If you are considering buying a co-op in NYC, you will need to understand the positives and negatives of this ownership structure before beginning your search. Co-ops can be great for some and terrible for others. Nonetheless it’s good to understand how co-ops work because the majority of apartments in NYC are co-ops, roughly 75%. The choice of a co-op vs condo is a personal one.
Pros of Buying a Co-op in NYC
- Co-ops are generally cheaper than condos: In the second quarter of 2018, condos were roughly 50% more expensive than coops on a price per square foot basis.
- Co-ops have lower closings costs: Closing costs for co-ops are much lower than buying a condo in NYC as you are not required to pay the mortgage recording tax or purchase title insurance. Co-op buyers should expect to pay about one to two percent of the purchase price, or two to three if the apartment costs $1,000,000 or greater. You can compare and estimate your potential co-op closing costs with this interactive NYC closing costs calculator for buyers.
- Co-ops have more of a community feel and are better cared for: Co-ops encourage high shareholder occupancy as owners are generally viewed as more likely to take better care of the apartment and building than tenants. With less turnover, there is more of a sense of community and residents tend to get to know their neighbors.
Cons of Buying a Co-op in NYC
- Co-op board application process can be daunting: NYC co-ops have a more difficult board application and review process for buyers. Because the board application process is more difficult to buy and sell a co-op this partly accounts for the discount in the price of co-ops versus condos. Rejections of co-op buyer applications occur significantly more frequently than condos.
- Co-ops have higher monthly maintenance charges: Monthly maintenance, or the equivalent of a condo’s common charges and taxes, are generally higher than the monthly common charges and taxes of a condo.
- Co-ops can be difficult to sublet: Many co-ops require you to live in the apartment for two years before being allowed to sublet. Should you sublet, many co-ops charge an additional fee, require board approval of the person subletting the apartment, and there can be restrictions or caps on the number of years you are allowed to sublet during the period of your ownership.
- Financial requirements of post-close liquidity: When buying in a co-op you will need more cash post-closing than when buying a condo. A good rule of thumb when buying a co-op in NYC is to have two years of maintenance plus mortgage payments as financial reserves (often referred to as post-close liquidity). To calculate reserves, include cash and marketable securities (stocks and bonds) that can quickly be converted to cash. Generally other real estate and retirements accounts are not counted. To learn more about how much cash you’ll need when buying a co-op in NYC, read Prevu's recent blog post “How Much Cash Do I Need to Buy a Co-op in NYC?”.
- Potentially higher down payment: Many NYC co-ops allow for 20% or 25% down, while some expect 30% or more down at closing. While this might be good for the financial qualifications of residents in the building, it can also restrict the number of potential buyers who can afford to buy in your building - thus negatively affecting demand when it comes time for re-sale.
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