually fairly minor and most of the restrictions in condominiums in New York City

are pertaining to the very short term sublets type of activity as you'd expect where the

Airbnb type of operation.

Most condo buildings do prohibit short term sublets anything less than 30 days is usually

prohibited and in some cases for a larger condo buildings there may be outright restrictions

on the lease term, they will not permit anything shorter than 1 year.

So the takeaway is that a coop is a much less flexible form of ownership but it's a

less expensive property.

If your budget is $800k and you need a 2 bedroom, it's more likely going to be a coop.

The other benefit of buying a coop as opposed to a condo is that there are lower buyer closing

cost associated to the purchase of a coop and the reason for this is due to the inherit

ownership structure of a coop vs a condo.

When you purchase a condominium apartment, the form of ownership is akin to what you

would have if you purchase a home or free standing property.

More specifically you have a deed that entitles you as a fee simple owner with the right to use

occupy the property that you've purchase.

With a cooperative your actually going to purchase shares in a private corporation that

owns the building itself and you're also given what's called a Proprietary Lease which

gives you the authority to occupy a specific unit in the coop indefinitely as part of the

ownership.

Now with the coop, it's not considered a real property for the reason we've discussed and

therefore if your financing your purchase, one of the largest buyer closing cost in New

York City which is the Mortgage Recording Tax will not apply to the purchase of a coop.

So that will save you a considerable amount of money on the purchase and it's one of the

other benefit of buying a coop vs a condo.

Buyer closing cost for a coop in New York City are closer to a 2% whereas if you're buying

the exact same apartment, same price everything else and it's a condo and you're financing,

your buyer closing cost will be closer to 4%.

There are many ways for you to reduce the cost of buying and selling in the city.

If you're buying you can request a buyer closing credit whereby you are paired with a buyers

agent who agrees to credit you back some of the commission paid to them by the seller.

Hauseit Buyer Closing Credit, feel free to check that out on the Hauseit website.

The other consideration of buying a coop is one of the initial purchase process.

We did mention that there is a board application during which the coop will vet you, your financials,

your references and make a decision as to whether or not they would like to approve

you as a new owner in their community.

With regard to these requirements many coops do have minimum financial requirements for

buyers which can be quite onerous and do restrict the size of a buyer base for some

apartments.

If you're looking to buy a coop, you'll generally need to have a debt to income ratio of 25% or less.

The minimum downpayment for a coop in New York City is usually at least 20% and there are

rarely such requirements for condominiums.

The third consideration is regarding post closing liquidity.

Most coop buildings will require that you have 1-2 years of mortgage and maintenance in

liquid assets after you close.

If your monthly mortgage payment and coop maintenance combined is $6,000 and the building

requires 1 year of post closing liquidity, you need to have $72,000 in liquid assets

to your name after closing.

Now that is after you pay the downpayment and after you've considered your buyer closing

costs.

There's no such requirement with a condominium and most lenders only require you to have

up to 6 months in post closing liquidity and furthermore lenders are much more flexible as to what

they define to be liquid assets.

They may give you some sort of consideration for 401K, they may give you some sort of weighting

that's helpful in coming up with that 6 months whereas with the coop it's at the board's discretion

what counts and many coop do not permits the inclusion of 401K assets as part of the

post closing liquidity calculation.

So the takeaway as a buyer in the city is that if you're looking for a coop, it's gonna

cost you less money.

Your buyer closing cost are gonna be lower but your financials may need to be much stronger

than what you need them to be if you're looking to buy a condominium and that's due to

the buyer financial requirements such as the minimum down payment of 20%, debt to income

ratio around 25% which is much lower than what lenders will target which is around 40% as

well as the post closing liquidity requirement.

The final consideration when buying a coop and comparing it to a condo is one your seller

closing costs.

Generally speaking, coops will have slightly higher seller closing cost and the reason

for this comes down to the buildings themselves having additional closing costs which are

called flip taxes.

A typical coop in the city may have a flip tax of 2-3% or they could have a per share

amount which will be calculated by multiplying the number of shares assigned to a coop by the

per share amount.

So the takeaway is that again the coop will cost you less money, your buyer closing costs

will be lower but you won't be able to rent it when you want, the building can reject

your application, the building can make it harder for you to sell your apartment in the

future.

And when you sell your closing cost will be higher.

So if you have no constrains in your life, buying a condo is gonna be your best option.

It is a real property, you can rent it out, you can hold onto it.

There are few restrictions associated with your ownership of the property.

We hope this was helpful.

Please do subscribe to the Hauseit YouTube channel.

We promise to post new content regularly.

Leave us a comment if you have any questions, if you had an experience buying or selling

a property in they city we'd love to hear about it.

And please do feel free to contact us with any further questions.