What It Really Means to Buy a Coop In New York City
Hello and congratulations on your decision to buy (or start looking into buying at least) an apartment in New York City or one of its surrounding boroughs.
If you’ve spent any time at all looking at listings, you’ve probably run into some confusing vocabulary. Why are some apartments called cooperatives and some are called condos? What is an HOA? etc. etc.
Cooperatives (or co-ops) are a huge part of buying property in NYC (and honestly probably not anywhere else…). Around 85% of all the units in Manhattan are cooperatives and in some neighborhoods like Greenwich or West Village, that number is more around 95%.
While your day to day probably won’t change much if you live in condo or a co-op, your apartment buying process will vary drastically depending on what type of unit you buy.
Co-ops have a tons of pros! But they also come with a ton of…I suppose we could say…hurdles that make their acquisition more onerous for a would by buyer.
As someone who owns their apartment in Greenwich village, I am almost painfully familiar with all of the ins and outs of co-op ownership.
First of all lets talk about the positives! Co-ops are cheaper! A lot cheaper (25–30%) cheaper than their condo counterparts. Your money goes a lot farther if you’re looking at co-ops (and in NYC, you really need your money to go as far as possible)!
You’ll also save a boatload in taxes! NYC and New York State each have their own mortgage recording fees. Each of them are ~1% of the purchase price of your unit. So if you’re buying an $800,000 unit, you’re going to pay 2% or $12,800 just to record your mortgage! When you buy into a co-op, you don’t actually own any real estate. Rather you own shares in the corporation that is the building (don’t worry this is mostly a technicality! You still own the unit for all intensive purposes). Mortgage recording taxes only apply when a deed is issued. In co-ops there are no deeds for individual apartments so no mortgage recording taxes!
If you want to live in a certain type of building, you’re almost certainly going to need to buy into a co-op. All of those cute, historic, idyllic, cinematic brownstones that line the streets of some of the most iconic neighborhoods in Manhattan are co-ops.
Great, so buying into a co-op can get you a lot more for your money and save you a bunch in taxes. What’s the catch?
Well in order to buy that apartment you’re going to need to jump through hoops — a lot of hoops.
Co-ops have income requirements — they like to see a certain debt to income ratio (usually about 30% or less). This means that after you get a mortgage and start payments, you’re still spending less than 30% of your monthly income to service your debt. Note that this includes any debt you may have, not just your mortgage! This implies that you’re receiving a steady, consistent and unlikely to suddenly change dramatically stream of income. People who are payed on commission — real estate agents for example — would find it extremely difficult to buy into a co-op.
Co-ops also require you to have a ton of liquid (or easily liquidate-able assets) in your possession for at least 3 months before the deal is closed. They want to see enough money to cover the down payment plus two years of mortgage and maintenance fees. This can be a lot! For example, if you’re buying a $500,000 with a $700 maintenance fee and a 6% interest rate, if you finance 80%, you’ll need $174,357 at your disposal.
Co-ops each have their own rules, but they can restrict or allow parents buying for children, gifting, co-purchasing, pied a terres (not living there full time), etc. These rules coupled with their strict income requirements mean that it can be a lot harder for many people to buy into a co-op.
Co-ops also have a board approval processes replete with an interview and an analysis of all of your financial statements. Passing the board interview can be tough (definitely talk to your realtor so you know about the common pitfalls to avoid during an interview)!
But what about condos you may ask? Condos don’t care about any of this. If you drove a dump truck full of money and dropped it all in a pile in front of a developer’s office, they’d hand you the keys to the apartment and wouldn’t ask any questions.
I hope this short explain-er has given you some insight as to what it really means to buy into a co-op in New York City!
*Disclaimer: I am a licensed real estate agent. Please consult your mortgage broker for any mortgage related advice!
