What are the Benefits of Buying a Co-op vs. a Condo?
Prospective homebuyers have many decisions to make when acquiring a property. They will have to set a budget, determine their must-have features and amenities, and also go through the process of securing financing. Buyers may also decide whether to purchase a condo or co-op unit. Both units offer different purchasing options and requirements.
What Are the Differences Between Condos and Co-ops?
Condominium and cooperative units are residential spaces in larger buildings. Condos and co-ops look similar and may even have identical features. It would be difficult to differentiate them based on a tour of the apartment. However, these types of units differ in several ways, mainly through their ownership structure.
Buyers who purchase a condo unit become private owners of the residence. Condo owners also own a percentage of common areas on the premise. Co-op buyers become shareholders of a corporation that owns the entire building; they receive a proprietary lease for a unit in the building and the ability to use common areas in the building.
Photo Contribution: RealtyHop Staff
Cost of a Co-op vs. a Condo
Condo units typically have a higher asking price than co-op units. Buyers will also usually purchase title insurance and a mortgage recording tax. However, co-ops usually have higher monthly maintenance fees than condos. Despite their seemingly equal price, co-op owners typically pay less per month than condo owners.
Down Payment
Co-ops typically require a higher down payment than condos. While prospective buyers may secure a condo purchase with a 10-15% down payment, most co-op boards require a 20% down payment. Though this upfront cost can increase the barrier to homeownership for potential buyers, it helps decrease their monthly mortgage payments and ultimately decrease the amount of interest they end up paying on a conventional mortgage.
Property Taxes
Co-op shareholders typically have lower property taxes than condo owners, as they split the cost of their property taxes among all board members. Condo owners pay their taxes individually. However, condo owners can deduct their mortgage interest and property tax payments, potentially saving them money.
Learn more: Understanding New York’s STAR Tax Credit
Maintenance Fees
Co-ops come with higher monthly maintenance and homeownership association (HOA) fees than condos. Some cooperative owners will even pay their utilities as part of their monthly maintenance fees.
Price Comparison
When comparing two units on the same block in Chelsea, buyers can see the different price structure breakdown between co-ops and condos. Take the following two units as an example, which both have an asking price of $675,000:
| Address | 165 W 20th St #5G | 181 7th Ave #4A |
| Property Type | Co-op | Condo |
| Listing Price | $675,000 | $675,000 |
| Maintenance & HOA | $1,238 | $927 |
| Monthly Property Taxes | $0 | $630 |
| Estimated Monthly Payment | $4,552 | $4,871 |
Even though each unit has the same asking price, the co-op unit has a lower anticipated monthly payment. However, the co-op owners will pay more monthly for their maintenance and HOA fees. Condo owners will pay their monthly property taxes, while co-op owners pay their taxes through their other monthly fees.
Learn more: Why are HOA Fees so High in NYC
Board Approval and Rules for Co-ops
Prospective homebuyers who look to purchase co-op units must submit an extensive application for a co-op board approval. Those looking to become a member of a co-op will submit their full financial history and clarify any points of confusion for board members. They will also disclose their job history and include several personal references. Co-op board applications can grow over a hundred pages long, and potential buyers should discuss the board requirements with their real estate agent to ensure they complete the paperwork thoroughly. Buyers should also prepare to attend a co-op board interview, where they’ll present themselves before the board and answer any outstanding questions.
Condo owners will still submit an offer and provide their personal information to sellers but will not disclose as many details in the closing process. Some buyers may opt for a condo purchase as they will not become subject to board approval. A co-op application is a more personal process, while a condo purchase remains a more straightforward business transaction.
Why are Co-op Applications Strict?
Everyone who lives in the co-op building owns a share of the cooperation and provides the with the opportunity to voice their thoughts and opinions on how the cooperation should manage new applicants. Potential members may include copious requests to ensure their new members meet their standards for becoming a member of the community. While difficult to complete, those joining a co-op ideally find a group of like-minded individuals with whom they get along with.
Condos and Co-ops as Passive Income Opportunities
While real estate investors may opt to purchase multi-family units in other areas of the country, many potential buyers will view their co-op or condo purchase as a potential income-generating stream down the line. Property in New York City is expensive, and not every investment-thinking buyer has the opportunity to purchase a multi-million dollar building with several rentable units.
Therefore, buyers may plan to occupy their unit for a period of time, and then rent the unit to tenants in later years. In this case, buyers should note that co-ops typically have stricter rules for their shareholders, which may not permit them to easily sublet or rent their units. Shareholders do not explicitly own a unit in the building but instead receive a lease for an individual unit. Additionally, co-op shareholders submitted a lengthy application and endured a board approval process for their own membership, meaning it can also be difficult to find a qualified tenant that the board approves of living in the unit.
Condo owners maintain sole ownership of their unit and can sublet or rent it out as they see fit.
Should Buyers Choose a Condo or a Co-op?
Condo and co-op transactions both remain popular among homebuyers due to their individual benefits. Someone with a straightforward financial history who plans to occupy their residence for a majority of the time may decide to undergo the lengthy co-op process in exchange for a lower monthly payment. A buyer considering an investment opportunity down the line may opt for a condo purchase to ensure they can rent the unit freely. Buyers should consult with their real estate agents to explore the type of purchase that best fits their needs. Luckily, most neighborhoods across New York City consistently advertise both condo and co-op units.
How to Find Condos and Co-ops
When buyers are ready to begin looking for property, they can use websites like RealtyHop to filter for condos or co-ops in their desired neighborhoods. Buyers can begin their search here:
Conclusion
Condo and co-op units provide different benefits that may cater to one type of buyer over the other. Investors looking to generate rental income from a unit may decide to pursue a condo unit due to a less strict application process and more leeway to rent units to potential tenants. Buyers who seek lower monthly payments and who do not mind the thorough application can find co-op units beneficial. Buyers should consult with their real estate agents to learn more about which options align with their financial goals.
