What to Buy
A buyer in New York has three fundamental choices. Whether he/she should buy property in: a condominium building, a cooperative building or a townhouse/brownstone. There are advantages and disadvantages to each and the choice is always a matter of individual preference. We asked our experienced staff to come up with the list of pros and cons about each one. Here is what they had to say.
Condominiums
In a condominium, a purchaser owns the apartment plus a percentage of the common areas of the building. The purchaser takes title by deed, which is recorded in the county clerk's office. If you intend to obtain a loan to purchase the apartment, you will sign a mortgage, which will be recorded in the county clerk's office. In a condominium there is an association that you belong to once you purchase the apartment. The association provides services such as general maintenance to the common areas in exchange for a monthly fee. Because it is real property you will pay your property taxes separately or inclusive with your mortgage payments. Generally your lender will assist you in this area. Because a condo is real property the closing costs are higher than those of co-ops. Whether you own a co-op, or a condo, you may have to pay assessments for any major repairs or renovations.
ADVANTAGES/DISADVANTAGES
- Easier approval process
- Own actual real estate giving you more rights to it, i.e. you can transfer deed to family members, sublet or re-sell easier, etc.
- More control over building maintenance and development issues
- Lower monthly common charges
- Typically higher purchasing price on per sq. ft. basis
- More legal responsibilities for the entire living facility
Townhouses and Brownstones
Townhouses and Brownstones are freestanding 2-5 story buildings often constructed before the war. Brownstones are more elegant, featuring elaborate decorative facades and many other architectural details inside. Townhouses tend to be plainer with somewhat smaller living spaces (although be careful as the terms are often used interchangeably). These types of buildings are traditionally occupied by families or well-established individuals who prefer the more private and comfortable living environment. The actual buildings can vary from narrow and low-rise two unit row houses to large and elaborate brownstones that if not divided into units can have a living area of up to 10,000 sq. ft. Similarly the prices of these types of buildings differ dramatically depending on location, size, condition as well as their legal status.
ADVANTAGES/DISADVANTAGES
- Comfort and privacy of your own home
- No approval process
- Larger living spaces / usually multi-level
- Total control over maintenance and improvement issues
- Easier to re-sell or transfer deeds than condos or co-ops
- Significantly higher purchasing price on per sq. ft. basis
- Higher monthly living costs, i.e: utilities, taxes, etc
- More legal and financial responsibilities and obligations i.e: zoning codes, taxes, higher mortgages
- Maintenance related issues
Cooperative Apartments
A co-op is a short term for a residential property owned and managed by a corporation. When you buy an apartment in a co-op you are purchasing shares in a corporation, as opposed to purchasing actual real estate. The shares you purchase allow you the exclusive right to live in a given unit to which those shares are assigned. A co-op usually has an underlying mortgage that your co-op fee pays all or part of the payments to as well as other costs for the building. This is generally the reason why a co-op maintenance fees can be higher than that of a condo's. Portions of the mortgage payment and property tax are usually tax deductible and can account for a significant reductions in the maintenance payments on an annual basis.
ADVANTAGES/DISADVANTAGES
- Typically lower purchasing price on per sq. ft. basis
- Less legal and financial responsibility for building maintenance and development
- Generally higher tax deductibles
- More complicated approval processes
- Generally higher monthly maintenance fees
- There may be re-sell and subleasing restrictions
- Less flexibility with apartment construction and renovation
Cooperative and condominium apartment values are not comparable for a variety of reasons. Co-ops have a much longer history in New York than condominiums and many of the city's older luxury apartment houses are cooperatives while many of its newer ones are condominiums. The latter have become more popular in recent years because usually owners are granted more freedom in selling their units and prospective buyers do not have to pass the scrutiny of the shareholder associations in cooperative buildings. Economic comparisons between the two types of tenant ownership is often difficult, because of many factors such as: the building's existing financing and tax valuations, level of staffing and services, changing neighborhood conditions, its physical condition, whether or not it is an official landmark, and whether it has fully utilized its development rights. Contact your accountant or financial advisor for more specific guidelines.
If you are considering purchasing a co-op, please keep in mind that most co-ops require that you finance 75% or less of the purchase price and that you have substantial liquid assets after the closing (usually at least 10% of the purchase price). Thus, as a very general rule of thumb, in order to purchase a co-op, most co-op boards will require that you have liquid assets of at least one-third of the purchase price, irrespective of the amount for which you may be pre-qualified for a mortgage. So, if you are considering purchasing a $1,000,000 co-op, you should have at least $350,000 in liquid assets and be prepared to put down $250,000 in cash. Most boards will not consider buyers that just barely meet the building's financing requirements and whose liquid assets will be virtually depleted after the closing. Though there are co-ops that are less stringent, the majority are entirely non-flexible in this respect.
