CO OP VS CONDO

DETERMINE THE TYPE OF PROPERTY TO BUY
 

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Before beginning a property search, buyers should understand the different types of property that are available for sale in their market. For instance, Manhattan has four unique property types, including: cooperatives (co ops), condominiums (condos), townhouses (or brownstones) and condops. Manhattan real estate is composed of approximately 25% condos, 70% coops and 5% condops and townhouses. In Miami, there are only two property types: condos and free-standing homes. A good real estate agent will know all the pros and cons about buying a condo, coop, condop or free-standing home.  

CONDOS

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 unit 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.

Another big selling point for Manhattan Condos are the tax deductions that some of them offers like the 421G and 421A tax abatement. In the 70’s, the city launched a program to incentive developers to build on vacant lots while receiving 10 year exemption on paying taxes. Homebuyers and investors who bought units in a condo with tax abatement would also benefit  from these 10 year tax breaks. Recently we saw the return of these tax abatements on a handful of Manhattan condos and you can learn more on the blog below:

“The Return and Demise of the 20 Year Tax Abatement in The Manhattan Condo Market”

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

 

Manhattan Condos For Sale

 

COOPS

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:

  • Restrictive

  • Not investor friendly

  • Prohibit foreign ownership

  • Usually prohibits or limit subleases

  • Prefer primary homeownership


CONDOPS

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, a Condop building 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 Town house 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

 

NYC Townhouses

 

The Return of the Single Family Mansion

Investors are buying up apartment buildings in NYC and converting them back into single-family homes. Manhattan townhouse NYC sales, in particular, are becoming increasingly popular. In the last three years more single to triple family units have been bought than in the previous three years combined. But why is this happening? It appears that luxury real estate changing hands amongst wealthy investors is more profitable than dealing with smaller sales from the ordinary homeowner, who is buying property for completely different reasons.

Long-term buyers are finding it so difficult to find a single-family home in Manhattan that they are creating their own. Ironically, many of these townhouses were initially single-family homes to begin with. Now, buyers are investing millions to renovate and re-build them back to their original layouts from their current multi-family state. This often involves redoing the plumbing, wiring and tearing out walls placed in after the fact.

Manhattan realtors estimate that the average complete townhouse in the Upper West Side costs approximately $10 million. Renovations to revert the building to its initial layout can set them back an additional $3 million to $5 million.

On the flip side, multi-family rentals are becoming more popular in the city. The post 2008 employment environment is still uncertain, meaning that more and more people are renting, sometimes with several other families. It is not the ideal scenario for an owner. With every new member on the contract, the odds of rent being missed, or problems arising increases. In light of a tenuous rental market, the idea of renting out individual units in one’s townhouse becomes less appealing, perhaps indicating why more owners are opting to convert multi-family townhouses into single dwellings, and catering exclusively to the luxury market in Manhattan, as opposed to the general population.

It is one thing to own a residence for your family to put down roots, and another to analyze the current status of the housing market in terms of the rental potential and ease of resale down the road. With multi-family rentals becoming more popular, it looks like the renovations to convert to a single-family home may be well worth the investment.


 

Now, hopefully, you'll now understand the difference between co op vs condo buildings, as well as other type of properties available in NYC and Miami.

 

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