Understanding the Products: (Co-Ops, Condos, Condops, Townhouse)
Buying an apartment in New York City will be an exciting and also daunting experience. Because New York City offers a unique buying experience with many of its own quirks and differences the first step for any New York City first time homebuyer or first time investor is to become well informed and educated about the different real estate products you will be looking at to ensure your experience will be as calm and rewarding as possible.
1. Co-Op:
A phenomenon that’s almost unique to Manhattan, the Co-Op Apartment, has been the traditional form of ownership in New York City for the last century. About 80% of all apartments available for purchase are in co-operative buildings. Co-ops are owned by an apartment corporation. When you purchase within a co-op building, you’re purchasing shares of the corporation that entitle you, as a shareholder, to a “proprietary lease.” The bigger your apartment, the more shares of the corporation you own.
Standard Co-Op apartments:
Board approval is required. You are buying shares of corporation, you are required to put down 20% or more of down payment, there will be a full financial disclosure, debt to income ratio requirement and board interviewing process. Each Co-Op building has their own financial requirements and criteria, some are more flexible than others, such as allowing guarantor, co-purchase, gift money from parents, pied-a-terre, your debt to income ratio, work history, down payment required…
Subleasing a co-op can be difficult. The board of directors will have to approve the prospective tenant subleasing your apartment. Each building will have their own rules regarding for how long you can lease your unit and other criteria.
All prospective purchasers must interview with the Board of Directors. Prior to the interview, prospective purchasers prepare a detailed “Board Package” which usually contains personal and professional letters of recommendation as well as a great deal of personal information concerning income and assets.
Sponsor Co-Op apartments:
NO Board approval is required. These are Apartments that are held as an investment by the sponsor , the original developer who built the building or converted the building to a co-op. Sponsor units command a premium because people who might not pass a board or don’t want to go through a board approval process can buy them.
For example, a sponsor unit would be a good choice for parents who want to buy an apartment for a child who is a student. A sponsor unit may be the best apartment for someone who is not working, or only has a short job history. Buyers of a sponsor unit should take note that they will need to pay NY State and NY City transfer taxes, and often the seller’s attorney fees. You still have to submit a board package (Homeland Security! The management company needs to know who is moving into their building) and you almost always have to abide by the building’s house rules as far as sublet requirements and pets.
2. Condominium:
Unlike Co-ops, you are buying Real Property. You hold title to your apartment unit plus a percentage of the entire project in common with all other owners.
Resale condo apartments:
These apartment units are previously owned. The sellers are individual owners. There is still a monthly common charge similar to the maintenance charge in a co-operative. These charges don’t include your real estate taxes and are not tax deductible. They also tend to be lower than in co-ops because there is no underlying mortgage for a condominium building.
There is no board approval process like a co-op, typically you can finance up to 90% of the purchase price and sublet them at will. Condominiums are the number one choice for flexibility. Because there is more scarcity and flexibility owning a condominium there is a premium paid to own a condominium compared to buying a co-op apartment.
New Development Condo apartments:
These apartments are brand new construction or pre-construction. They are being sold by sales agents of the developer. Buying into new construction has its perks such as being able to pick out the best apartment unit that suits your need, particular floor apartment, or apartment built to your specification if you get in early… Some of the disadvantage of new development would be, uncertain on closing date, not able to know exactly what the apartment looks like, the building management track record, and the possible higher closing cost than resale condo apartments.
3. Condop: Co-Op with Condo rules.
The special hybrid of a Co-Op and a Condo, the Cond-op. When buying into a Cond-op, you are buying shares of corporation, as you would be if you were buying into a standard Co-Op, but the major difference is that the policy and the rules of the building will be Condominium rules. These rules would be unlimited sublet policy, able to resale the apartment unit immediately with no board package and interview, investor friendly, a lot more flexibility.
4. Townhouses:
Townhouses are sometimes bought as hey are non-uniform units in certain neighborhoods or streets in New York City that are designed to mimic detached or semi-detached homes. The distinction between dwellings called just “apartments” or “condos” is that these townhouses usually consist of multiple families, usually multiple floors. The price range of the townhouse is usually higher than single unit of condo or co-op apartments.
Which is Best for YOU?
That really depends on your specific situation and what your goals for purchasing are. If you are looking to buy an investment property and rent it out immediately then a condo or condop would give you the most flexibility. Are you a first time buyer who has fallen in love with prewar apartments with their high ceilings, fireplaces, ornate details, well then a co-op will probably be in your future. Are you looking for privacy, a house in the city, more square footage than in a high rise, looking for an exclusive property, a townhouse might be a good option. What type of property is best for you depends on your personal preferences, your financial situation, your long term goals, and many other important factors. If you have just started thinking about purchasing it may be in your interest to contact a real estate agent for a free consultation regarding what type of property in New York City might be right for you.
