Possessing some of the most expensive real estate in the world, New York City has a robust housing market. If you’re ready to buy a home, you will notice that most New York City apartments fall under the category of co-ops and condos. Consider this a comprehensive guide to the pros and cons of each type of home.
Co-Op vs. Condo
What is a co-op? When you buy a co-op, you are not purchasing a piece of real estate, but a small share of a corporation (the co-op) that owns the building. Your number of shares correlates to the size of your unit.
Alternately, a condo is a private residence. When you purchase a condo, you own your individual apartment and jointly own common areas like hallways and elevators. A condo owner has more freedom and flexibility than a co-op, which typically has a stringent approval process and homeowner restrictions.
Price Point
Many home buyers wonder whether a condo or a co-op is a better value. Condos typically have higher price tags, as they constitute traditional real estate and often have more amenities than a co-op. If you purchase a condo as an investment, you can immediately rent it out for income. Additionally, condos often appeal to foreign buyers with extensive funds.
Co-ops may be cheaper, but they also involve a sometimes lengthy and complicated approval process. Some require owners to live in the residence for a year or more before renting it out as an investment, and many have strict regulations regarding subletting.
The price difference between condos and co-ops also reflects their average size. For example, a two-bedroom condo is on average larger than a two-bedroom co-op. Accounting for additional square footage, real estate specialists estimate that condos cost about 10 percent more than comparable co-ops.
Availability
As many as 75 percent of the residential properties in New York City are co-ops, according to some estimates. In the 1980s, developers converted numerous condos into co-ops, and the numbers remain uneven. This means that buyers open to co-op living will have many more options than those seeking a condo, particularly in less developed neighborhoods.
Currently, no new co-ops are being built, and conversions are not common. Condo development, on the other hand, is rapidly accelerating, resulting in an excess of New York City condos. You will typically find condos in more modern buildings, while co-ops almost never occupy new developments.
New Construction
If you are looking for a new build, a condo is a better option. Because they are usually newer, condos often have a higher price tag, even for a unit of similar size and quality, a condo will often fetch a higher price.
Amenities
Condos generally have more amenities than co-ops. Increasingly, home buyers expect perks such as a fitness center, basketball court, or roof deck, which are often found only in newer buildings. Among luxury buyers, desired amenities might even include a pet spa or high-end restaurant. While some co-ops have this same level of “white glove” service (think luxurious co-ops on Manhattan’s Park Avenue), they tend to fall behind condos as far as amenities go. Some co-ops aim to add amenities to keep up with demand, but often the older buildings lack the space or capacity to install things like gyms or roof decks.
Approval Process
Buying a unit in a New York City co-op is not as simple as purchasing a condo. The co-op board must approve all new buyers in a complex and potentially lengthy process. Co-op restrictions not only govern who can buy a unit in the building but also how much financing buyers can receive. Approval requires an interview with board members, who are entitled to ask personal questions and may reject a potential buyer for numerous reasons. The entire process can take anywhere from two to four months.
The process of buying a condo is far simpler. Condo boards have the right of first refusal after obtaining an application for purchase. The condo buyer must either sign a waiver allowing the transaction to proceed or buy the for-sale property at the contract price.
Subletting
Most condos have a flexible subletting policy. Some have one-year minimum rental rules, but others leave subletting to the discretion of the buyer. Many investors acquire condos to immediately rent out, which makes them an ideal choice.
Conversely, most co-ops strictly regulate subletting, requiring owners to live in the unit for a minimum period before renting it out. If subletting is allowed, the co-op might have limits about what percentage of a five-year time frame the unit can be rented. Some co-ops outright forbid subletting.
Closing Costs
A condo is real estate, which means it requires fees like mortgage taxes and title insurance, making the purchase price higher. A co-op purchase equates to buying shares of a building, so it is not subject to the same fees.
Down Payment Requirements
Co-ops often require a 20 percent down payment, as well as substantial savings. Some might try to screen buyers based on income, requiring a down payment of 40 percent or even prohibiting any financing. Beyond a down payment, co-op buyers need a debt-to-income ratio above a certain threshold. This assures the co-op board that your monthly income can support your loan payment.
Individual condo buildings might demand a large down payment, though it is less of an industry standard than for co-ops.
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