Choosing to purchase an apartment in New York City can be quite exciting! There will be many decisions that you will need to make including what neighborhood you want to live in as well as what type of property you want to purchase.
While the neighborhood might come down to more personal tastes, when it comes to apartment living, your two main options really boil down to either a condominium or a co-op.
It's important to note that roughly 70% of all buildings in New York City are co-ops.1 But while co-ops retain a substantial portion of the market, most of the new developments being built over the last few decades are condominiums.
Both co-ops and condominiums share a lot of similar traits, however not everything is exactly the same. There are many distinct differences that could sway your choice in either direction, depending on your needs and financial situation.
If you are having trouble choosing between a co-op or condominium, here are the facts you need to know before you commit to making an offer.
A Few Differences Between Co-Ops and Condos
While co-ops and condos may seem similar on the surface, there are many key differences you should understand before making a purchase decision.
You may be surprised to hear that the way ownership is structured varies depending on whether you choose to own a co-op or a condo.
For condominiums, ownership is structured like that of a traditional house. You will receive a deed for your specific unit along with shared interest in communal spaces.
When you purchase a co-op, you are actually purchasing shares in a corporation that owns the entire building.2 In general, the bigger the apartment the more shares you acquire.
For this reason, you technically don’t own your own unit, but rather have exclusive rights to occupy that unit.2 At closing you will sign an agreement with the corporation to occupy the unit you just “bought.”
Costs to Purchase
There are a variety of factors that impact the price of real estate. In general, co-ops in New York City tend to be less expensive than condominiums.
On a macroeconomic level, it makes sense co-ops are less expensive simply because there is a greater supply of them compared to condos. Another reason might be because you have additional costs when buying a condo based on how ownership is structured. Additional costs could include items like title insurance and mortgage taxes.
On the flip side, it can be easier to finance the purchase of a condominium over a co-op. There are often a lot of additional financial requirements and hoops to jump through when you buy a co-op apartment.
Typically, 20-25% of the purchase price is the minimum down payment requirement for a New York City co-op, although some buildings have been known to require up to 50% in more expensive neighborhoods. You also don’t have to pay a flip tax or transfer fee on a condo that may apply when you buy or sell a co-op.
Financing a condominium is much easier namely because there aren’t really any minimum financing requirements. Your down payment can be worked out between you and the seller, under the constraints of any loan program you choose to employ.
- The co-op application process is quite lengthy, and all prospective buyers must submit a detailed board package.
- The board package typically requires purchasers to provide personal and professional reference letters, tax returns, and bank statements. The board also requires an interview. There’s usually no interview required to move into a condo building and the purchase application is simple if any.
Which is a Smarter Investment or Better for a Primary Residence
- The board dictates who you can sell to and if/when you can sublet. Few co-ops allow extensive subletting, preferring a high owner-occupancy.
- Each co-op board has its own set of rules, but in general subletting must be approved by the board, and permission is usually granted for no more than 2 years. In addition, prospective tenants are subject to the same application process as someone wishing to become a shareholder.
- Condos are typically more expensive because they are less restrictive in areas such as the buyers’ finances, renting the apartment and approval to complete renovations.
Most people confuse condominiums and co-ops because they both have common fees or monthly dues you have to pay. These costs are required of all apartment owners that go toward the operation and upkeep of the building’s shared spaces. They can also be used for renovation projects.
The biggest difference is how these monthly fees are calculated. For co-ops, your fees are usually based on how many shares you own in the corporation. This is also how your property tax obligation is calculated.
Keep in mind, for co-ops a large portion of the monthly maintenance fee paid by each shareholder is tax-deductible (i.e., the pro-rata shares of the corporation's real estate taxes) as well as the building's underlying mortgage payment.
For condos, different unit owners could have different expenses, typically tied to the square footage and floor you’re on. You are also required to pay your own real estate taxes independent of your monthly dues.
It’s also important to understand that while there are more co-op buildings in New York City than condominiums, the buildings tend to be older meaning comparatively they have fewer high-end amenities. In either case, the higher the common charges typically the more amenities and services the building will offer.
Key Takeaways: Co-Ops vs Condos
Buying a New York City apartment can be a great investment, however, it's also important to understand the underlying differences between the types of apartments you could purchase.
While co-ops and condominiums can be remarkably similar, they are also extremely different.
While both property types have their own unique set of advantages, there can also be some drawbacks. Often it boils down to price and ownership.
If you are a little bit more budget conscious, a co-op might sound like a better upfront deal.
Co-ops are often cheaper to purchase, but they can have higher monthly expenses when you factor in your share of the building’s property taxes. You also have to be okay with not technically owning your individual unit from a legal perspective.
Conversely, if you are looking for a more modern ownership structure, similar to other property types (like a traditional house), a condominium may be the route to go. Keep in mind that the acquisition costs could be higher. There are also fewer condos in New York City than co-ops, which could make competition an obstacle.
Nevertheless, whether you choose to purchase a co-op or condo for your next New York City apartment, both allow you to live smack dab in the center of one of the greatest cities on Earth.