What is a Co-op & Is It Right For Me?

A: If you are looking for more space for your dollar, if you are a first time homebuyer who barely has enough to cover down payment + closing costs, and if you want to put your money into renovations and not closing costs, then YES, buying a co-op is right for you.

A lot of people will tell you, "...never buy a co-op", simply because of the restrictions that the co-op board may place on its shareholders. "A Headache" is another common term that people use to describe some boards of co-ops.

However, in my humble opinion, this is a statement usually made by someone who has significant assets to his/her name, thereby affording them the luxury of buying a higher priced condominum.

Co-ops, short for Cooperative, are basically private companies whose buildings' residents own stock in the corporation, rather than real property. When you buy a co-op in NYC, you are NOT given a title but rather given a stock certificate stating how many shares of stock you are purchasing from the existing homeowner. A propietary lease is then drawn up, giving the purchaser the exclusive right to live in the apartment. The formula for deriving how many shares you wind up purchasing depends largely on the total square footage of the apartment you plan to purchase, with minor emphasis on floor, view, outdoor space, and sunlight.

There are pros and cons to buying a co-op when compared to buying a condo in NYC. They are:

PROS
Lower Closing Costs Than Condos
More Affordable Than Condos
More Space For Your Dollar

CONS
Tedious Board Approval Process
Tougher Restrictions on Subletting
Tougher Restrictions on Pied-e-Terres
Tougher Restrictions on Co-Purchasing & Parents Buying For Children
Tougher Renovations Restrictions
Tougher Pet Restrictions

While I understand why Condo owners prefer to stick with a condiminium as their next purchase, lets take into account the first time homebuyer and the overall NYC housing market.

For the first time homebuyer, buying a co-op is going to be less expensive with much lower transaction costs at closing. A good example would be to compare closing costs of a $500K Co-op vs. Condo:

500K Co-op Closing Costs
Aprox. $7,000-$12,000

500K Condo Closing Costs
Aprox. $22,000-$25,000

Now, as far as the state of the current housing market and its future, it can be debated that co-ops are more protected in a down market than condos because of the lack of speculation in the co-op market. Co-ops have a very tedious board approvals process, with many boards being extra strict on who they let into their building. As a private company, they can reject whom they please within the law. Condos, on the other hand, have a RIGHT TO FIRST REFUSAL system for passing the board. Quite simply, once your past criminal record is reported as clean, you are approved to purchase the apartment; if rejected, the Condo must buy the apartment from its reserve fund.

So, the fact that co-ops are more cautious to who buys in their building, and speculators generally only buy the condo marke, co-op homeowners are less likely to be forced to sell in a down market.

If you are looking to buy real estate in NYC for the first time, and you just barely have enough to afford a down payment + closing costs, then a co-op is for you! Dont listen to the bad press co-ops may get, or to your friends who tell you only to buy a condo. Rather, focus on location, raw space, low monthlys and STAYING WITHIN IN YOUR BUDGET as the main factors. After all, the building you buy in may have a very easy board that allows subletting and parents buying for children. If this is the case, than it will be that much easier for you to sell, when the time is right!

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