Don't Say "No" to the Co-op!

I speak to people all the time about their housing needs and real estate questions.  The number of times I’ve heard someone say they want to buy “a condo but no co-ops” Is numerous!  Most of the time it’s said because of misinformation and hearsay not based on facts.  So, I am here to paint a clearer picture of the realities and sometimes advantages of  co-op ownership.

Certainly a pivotal consideration for many purchasers is price.  It is almost always true that, when comparing apples-to-apples on size, condition, and location, a co-op will be less expensive than a condo.  So if you’re looking to maximize your purchasing power, a co-op will give you more for your dollar.

Condo owners pay common charges, while co-op shareholders pay monthly maintenance.  What is the difference?  Condo charges are assessed for the upkeep of common elements, which can include amenities such as pools and clubhouses, or shared structural elements like roofs and elevators.  Condo owners receive their tax bills individually, just as owners of single-family homes do.  A co-op owner’s monthly fees will include maintenance and management costs too, but also include the appropriate share of the property taxes and underlying mortgage on the co-op property, making a percent of the monthly fees tax-deductible for the co-op owner.  This is an important distinction to keep in mind when comparing monthly costs, since on the surface, condos may appear cheaper on a monthly basis.

Other financial considerations to keep in mind are that closing costs for the purchase of a co-op are significantly lower than for a condo.  And since co-op properties have an underlying mortgage, typically for a 10-year term, they have the ability to finance and amortize the cost of major improvements and repairs over the long-term, while condos most often have to assess their unit owners in larger, short-term payments.  Additionally, the total monthly carrying costs of a co-op may be less than a comparable or smaller rental and include the benefit of tax deductions!

In talking with buyers about co-ops, some of their concerns arise from their fear of the co-op “Board approval” process, and some because they think their ability to do what they want with their living space (renovate, have a pet, rent it out) will be limited.  While both of these concerns can be valid, they can also have positive implications.  The co-op Board’s objective in their approval process is to validate the prospective purchaser’s ability to afford the ongoing expense of ownership, and willingness to comply with the rules of co-op living.  The financial evaluation can be rigorous, but it is in all owners’ best interests, since all shareholders contribute to paying the property’s expenses.  It is also to everyone’s benefit to maintain the integrity of the building and preserve a pleasant and “cooperative” lifestyle.  Condos have fewer rules, giving owners more autonomy, and generally no Board approval process, which opens up all unit owners to more financial risk.  Condo owners usually have the ability to rent their units at will, which can ultimately pose issues for unit sellers & buyers as lenders limit mortgages in complexes with a high percentage of non-owner occupants.

By Gail Fattizzi, Executive Director of Westchester Real Estate, Inc., Lic. Real Estate Broker