Should I Buy a Condo or Co-op in NYC?

By Colin O'Leary
April 5th, 2022

If you are in the market to buy a home in NYC, there are a few things you should know before you start the home buying process. Unlike most parts of the country, New York City is dominated by the condo and co-op market. For this reason, it's important to understand the difference between the two. There are pros and cons for each. Both offer different forms of ownership. One may work better for you than the other depending on your lifestyle and goals. 

First, if you are planning to buy in NYC as an investment property, then condos are typically the best way to go. Condos are best suited for investors. Co-ops on the other hand are better suited for end-users. This is because co-op buildings are much more restrictive with rules and regulations. For example, let's say you want to live in the unit you just purchased for a few years, and then rent it out down the road, then a condo might be a better option for you. If you purchase a co-op and then have to move for whatever reason, you might be forced to sell eventually because of the restrictive subletting policies. 

Co-ops typically have a higher owner-occupancy rate compared to condos. Some people prefer to purchase in co-op buildings because the buildings are less transient, and you are more likely to know your neighbors. Most co-op buildings allow for some form of subletting, but typically only after a few years of living in the space, and then only temporarily. Some co-op buildings don't allow for subletting at all. Most co-ops don't allow any form of short-term subletting or AirBnB. If you purchase a condo, on the other hand, you can rent it out to anyone you like, for however long you prefer. You can rent it out for a week, month, or year. This is why condos are more suited for investors. Co-op buildings are also typically less pet friendly compared to condos, often coming with restrictions on cats and dogs. 

Another difference between the two is that condos are typically more expensive. For example, a buyer might pay $900,000 for a one-bedroom condo in NYC, while a similar size unit in a co-op building could go for $700,000. One of the main reasons for this is because of the smaller pool of potential buyers in the co-op market. The condo market on the other hand is full of both investors and end-users. Co-ops typically require a larger down-payment of 20% or more. Condos can be purchased with a 10% down payment or less in some situations.

Another thing to know is that condos are typically quicker and easier resell. Co-op sales typically take longer because of the lengthy co-op board application. It also costs more to resell a co-op. For example, in addition to the typical broker, attorney, and transfer tax fees, most co-op buildings also charge sellers something known as a "flip tax," which is a percentage of the sale price, usual anywhere from 1-3% or more. Condos don't typically charge a flip tax when selling. 

Another difference between the two is the ownership structure. Buying a co-op is sort of like buying stock in a corporation. The owners of co-op units are more like tenants or shareholders than owners of real property. Co-op owners are assigned a certain number of shares when purchasing in the building. The number of shares assigned depends on the particular unit purchased in the building. For example, a larger unit on a higher floor would have more shares assigned than a smaller unit on a lower floor. Co-ops typically require buyers to purchase as a primary residence or pied-a-terre, while condos have no such restriction. 

Another major difference between a condo and a co-op in NYC is the application process. Co-op buildings have a much more extensive application process compared to condos. If you purchase in a co-op in NYC you will have to go through a tedious board approval process that requires an in-person interview with the co-op board (sometimes on Zoom now). This application process includes revealing extensive financial and personal information. Co-op boards hold tremendous power over unit owners and potential buyers. Condos have a somewhat similar purchase application, but it's much less extensive. When you purchase a condo, you are buying the actual space, and not shares in the building.

Another thing you should know about condos and co-ops in NYC is that you will be required to pay a monthly fee to help maintain the building. This is another cost in addition to the monthly mortgage cost. This monthly fee is used for things like ongoing building maintenance, employee salaries, gas, water, electricity, and insurance. Condo buildings typically refer to this monthly fee as the "common charge," while co-op buildings refer to this as the "maintenance fee." The monthly maintenance fee in a co-op building is determined by the number of shares assigned to each unit. Common charges in a condo building are calculated by taking each unit's percentage of common interests and multiplying it by the total operating costs of the building. One of the big differences between condos and co-ops is that property taxes are included in the monthly fee at co-op buildings, while condo owners pay property taxes directly to the government. 

To conclude, its important to do your research before you start your home search. There are pros and cons to each property type. One may work better than the other for you depending on your particular situation. If you have any questions about buying or selling a co-op or condo in NYC, please email us at thebigcityteam@bhhsnyp.com or call 646-300-2012.