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Buying in an NYC Co-Op
When you buy a co-op, you are purchasing shares of the corporation that owns the entire building. Instead of a title of ownership, you get a “stock and lease” which is your proprietary lease that enables you to live in a unit.
Because you are in essence going into business with the other shareholders, Co-ops require that you provide a 360-degree view of your finances along with reference letters from business associates and personal friends. These requirements are then submitted in the form of a “board Application” which goes to the elected members of the co-op board for review. Every co-op is different, but primary considerations include a buyers post purchase liquidity and debt to income ratio. The final piece is always an in-person interview with the co-op board.
There are many upsides to owning in a co-op that make going through this process well worth it! Some of these include typically lower closing costs than for a comparable condo, and the fact that many of the repair costs that can arise during home ownership are covered by the co-op or are shared with fellow shareholders
Additionally, in co-ops the “maintenance" (aka HOA fee) includes the cost of maintaining and operating the building, property taxes. Lastly, and very importantly, some of the most desirable properties in NYC are coops including most of the grand pre-war apartment buildings and loft buildings that offer more substantial room sizes and higher ceilings.
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Buying in an NYC Condo
While the condo application resembles that for a coop in that it requires submission of a purchase application with an array of personal and financial information, the condominium only has the right of first refusal versus the unilateral right to accept or reject an applicant as a cooperative has. This means that if a condo board were to reject an applicant for purchase or rent, the board would have to match the offer and purchase (or rent) the unit. Practically speaking, this happens very rarely making it a “pin-hole” risk. As a buyer, the process for purchasing a condo versus a coop thus is more transparent and less risky. Additionally, in most cases there is no board interview required.
While condominiums operate with their own policies and rules, they are generally more permissive than coops with respect to subletting and financing making them more attractive and thus more liquid investments. Condos are considered “investor-friendly” because an owner can rent their unit immediately. These factors contribute to the “condo premium” meaning that condos tend to cost more and appreciate more quickly due to the easier process of buying and freedom during ownership. Additionally, virtually all of the newly constructed buildings over the past 20-plus years are condominiums, and many are targeted to the high-end of the market with high end finishes, services and amenities.
It is important to note that if you purchase a condo directly from a developer in a “new development” building, there is no application process at all. If paying all cash, you can close within 2-3 weeks or if financing, as soon as your loan funds, if the building is complete. It’s the easiest process, but can also come with the most risk depending on when in the development cycle you purchase.
