Cooperatives are not a new concept for New Yorkers, although they seem to be a type of ownership that is more common here than elsewhere. In NYC, about 80 to 85% of our apartments available for purchase are in cooperative buildings, while 15 to 20% are in condominiums or townhouses. This means that there is more inventory to choose from if the buyer includes co-ops in the mix of properties; and, prices are, typically, more favorable for cooperatives because of supply and demand.
Cooperative buildings are owned by an apartment corporation. Individual tenants do not actually "own" their apartments as they would in the case of "real" property. One owns "shares" in the corporation which entitles them to a long-term "proprietary lease." The corporation pays the total amount of the building's mortgage (a co-op may have an underlying mortgage on the entire building, whereas a condo must be owned outright), real estate taxes, employee salaries and other expenses for the upkeep of the building. The tenant-owner, or shareholder, in turn, pays a share of these expenses as determined by the number of shares the tenant owns in the corporation. Share amounts are usually dictated by apartment size and floor level... space on a higher floor will have more shares associated with it than its counterpart on a lower floor.
Important considerations when buying a co-op:
- The tenant-owners have the right to “approve” or “disapprove” of any potential owner. The Board of Directors, which is elected by all of the tenant-owners of the co-op, interviews all prospective owners. They have the responsibility of protecting the interests of their fellow tenant-owners by selecting well-qualified neighbors.
- The quality of services and the security of the building are kept at high standards.
- Portions of the monthly maintenance are tax deductible. Each building has its own tax structure, but all co-ops offer a tax advantage. Shareholders can deduct their portion of the building’s real estate taxes, as well as the interest on the building’s underlying mortgage.
- The amount of money that may be financed is determined by each cooperative. Some buildings require substantial down payments. Generally speaking, in Manhattan prospective purchasers should be prepared to “put down” at least 20 to 25% of the purchase price. Importantly, this could be higher in some buildings.
- Subleasing a co-op must be approved by the Board of Directors of the co-op. Each corporation has its own rules, and they should be examined if a potential owner intends to sublet.
- Most cooperatives only accept buyers who intend to use the apartment as their primary residence. Co-ops are not for the investor!