Determine the Type of Property to Buy
Condo vs Coop
Before beginning the property search, the buyer should understand the different types of property that are available for sale. In Manhattan, there are four property types: Cooperatives (Coops), Condominiums (Condos), Townhouses (or Brownstones) and Condops. In Miami, there are two property types: Condos and Free-Standing Homes. Manhattan residential real estate is comprised of approximately 25% Condos, 70% Coops and 5% Condops and Townhouses
A Condominium is real property, similar to owning a home. The owner of a Condo holds title by deed of the apartment and a percentage of the building’s common areas. Owning a Condominium is much more democratic than owning a Coop, as Condos are much less restrictive than Coops. Generally, Condos allow subleases with few restrictions, as well as foreign ownership. Investors and foreign buyers, therefore, should focus their property searches on Condos. Owners pay property taxes to the city and common charges to the Condo Board, which oversees the operation of the Condo. Traditional financing can be obtained for Condo purchases with only a 20% down payment in most cases for U.S. residents and a 40% down payment for foreign nationals. The few restrictions, low down payment requirements, and easy access to financing increase the marketability/saleability of Condos. Due to supply constraints (i.e., only 25% of the inventory is Condo), high demand, and a high degree of marketability, Condos are generally more expensive than Coops.
Coops (or Cooperatives) are buildings owned by corporations that sell shares of stock in the 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 of the building expenses, including property taxes and mortgage interest if the corporation holds a mortgage on the building. Condo buildings are prohibited from obtaining mortgages, so Condo common charges do not include mortgage interest. Generally, Coops can make up any rules they want and their shareholders are required to adhere to these rules. Most Coops require shareholders to occupy their apartments as their primary residence. Most Coops also have rules sharply limiting or prohibiting subleases, so investors should not be looking at Coops as a viable investment. One common Coop rule is the prohibition of foreign ownership. Generally, Coops prohibit foreign buyers since it is very difficult to successfully sue a foreign national that has the bulk of their assets and source of income outside of the U.S. Even if the corporation obtained a judgment against a foreign owner, it would likely be unenforceable if the owner’s assets were sitting in another country 4,000 miles away. Financing of a Coop requires the use of a personal loan rather than a mortgage. The corporation dictates the amount that can be financed, generally between 50% and 75% of the value of the property. Like that of 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, which is paid by the seller to the Coop upon selling their apartment. Potential owners (and tenants, if allowed) must be interviewed by the Coop Board and present formal applications to be approved by the Board. This process can take months, not weeks. While Condos require an application, buyers and renters are not interviewed.
These are the main differences between a condo vs a coop.
A Condop is touted in the real estate industry as essentially a Coop with Condo rules, usually allowing subleases and foreign buyers. Technically, however, a Condop is defined as a residential Coop that has sold its ground floor as a Condominium, but the term is used in practice as meaning a Coop with Condo rules. Often, one will find that buildings that were built on land leases are Condops rather than Condos. A building with a land lease requires owners to pay rent on the land over a long period of time, usually 99 years. These leases, in practice, are usually renewed before the land lease expires.
Townhouses (and Free-Standing Homes)
Buying a Townhouse, or Brownstone, as some are called, is similar to buying a free-standing house. The owner receives “fee simple” ownership in the property and is the sole party responsible for paying property taxes and maintenance costs. To learn more about buying a Townhouse, see the New York City Townhouse and Brownstone page. THE NEXT STEP IS THE PROPERTY SEARCH.