So, what does buying a co-op actually mean?
We’ll demystify this topic in the following video.
My name is Nick, I'm at Hauseit here in New York City.
We are a reduced commission platform for buyers and sellers established in 2014.
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Now let's get started.
So, what does buying a co-op actually mean?
Well in layman's terms, buying a co-op simply means that you're buying an apartment.
There are two types of apartments to buy in the city of New York: one is a condo and one
is a co-op.
Now the majority of apartments in New York City are co-ops and that's just because there's
a greater supply.
Now the main difference between buying a condo and a co-op comes down to the underlying ownership
structure of the apartment.
When you buy a condominium, you're buying real property.
It's the same as buying a house or a piece of land.
You receive a deed for your particular apartment and you own that property outright considered
to be real property.
Now buying a co-op on the other end is not real property.
In fact, it's considered personal property and technically when you buy a co-op, you’re
actually buying shares in a private corporation that owns the cooperative building.
When you buy a co-op, you receive a co-op stock certificate as well as a proprietary
lease which entitles you to live in the particular apartment that you've purchased.
Aside from the technicalities of the ownership structure between condos and co-ops, the main
difference between a condo and a co-op comes down ultimately to two things.
One of which is the purchase application process.
In a co-op you can be rejected by the building and that is a real risk.
Now with a condo there is no such risk in the sense that the condominium cannot reject
your application to buy the apartment unless they themselves agree to buy the apartment
at the same price as you've offered to the seller.
Secondly, co-ops generally have pretty sizable restrictions on subletting. The reason being
is that co-ops are generally intended for owner occupancy.
So, coops don't like people to buy the place particularly investors with the idea of just
renting it out indefinitely.
So, between the fact that coops have subletting restrictions and they have the purchase application
process there are a number of downsides to buying a co-op.
Consequentially, investors do not usually consider co-ops.
So, you have a slightly smaller buyer base for coops compared to condos, and furthermore
there are more coops in the city than condos.
So, that combination of greater supply and less demand creates a much lower pricing for
co-ops in the city.
A co-op can be 10% to 40% less expensive than an identical condo essentially on the same
block in a different building.
So, there you have it buying a co-op simply means you're buying a specific type of apartment
in New York City.
Most apartments are co-ops and before we let you go; we'll quickly talk about the benefits
of buying a co-op.
We already mentioned that they're less expensive but they also have lower buyer closing costs
whereas with a condo if you're financing you could face a buyer closing cost bill of around
4% with a co-op your bill would be closer to 2%.
The reason for this comes down to the fact that buying a co-op is not considered to be
real property and there are two specific closing costs that technically only apply to real
property.
One of which is the mortgage recording tax and the other is title insurance. Because a
co-op does not require these two items, that's how co-op buyer closing costs are around 2%
less and for your comparable condo in the city.
Now if you have unlimited resources you should probably buy a condo but the reality is, we're
all budget constrained in New York City.
Buying a co-op can actually be a better choice for many New Yorkers who need more space particularly
if you find a building that is more reasonable and doesn't have too many restrictions on
subletting.
Final note, just make sure if you buy a co-op that the flip tax is reasonable.
Co-ops do have higher seller closing costs due to the fact that many of the buildings
charge the flip tax.
Now condos can also charge a flip tax but it's very rare.
So just make sure if you're buying a co-op make sure that the subletting policy is reasonable,
make sure that the flip tax is reasonable and if you find both of these things to be
satisfactory, you'll probably be much better off buying a co-op.
You'll have a larger place and you'll very much enjoy living there.
A lot more than if you were in a very small condo for the same price.
Before we let you go, we just want to remind you that co-ops do have financial requirements
for buyers.
More specifically they usually require a minimum of 20% down, debt to income ratio of around
25% to 30% and post-closing liquidity of one to two years.
We have videos on each of these topics on the Hauseit YouTube channel.
Thank you so much for watching and if you enjoyed this video, we'd love to have you
as a subscriber and we'd love to hear any comments or feedback that may be on your mind
thank you so much.