Condo vs Coop
What are the pros & cons of buying a condo vs coop? What should the buyer be aware of / pay particular attention to in each transaction? I understand that buying into a coop is essentially becoming a shareholder in the building – whereas with a condo you own your apartment outright. Personal experience is…
What are the pros & cons of buying a condo vs coop?
What should the buyer be aware of / pay particular attention to in each transaction?
I understand that buying into a coop is essentially becoming a shareholder in the building – whereas with a condo you own your apartment outright.
Personal experience is much appreciated.
Thanks.
If you’re freelance be very careful and do your research about the coop. Some coops won’t allow any business use of the apartment.
They can be very strict about this.
I previously rented in a coop and, even though my business primarily involved me making phone calls, working on the internet, and going to off-site meetings, the other residents of the building complained that I was getting too many packages delivered – maybe 2 a day via UPS or messenger. It wasn’t in any way disruptive to the coop but they just didn’t like the renter in the building doing anything that could set a precedent.
Didn’t read the other comments – well not yet, but let’s put it this way, you want a condo as a buyer and a coop as an owner. Some of the restrictions and the information you must reveal to a coop board is extensive and intrusive. It is also a job of assembling everything they require. This is not the case with a condo. One upside to a coop is once you are in, you get to see everyone else go through it. (that was supposed to be funny) However when you need to sell or rent, if you choose to or need to move, you lose a lot of time (money) finding someone else who they want to have as their neighbor. There are no such restrictions with a condo. The obvious benefit to a coop though is you get to pick who your neighbors will be. Hopefully the coop board is good at discerning a potential good neighbor from a bad one.
Banks used to shun coops because of their inherent financial structure, but they are now more inclined to finance them over a condo because of the discerning nature of who can and cannot live in the building by the BoM.
To clarify, both condos and co-ops have taxes. Co-op taxes are rolled into the maintenance, condos are part of the mortgage. Two roads to the same place.
Interest rates for co-op mortgages are very slightly higher than for condos because in a co-op the bank is the secondary lien holder behind the co-op association. I.e. Should a co-op owner default, any bills owed to the co-op get paid first, bank gets paid second. No biggie in practice.
Condos may give you more freedom to sublet but that’s a double-edged sword – you may get freedom to rent to whomever you choose, but your neighbor also has the freedom to rent to whomever they choose. Board review can be a good thing.
In Brooklyn, boards are generally easier and more practical – do you have enough money to pay the bills? Do you play the drums or own a dog that barks a lot kinda stuff.
At the end of the day, I focused on the place and didn’t worry about structure. Reserve fund status, pending large projects, assessments are questions you need to ask regardless.
Good luck!
Coop closing costs are lower, I have heard.
I own in a co-op building, and would prefer a condo for the freedom to sublet, ease of sale, etc.
Condos often have lower carrying charges, but you have to pay real estate taxes.
Condos afford you more freedom to make changes to your unit – renovations in a co-op need approval, but condos are much easier sinc eyou own the actual unit.
Established condos can have a “dreaded approval process” as well. The new developments (with no reserve funds) are the condos that do not have any approval process. Co-ops purchased from the sponsor typically do not have an approval process either.
At the end of the day it really doesn’t matter much…..find the apartment that you like the best and go for it.
I’ve only lived in coops so will pass on some advice about them:
On the financial front, look at the building’s reserve fund and get ahold of the board minutes for the last two years. See if there have been any recent maintenance increases, assessments, if any major work is planned and if the reserve fund can cover the cost of the proposed projects. Also, the part of your maintenance that goes towards the interest on the building’s underlying mortgage is tax deductible, so figure that into your calculations.
Read the minutes to get an idea about what issues the building has faced recently – disputes with neighboring buildings, staffing problems, unusual legal expenses?
A competent broker should let you know how hard or easy the co-op approval and interview process is – some buildings are tougher than others, though the buildings that make it into news accounts with ridiculous financial requirements and snotty boards are REALLY the exception rather than the rule. Before we purchased here, we were warned about a persnickety lawyer on the board who wanted potential purchasers to be up-to-date on their financials (none of the “I’m not sure, my accountant prepared that”, he wanted YOU to have the answers yourself). Except for the personal letters of recommendation, both board apps I’ve done have been standard tax and financial stuff.
but important, often overlooked point: no mortgage tax when buying a co-op, but .75-1.25% od loan at closing when buying a condo. (plus property tax included in co-op maintenance).
you’ve got the basics right.
with condos, you purchase from the seller and there’s none of that ‘board approval’ process. generally you’re a little freer to sublet in a condo than a coop, and other rules may be less strict as well (i.e., renovations, use as pied a terre(sp?). you’re also only paying your own mortgage, rather than also contributing to the underlying mortgage of the building. (condo buildings don’t have underlying mortgages.)
with coops, the rules about occupancy are generally stricter, subletting is harder (and usually involves fees), and there’s the dreaded approval process. one advantage to a coop, in theory, is that your neighbors are all shareholders too, and you all act together to set the rules. in practice, however, this depends on the particular coop and how well people get along.