co-op vs. condo: understanding Property types in new york city

It’s an exciting moment when you decide to stop renting and buy a home. Congrats! To help narrow your search and find the right option, it’s important to understand the property types.

When it comes to housing options in New York City, two terms that often surface are co-ops and condos. While both refer to residential properties, they have distinct ownership structures and legal frameworks. Understanding the differences between co-ops and condos is crucial for those looking to buy property in the city. In this blog post, I will delve into the key contrasts between these two types of housing, shedding light on their ownership structures, financial considerations, and governance.

Ownership Structure:

The primary difference between co-ops and condos lies in the ownership structure. In a co-op (short for cooperative), buyers do not purchase a specific unit but instead become shareholders in a corporation that owns the entire building. As shareholders, they are granted proprietary leases, entitling them to occupy a specific unit within the building. Conversely, condos (short for condominiums) offer individual ownership of a specific unit within a larger building or complex. Condo owners have a deed to their unit and jointly own common areas, such as lobbies or gyms, through a condo association.

Financial Considerations:

Financing options and affordability vary significantly between co-ops and condos. When purchasing a co-op, buyers typically need to undergo a thorough application process, including financial requirements and board approval. Co-ops often have stricter financial requirements, requiring buyers to meet specific income thresholds, have substantial reserves, and pay a larger amount as a down payment.

Standard requirements are:

20% Down Payment | < 28% Debt-To-Income ration | 18-24 Months of Post Closing Liquidity (Cash Reserves)

In contrast, condo purchases are generally more straightforward, with less stringent financial criteria - usually 10% Down Payment. Condos also tend to have higher purchase prices compared to co-ops, but they offer more flexibility when it comes to financing.

Governance and Control:

Another key distinction between co-ops and condos pertains to governance and control. Co-op buildings are typically governed by a board of directors elected by shareholders. The board has the authority to set rules, establish policies, and approve or reject potential buyers and renters. This arrangement grants co-op shareholders more control over the management and direction of the building.

In condos, individual unit owners are members of the condo association and have voting rights in matters affecting the common areas. However, the association is primarily responsible for the overall management, decision-making, and maintenance of shared spaces.

Subletting:

Most co-ops have strict rules surrounding subletting. You’ll typically see subletting rules allowing owners to rent their apartment with board approval for 2 out of every 5 years they live there. Some allow unlimited subletting and others don’t allow it at all. Condos allow unlimited subletting which makes them more investor friendly.

Monthly Costs and Expenses:

Monthly costs and expenses associated with co-ops and condos also differ. In co-ops, shareholders pay a monthly maintenance fee, which covers the building's operating expenses, such as property taxes, utilities, staff salaries, and maintenance. Additionally, a portion of the maintenance fee is allocated to the building's reserve fund for future repairs and capital improvements. Condo owners, on the other hand, pay a monthly fee known as a common charge. This charge covers similar expenses, but it also includes the owner's share of the building's mortgage, if any. Generally, co-op maintenance fees tend to be higher than condo common charges due to the broader range of costs covered.

Co-op or Condo?:

The Choice is yours depending on your financial situation and reason for purchasing. There are twice as many co-ops than condos in NYC so most of my buyers are in co-op buildings. When we’re finding you the right place, I make sure the building will be the right fit based on your criteria. Between myself and my team of 15, we’ve bought or sold in most buildings and know the co-op boards which helps for a smooth transaction. If you have any additional questions please reach out any time.