Photo by Lauren Manning via flickr
Co-op vs. condo vs. condop: New York real estate brokers love to throw these terms around. But what, exactly, do they mean? What’s the real difference between a co-op and a condo — and what the heck is a condop? Here’s the rundown.
Co-ops
If you’re new to New York City, chances are you’re new to the idea of a co-op. Mostly unique to Manhattan, co-ops make up about 75% of the market and have been the norm for nearly 100 years.
A housing co-operative is a legal entity (usually a corporation) that owns real estate. When you purchase within a co-op building, instead of purchasing your actual apartment, you are purchasing shares in the corporation that owns the building. The number of shares allotted to each apartment is determined by the co-op board and usually takes into account things like square footage, view, etc. In general, the larger your apartment, the more shares you own. Your shares also entitle you to a “proprietary lease,” which allows you to live in the building. When you close on a co-op apartment, instead of receiving a deed to your property, you receive your “stock and lease.”
Shareholders in a co-op contribute a monthly maintenance fee to cover the general expenses of running the building – things like heat, hot water, insurance, staff salaries, real estate taxes and the underlying mortgage on the building. Since real estate taxes and mortgage interest are tax deductible, the portion of your monthly maintenance fee that goes towards real estate tax on the building and interest on the building’s underlying mortgage is tax deductible.
When buying in a co-op, it’s important to note that the co-op board has the right to place restrictions on how you use your apartment. (Remember, you don’t actually own the space inside your apartment, you own stock in the corporation that owns the entire building. So, the corporation’s board of directors establishes general rules on what can and can’t be done.) Here are a few examples:
- The co-op board decides how much of the purchase price of an apartment can be financed and minimum financial requirements for any perspective buyer.
- The co-op board determines whether shareholders are allowed to rent out their apartments to others. (Most co-ops have fairly strict rules on this. For those looking to buy investment property in New York, co-ops are usually not the way to go.)
- All perspective purchasers are required to submit a “board package” including personal references, financial information, etc. and be interviewed by the co-op board. (Yes, they can and do sometimes reject perspective buyers.)
Condos
Most new developments in New York today are condominiums.
Unlike a co-op, a condominium apartment is “real property,” meaning you are buying the particular apartment and own everything inside the walls of said apartment. At closing, a buyer receives a deed to their new property the same as if they were buying a house. Individual apartments in a condo building receive their own tax bill, and there is no underlying mortgage on the building. Condo owners are still required to pay a monthly “common charge” for general building upkeep, but since this charge doesn’t include any real estate taxes or mortgage interest, none of it is tax deductible.
Prospective buyers in a condominium building are also required to submit a package to the condo board similar to a co-op board package. In general, condo board packages are less extensive and no interview is required. Unlike co-op boards, who have the right to “turn down” a perspective buyer, condo boards only have the “right of first refusal.” This means the condo board has the right to elect to buy the apartment themselves rather than allowing it to be sold to an outside buyer. This very rarely happens.
Condos also require a much lower down payment (usually 10%), and, since condo owners own the “real property,” they are free to rent out their apartments at will. This makes condos the obvious choice for real estate investors and those looking for more flexibility. However, the flexibility comes at a price. Per square foot, condos are generally more expensive than co-ops.
Condops
In simple terms, a condop is a co-op with condo rules (i.e. the freedom to rent out your apartment, put only 10% down at closing, and easy board approval). Closing costs for condops are similar to a co-op, and you own shares in the building rather than real property.