A Blogazine, based out of Park Slope, Brooklyn, that features fun and interesting articles. Topics include: parenting, society, real estate, career, style, spirituality and more. Written contributions are always welcome!

Sunday, September 21, 2008

Co-op or condo?

By Gabriele Sewtz

I work a lot with buyers and at the beginning of every apartment hunt the most crucial question I ask is: Are you looking to buy a co-op or a condo? Despite a buyer’s preference towards either a condo or co-op quite often a buyer’s financial situation answers this question. So let’s take a closer look at the different types of ownership.

Cooperatives 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 one to a long-term "proprietary lease." To buy into a co-op potential buyers need strong financials. A co-op usually requires a down payment of at least 10% to 20% of the purchase price. Buyers also need to have a cash reserve left after closing and their debt to income ratio (monthly housing expenses to monthly income) typically should not exceed 28%. The tenant-owners have the right to "disapprove" of any potential buyer and the Board of Directors interviews all prospective owners. The corporation pays the total amount of the building's mortgage, real estate taxes and other expenses related to the upkeep of the building. The tenant-owner pays a share of these expenses (maintenance) as determined by the number of shares the tenant owns. Portions of the monthly maintenance are tax deductible. Subleasing a co-op must be approved by the Board of Directors. The low closing costs are advantageous to buyers since closing costs are sunk costs. Quite often co-ops have pet policies not allowing pets or only certain pets in comparison to condos which are pet friendly.

A condominium apartment is real property. The buyer receives a deed just as though he/she was buying a townhouse and has to pay his/her own real estate taxes for the property in addition to the common charges for the upkeep of the building. Financing the purchase of a condo is much more flexible than in a co-op, typically 10% down are required. There are generally no requirements regarding cash reserve and debt to income ratio. If a buyer has a smaller down payment and/or a comparatively lower income and does not pass a co-op’s debt to income ratio a condo is a good choice. The application process is less formal than in a co-op, the buyer does not depend on getting approved. Also there is greater flexibility in sub-leasing the apartment which makes condominiums the choice for investment property. Given that there are fewer condos than co-ops in Park Slope and surrounding neighborhoods and that they are "easier" to purchase, they are generally more expensive than co-ops. Additionally, monthly combined common charges and real estate taxes in a condo are typically less than a co-op's monthly maintenance charges, again resulting in higher purchase prices despite the fact that closing costs are much higher for condos than for co-ops.

If you have questions please contact me
at gsewtz@elliman.com

A mother, Real Estate Broker and active Park Slope community member who moved to Brooklyn from Hamburg, Germany with her husband in 1999, Gabriele understands the major emotional undertaking and financial decisions involved in relocating, purchasing and forming roots in a neighborhood, and strives to ease the real estate process for others. Aside from her professional expertise, Gabriele is also a seasoned real estate investor and landlord who owns apartments in Park Slope and Prospect Heights. Gabriele holds an M.B.A. from the University of Hamburg. She is also a regular contributor for Hip Slope Mama on Real Estate related topics.