The Difference between Condos and Co-Ops
I got another one for you, and today it’s pretty good. If you are a new homeowner or investor then you’ll want to take a minute to sit down and watch this video, but if you’re not next to a computer and don’t have headphones then keep on reading.
WHAT IS A CO-OP
A co-op means that you are not buying real property as you would a condo or a house. You are purchasing shares in a corporation.
so if a building such as this one has 8 units that means you own 1/8 of everything in this building. So along with your unit that would include the Hallways, Elevators, Lobbies, and any expenses that come along with the building.
On closing, you will receive shares of stock along with a proprietary lease. The shares are your proof that you, in fact, own 1/8 of the corporation/building.
and in order to gain occupancy, you will be given a propriety lease. Similar to a rental lease. The proprietary lease allows you to live in the property for the life of the corporation as long as you abide by the rules and regulations of the co-op association.
WHAT HAPPENS IF YOU BREAK THE LEASE?
If you break the rules of the association such as not paying for your maintenance as an example.
The association has the right to evict you and sell your shares at market price. After they Collect the overdue payments from the sale the rest of the balance goes back to you.
FINANCING
All coop buildings have their own financing requirements. So even if a bank is willing to loan you 100% the coop might require you to only finance 80% or 50% depending what their requirements are.
MAINTENANCE
In addition to paying the mortgage, you will pay maintenance fees, THIS FEE IS BUNDLED UP WITH TAXES AND MONEY TO PAY FOR ANY REPAIRS, REGULAR CLEANING, LANDSCAPING AND ALSO MONEY TO COVER UTILITIES.
WHY WERE CO-OPS CREATED?
According to Richard Siegler and Herbert J. Cooper-Levy, member and former member of the National Association of Housing Cooperatives (NAHC) The first co-op was established on west 18th street in nyc in 1876. Originally they were called Home Clubs which provided aristocrats the control of knowing who their neighbors were going to be as well as having the benefits of homeownership without all the responsibility
WHAT ARE THE PROS AND CONS TO A CO-OP
PROS
TAXES you don’t have individual taxes because they are already added to the maintenance fees and half of this fee is tax deductible.
NO RENTERS you won’t have to worry about people moving in and out as frequent because all your neighbors are the homeowners since coops have restrictions on renting
COOPS ARE priced 10-30% lower than a condo since you don’t own real property and there are more hoops to jump through.
LOW CLOSING COST YOULL HAVE Lower Closing Costs -since you don’t have to pay for all the fees normally associated with a house or condo such as recording tax, title insurance or escrow
CONS
BOARD INTERVIEW There is a rigorous Co-op board package and interview that go along with this and if you’re not prepared there is a chance you can get denied regardless of your financial background. Legally boards can deny you and they don’t have to give you a reason why.
While it’s a pro to have no renters THE DOWNSIDE IS NO RENTERS MAKING IT BAD FOR PEOPLE WHO WANT AN INVESTMENT PROPERTY. Since coops usually restrict renting, if you are allowed to rent they will only give you anywhere from 1-5 years to rent it over the life of your proprietary lease. COOPS WERE MEANT FOR PEOPLE TO USE AS THEIR PRIMARY HOUSEHOLD.
LIQUID CASH-You’ll also need good financials even after you purchase. Some co-ops want to see around 2 years of liquid cash in the bank to cover maintenance
LESS THAN 30 Debt to income is different than the banks so while the bank is ok with 36% most co-ops want to see no more than 30%
Some have buying restrictions SO THIS LIMITS PARENTS THAT WANT TO BUY THE HOME AS A gift FOR THEIR CHILDREN OR ANY pied e terre’s
Please note that every coop is completely different so some may have more or fewer requirements depending on the coop.
CONDO
A condo or condominium is a form real property where in addition to your individual unit you collectively own the building, same as a co-op you share a portion of the building with your neighbors and is managed by the owners through their condo association.
On closing, you will receive a deed to the home showing that you, in fact, own the unit.
Since you share the common areas such as hallways, elevators, lobby, (if there are any gyms, laundry rooms) and any expenses that come along with the building you will pay…..
Common Charges, while coops pay maintenance fees, condos will pay common charges and taxes.
GOING BACK TO THE EVICTION SITUATION WITH A COOP IT’S A LITTLE DIFFERENT IN A CONDO SINCE YOU OWN THE PROPERTY.
If the homeowners are not paying their association fees, the board can put a lien on the home and foreclose similar to a bank, but if the
owner is doing an activity that affects the whole community such as doing anything illegal in the building the condo board can go to court and ask the courts to intervene, but this is for extreme cases and is very rare.