A condominium is real property, like owning a home, in which the owner holds title by deed of an apartment and a percentage of its common areas. Owners pay property taxes to the city and monthly fees in the form of common charges to the Condo Board, which oversees the operation of the Condo. Traditional financing can be obtained for Condo purchases with a 20% down payment in most cases for U.S. residents and a 30% down payment for foreign nationals.
For many, the pros of buying a condo will outweigh the cons. Purchasing a condominium is much more democratic than purchasing a coop, as condos are much less restrictive and open to anybody who has funds to buy one. Generally, condos allow owners to sublease their apartments with few restrictions. In addition, condos allow for foreign ownership, have fewer restrictions, require lower down payments, and are easier than coops to finance. Most condos have been built in the last 30 years and include many amenities that current owners and tenants expect, including fitness centers, swimming pools, lounges, etc. These amenities are not found in most coops. All these features make a condo more marketable, increasing its saleability. NYC condos comprise only 25% of total residential properties for sale in Manhattan. This supply constraint and the desirability of new condos that have many amenities make condos more expensive than coops.
Investors and foreign buyers, therefore, should focus their property searches on condos.
To recap, condos are/have:
- Few restrictions
- Investor friendly
- Easily access financing
- Pro foreign buyers
Coops (or Cooperatives) are buildings owned by corporations that sell shares of stock in a corporation to shareholders in return for long-term proprietary leases. The proprietary lease allows a shareholder to use a particular apartment in the coop building. The larger the apartment, the more shares the shareholder will hold and the higher share of maintenance costs the shareholder will pay. Maintenance charges are paid to the corporation and include all the building expenses, including real estate taxes and mortgage interest if the corporation holds a mortgage on the building. Comparatively, condo buildings are prohibited from obtaining mortgages, so condo HOA fees can never include mortgage interest.
There are many coop pros and cons to buying a co op. First, cooperatives will have a lower purchase price than condos because they are older and they represent 70% of the market. Coops, however, can make up any rules they want and their shareholders must adhere to those rules. Under cooperative ownership, shareholders are generally required to occupy their apartments as their primary residence. In addition, coops have rules sharply limiting or prohibiting subleases, so investors should not be looking at Coops as a viable investment.
One common co op New York rule is the prohibition of foreign ownership. Generally, coops prohibit foreign buyers since it may become impossible to sue a foreign national who has the bulk of their assets and sources of income outside of the United State. Even if the cooperative corporation obtained a judgment against a foreign owner, it would likely be uncollectible if the owner’s assets were sitting 4,000 miles away in another country.
Financing of a Coop requires using a personal loan rather than a mortgage. The cooperative corporation will dictate the amount of purchase price that can be financed, equal to 50% - 75% of the property value. As with a mortgage, interest on the personal loan is deductible for tax purposes. One common feature of coops is a flip tax, generally 2-3% of the sale price of the apartment, paid by the seller to the cooperative corporation upon the sale of an apartment. Potential owners (and tenants, if allowed by the Board) must be interviewed by the Coop Board of Directors and present formal applications to the Board for approval. This process can take months, not weeks, as with a condo. While condos also require an application, buyers and renters are not interviewed by the condo board.
Co op pros and cons include the following:
- Not investor friendly
- Prohibit foreign ownership
- Usually prohibits or limit subleases
- Prefer primary homeownership
The term condop is used in new york city real estate circles as a coop with condo rules. Technically, however, a condop is defined as a residential coop that has sold its ground floor as a commercial unit. In practice, however, the term is used as meaning a coop with condo rules. Under condo rules, condops allow subleases and foreign ownership. Often buildings built on land leases will fall in the Condop category. A building with a land lease requires owners to pay rent on the underlying land over a long period, usually 99 years (like property in London). These leases, in practice, are usually renewed before the land lease expires.
To recap, Condops are/have:
- Few restrictions
- Investor friendly
- Pro foreign buyers
TOWNHOUSES (AND FREE-STANDING HOMES)
Owning a Townhouse, or Brownstone, as some are called, is like owning a single family home. The owner receives title by deed and is the sole party responsible for paying taxes and building maintenance. Many people use the terms of Townhouse and Brownstone interchangeably, however, a Townhouse can be sheathed in red brick, limestone, brown sandstone, or wood, whereas a Brownstone is sheathed in brown sandstone.
A Townhouse is a multi-story dwelling (attached or detached) built close to the street and scaled similarly to surrounding houses. Manhattan has many types of Townhouses including Federal, Greek Revival, Gothic Revival, Italianate, and Second Empire architectural styles of the early- and mid-nineteenth century, as well as the Neo Grec, Romanesque, Renaissance Revival, and American Colonial Revival styles. Townhouses (and Freestanding Homes).
To recap, townhomes:
- No Restrictions
- Investor Friendly
Now, hopefully, you'll now understand the difference between coop and condo buildings, as well as other type of properties available in NYC and Miami.