Co-op vs Condo
What is a difference between Co-op vs Condo?
New York City is unique in that so much of the housing stock here is in the form of co-operative apartments, or co-ops. In this blog, I want to walk through the advantages and disadvantages of a co-op versus a condo by explaining the different types of ownership.
It is usually easier to purchase a condominium than a cooperative. Cooperatives require purchasers to be interviewed and they can legally reject a buyer without providing a reason. Cooperative boards also ask for extensive personal and financial information and do not cater to non-resident owners.
Typically, condominiums have an easier review process which involves the condominium board waiving their right of first refusal to buy the apartment. Additionally, condominiums allow purchasers to buy in the form of a trust, domestic LLC or a foreign corporation. All three vehicles can provide liability protection and tax planning advantages to a foreign buyer.
What is a CONDO?
A condominium is real property — a form of ownership, in which the owner has a separate unit, but the owners of all the units have joint ownership of their common areas. Those areas could include the building’s lobby, elevators, garden, roof terrace, residents’ lounge, health club and other amenities. A condominium association (usually with a name like “Main Street Condominium Association”) runs the building, often by hiring a professional property manager as its managing agent.
What is a CO-OP?
A co-op, by contrast, is a building or buildings owned by a corporation (usually with a name like “1111 West 100th Street Owners Corp.”) and owners are actually stockholders in the corporation rather than unit owners. Along with your shares of stock in a co-op, you would get a special type of lease, known as a proprietary lease, that will allow you to reside in your unit as a long-term tenant. Share allocation is determined when the building converts to a co-op, so it can vary by building. Generally, a larger apartment in a building will be allocated more shares than a smaller one and a higher-floor apartment will be allocated more shares than a lower-floor one.
Typically, co-op application process is more complex than the condo. Often a personal interview is required and a co-op board does not need to give a reason if it turns down a potential buyer. But good news is, co-op buildings tend to be cheaper than condos. Financing a purchase in a co-op can be tougher than financing a purchase in a condo.
Common charges and maintenance fees
Once you own the property, you’ll find that you’ll end up paying common charges (to maintain the common areas in your condo) or maintenance fees (to maintain the building in your co-op). Co-op maintenance also includes payment of your share of the building’s underlying property taxes, while in a condo, those are paid separately to the city.
Generally condos are seen as more friendly to subletting. In the past, that has been seen by buyers as an advantage — as a lure to investors or as an “escape hatch” in case the buyer outgrew her apartment but didn’t want to sell immediately. However, with the rise of short-term rental companies, co-ops’ restrictions on subletting are sometimes seen as a positive: If you live in a co-op, you are more likely to see the same neighbors every day.
In addition, co-op have lower closing costs than condominiums. If a condo buyer finances his purchase, he will get a mortgage and be subject to mortgage recording tax, which is currently 1.925 percent of the loan amount for loans over $500,000. Co-op buyers don’t get a mortgage, so they don’t pay a tax. Instead, they get what is technically known as a “share loan” with their shares of stock and proprietary lease as collateral. A condo buyer will also end up paying a few hundred dollars for a recording fee and possibly several thousand dollars in title insurance.