First Things First

Co-op vs Condo really depends on your personal situation and goals. Here are the questions you will need to ask yourself to help you get your answer:

• Are you buying as your primary residence or are you an investor?
• What is your budget and what apartment size are you looking for?
• How long do you plan on living there?
• How much cash do you have available to deploy for down payment and reserves?
• Are you looking for a newer apartment or do you prefer the pre-war charm?
• How soon are you looking to move?

What is a Co-op?

A co-op, or co-operative, is not very typical outside of New York, which is the reason why so many buyers tend to get confused with this type of ownership structure. About 75% of apartments in NYC are co-ops, comprising the majority of available inventory, so any prospective buyer really needs to know the fundamental differences between the two options.

Rather than purchasing the unit itself, you are buying shares in the corporation that owns the building. It is important to note that this is NOT real property in the eyes of the law. Instead of a title deed, you receive a stock certificate and a proprietary lease granting you the exclusive right to occupy your unit. You become a shareholder in a tight-knit corporate community, gaining access to shared amenities while the corporation handles exterior upkeep and maintenance.

Key Differences

Average Age

Most NYC co-ops are pre-war, averaging about 70-100+ years old. The average age of a condo is 20-40 years old and includes brand new developments with sprawling lifestyle amenities and updated appliances/features.

Price

Cooperative units are about 10-30% cheaper than condos of the same size, making it easier for first-time homebuyers or prospective buyers looking to maximize square footage for their price point.

Liquidity

Co-ops typically require a minimum down payment of 20%, with some asking for 50% while others do not allow financing altogether. Condos have a much lower barrier to entry, typically around 10%, with even 5% possible in some cases.

Sublet Rules

Pied-à-terres are uncommon in cooperative buildings, which tend to enforce strict sublet rules where you can typically rent out your co-op for 2-3 years only after having lived in it as your primary residence for at least a couple of years. This makes them less investor-friendly than condominiums.

Financials

Co-ops are much more intrusive with your financials. When buying a condo, the bank does not care if you have drained your last penny to close on your purchase. In contrast, a co-op will want to know where your down payment money is coming from, may not allow gifting of your down payment from family members or others, co-purchasing with parents or parents buying for their children. They will also meticulously examine your DTI or Debt to Income ratio to make sure that you are not overstretching your budget. While condos will typically allow up to 50% DTI, most boards look for about 25% (with some more lenient board allowing 35%).

Co-ops will also care about your post-closing liquidity, that is, how much money you have left over after you buy the co-op. A lot of them will need to see enough cash reserves to support your monthly payments (mortgage and maintenance) for two years. For example, if the monthly mortgage and maintenance for a condo is $4,000, you would need to have an additional $96,000 in the bank to have the required post-closing liquidity. And that is AFTER your down payment and closing costs (which can range between 2-6% of the purchase price).

Board Interview

The board (who typically lives in the building) will also want to meet you (and your pets!) in person to make sure that you are a “good fit” for the building and to ensure you will be a considerate neighbor who will respect the house rules, not cause trouble and maintain low noise levels.

Be prepared for a very invasive interview! In some buildings, the board meets once a month, which can add a few weeks to the purchase process. The benefit here is that all your neighbors will have been vetted by the board, the building will be less transient with higher owner occupancy than condos and have more of a sense of community. There are no board interviews for condos, which expedites the process substantially.

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In summary, choosing between these two ownership types is a major decision that depends entirely on your circumstances. Rutledge & Co. Real Estate specializes in helping you navigate exactly this — feel free to reach out and we’d be happy to help get you started!