NYCMortgage.com's Guide to Co-ops and Condos.

CO-OPS - Manhattan's Dominant Form of Housing

Co-ops (short for "cooperatives") are apartments buildings owned by a corporation. Technically they are not classed as real estate. Individual tenants do not own their apartments in exactly the same way that they would a single family home, instead they own shares of stock in the corporation. These shares are apportioned based on the size and floor level of their apartment, and ownership is established by a stock certificate and occupancy is governed by a "proprietary lease". The corporation pays all real estate taxes, maintenance expenses, and the underlying mortgage on the building. The amount a shareholder pays towards these expenses is directly related to the number of shares he owns in the corporation.

Coops are by far the most popular and common form of property ownership in Manhattan. There are more than 3 times the number of co-ops vs. condos and they are priced comparatively cheaper than condos.

History of Coops

The idea of going though the coop board approval process in daunting to almost everyone. Co-ops originated in the 1880s, accredited partially to Charles Fourier, a French socialist who argued that cooperation bred efficiency. A French immigrant to New York named Philip Hubert picked up on the idea and built arguably the first co-op, the Hubert Home Club, near the current site of Carnegie Hall.

However, despite their socialist intending origins, coops quickly transformed into a bastion of capitalism and exclusivity.

Todays coops own the entire building, rather than individual apratments. Boards have the right to reject any borrower who they think does not qualify, however they wish to define qualification.

Advantages and Disadvantages

Cooperative ownership offers the same advantage with a few extras:

1. The tenant-owners elect a Board of Directors, whose responsibility is to meet, interview and "approve" or "disapprove" a prospective owner, thereby protecting the present tenants' interest by approving only qualified candidates.

2. Cooperative ownership offers a more stable community environment. Residents tend to stay for longer periods of time, and few co-ops allow extensive subletting, preferring a high owner-occupancy.

3. A large portion of the monthly maintenance fee paid by each shareholder is tax deductible, i.e., the pro-rata share of the corporation's real estate taxes, as well as the building's underlying mortgage payment. There are some disadvantages, however, in purchasing and owning a co-op: 1. The board often requires a large cash down payment. Usually prospective purchasers are required to put 25% down. Some co-ops may require more. Many of the most exclusive buildings permit no financing at all.

2. Most co-ops prefer owners to be occupants; therefore subletting an apartment may be difficult. Each co-op board has its own set of rules, but generally speaking, subletting will have to be approved by the board, and permission is usually granted for no more than 2 years. Some co-ops, however, are more flexible and are known as "easy boards".

3. Owners are normally not allowed to use their apartments for professional or business purposes.

4. Almost all renovations to individual apartments will have to be approved by the board.

5. Owners who wish to sell their apartments will have to have the new buyer approved by the board through the application process.

6. Often co-cops impose a tax on selling called a to compensate the co-op for the inconvenience of someone new moving in. The monies go to the co-cop treasury and often help keep monthly maintenance down.

Despite the disadvantages, cooperative ownership remains a very popular option for residential ownership in Manhattan.

Condominiums

Owning a condominium in New York City is the same as owning one anywhere else. It is a fee simple ownership and the buyer receives a deed in a formal title transfer. Monthly payments to the condominium are called "common charges", and they are used for maintenance and upkeep of the jointly owned areas. Of course, the amount of interest on the owner's personal mortgage is fully tax-deductible. Real Estate taxes are paid directly to the city. New York State Mortgage Transfer tax is due on Condominiums, unlike Co-ops, one of the few disadvantages.

Fee simple ownership gives owners the right to rent their own apartment, a place for some people. Mortgage amounts can be as high as 90% of the sales price if the buyer qualifies. Often there is not a formal application process, so the time from contract signing to closing is usually shorter.

Highlights of Cooperatives (Co-ops)

* The cooperative corporation owns the building and the tenant (unit owner) owns shares of stock (assigned according to size and type of apartment).

* Co-ops are governed by a board of directors (resident shareholders) that determines the requirements for applicants.

* The co-op application process is quite lengthy and may require flexibility in terms of occupancy date.

* Renting in a co-op building is referred to as subleasing. Prospective tenants (subleasors) are subject to the same application process as someone wishing to become a shareholder.

* Applicants must provide financial and social information to the Board of Directors and will also be required to attend a personal interview.

* The Board of Directors may accept or reject applications without furnishing a reason.

* There are both modern and older co-op buildings, however, most prewar buildings are co-ops.

* Cooperative ownership also involves a monthly maintenance fee (for building upkeep), preservation of common areas, staff salaries, etc.) that is based upon the number of shares assigned to a particular owner. The monthly maintenance charge also encompasses an owner's share of building real estate taxes. This portion of the maintenance is tax deductible.

Review of Condominiums

* Condominiums are considered real property.

* Some condominiums require a purchaser to submit detailed financial and social information. A personal interview is usually not required.

* The condominium application process can be quite lengthy and may require flexibility in terms of occupancy date.

* Condominium buildings account for approximately 20% of the total ownership buildings in Manhattan.

* Use of on-site health club and pool is sometime included in the monthly common charges.

* Condominium ownership also involves a monthly fee called Common Charges (for building upkeep, preservation of common areas, staff salaries, etc.) that is based upon the square footage of a particular owner's apartment. Real estate taxes are excluded from the common charges and are paid to the City separately. Real estate taxes, are, however, tax deductible.

*New York State Mortgage Tax is due on these properties.