[YNYC] Co-op... the New York City Coop

Coops are… what some calls a backbone of NYC housing market. Some says otherwise. Over 60% of housing stock is coops and you just have to know about it before getting into one. You all heard coop board right?

Exploring NYC's Housing Stock: Co-ops

New York City offers a diverse range of housing options, each with its own unique ownership structure. Today, I'll delve into the co-op ownership model, highlighting its pros and cons to help you better understand this common form of real estate in NYC.

Co-ops

When you buy a co-op, you're purchasing shares in a corporation that owns the building. It's similar to buying stock in a company like Apple, which gives you the right to live in a specific apartment and provides a proprietary lease. As a result, co-op residents are referred to as shareholders or tenants, rather than owners.

Approximately 63% of NYC's housing stock consists of co-ops, making it a prevalent form of ownership. Here are some key points to consider:

• Qualification: To qualify for a co-op, you typically need a debt-to-income (DTI) ratio of 25-30% and 1-2 years of post-closing liquidity. This means you must have enough liquid funds (cash) in your account at closing to cover maintenance and mortgage (if applicable) payments.

• Down Payment: Co-ops usually require higher down payments, ranging from a minimum of 20% to as much as 50% in some cases as compare to condo’s min. of 10%.

• Governance: Co-ops are governed by a board of residents who volunteer to serve. This board, elected annually, makes decisions about the building, including approving or denying unit sales. Or how you use the building.

• Rules and Policies: Each co-op board has its own policies, so it's crucial to ensure the co-op's rules align with your situation and needs. Some main ones are:

  • Co-purchasing Policy - Can you buy for your children who has no income?

  • Pied-a-terre Policy - Does this have to be your primary residence?

  • Pet Policy - Some have breed and size restrictions.

  • Subletting Policy - coops have rules to help you, but you can’t be investors.

• Rental Restrictions: Co-ops generally do not allow renting or subletting, making them less suitable as cash flow investments. However, many people buy co-ops to use as personal residences when visiting NYC or for friends and family.

• Ownership Type: Co-ops are considered personal property, like stocks, so you are not subject to mortgage recording taxes or title search costs, saving around 2.5% in closing costs compared to condos.

• Price: Co-ops are typically 15-20% cheaper than condos of similar quality due to their restrictive policies and qualification requirements.

Co-ops can be a great choice if you plan to live in the city long-term and do not intend to rent out your apartment. However, they may not be ideal for everyone due to restrictions on your rights as a shareholder. The co-op board can block your sale if they believe it will negatively impact the co-op's value, limiting your ability to make decisions about your property. What still is interesting to me is that the Co-op board can deny you for any reason but still not be in trouble in Fair Housing law.

Co-op Sponsor Sales

Some co-ops were originally rental buildings, and not all units were converted during the transition, often due to rent regulations. These unconverted units remain owned by the sponsor (the building owner) and are sold as they become vacant.

• Bypassing Qualifications: Sponsor sales bypass the typical co-op qualification process, requiring only a 10% down payment without board approval. However, once the sale is complete, you become part of the co-op, subject to its rules and regulations.

• Renovations: Sponsor units are usually sold renovated and may come at a slight premium. It's advisable to have renovations done by the sponsor rather than undertaking them yourself.

In Summary

Understanding the nuances of co-op ownership in NYC can help you make informed decisions. Co-ops offer a unique blend of community governance and financial benefits, but come with restrictions that may not suit everyone's needs. Sponsor sales provide a way to enter the co-op market with fewer initial hurdles, but you'll still need to adhere to co-op rules once you own the unit.