Navigating the real estate market in New York City is not for the faint of heart. With so many choices and so much competition, it will help you to have some knowledge before you even get started.
If you're looking for an apartment in New York City, you'll find many are set up as co-op apartments. You've probably heard this term before and wondered about it. You might have even wondered how it's different than buying a condo.
Purchasing a co-op apartment is pretty unique to the New York City real estate market.
Let's first start by understanding how a co-op is unique. A co-op is unique from both a regular rental apartment and a condo.
First, unlike an apartment that you rent, you have some ownership in a co-op. However, unlike a condo, you don't own your actual unit.
When you buy a co-op, you buy a portion of the corporation that owns the actual building. So, you do have ownership, unlike a rental. Yet, you own part of the building, just not your specific unit.
Co-ops are set up like corporations that have boards that help to operate and manage the buildings working. More on the co-op board later.
When apartment hunting in New York City, you'll find more available co-ops than other options. Let's take a look at some of the advantages of purchasing a co-op.
You might be wondering how a co-op is better than renting if you don't actually own your unit. Well, you do still have ownership. You just aren't spending the high rents found in New York City without getting the benefit of ownership in return.
One reason to consider a co-op is that there are more of them than condos and they cost less than buying a condo. Because co-ops boards have restrictions about renting out units to non-owners (more on this later), investors tend to stay away from co-ops.
For the same reason, many foreign investors will opt for a condo investment instead of a co-op. This makes this market a little less competitive and therefore helps to keep prices down compared to condos of equal size. For this reason, co-op living is more affordable for families looking for housing in New York City.
Closing costs on co-ops also tend to be lower compared to a condo closing.
One thing to remember about owning a co-op is the board. Co-op boards tend to have strict rules and regulations for their owners. They expect them to be followed so everyone lives in the same optimal conditions.
If you want to do any renovations inside your apartment, you must first get approval from your co-op board. So, while you do own, you are still under the authority of your particular co-op board.
Buying a co-op is a little different than signing a lease for a rental apartment or even purchasing a home or condo. Mainly, this is because of the co-op board. You should be prepared for the process of buying a co-op apartment in New York City to take at least 3 months.
First, you want to look at your own finances and evaluate your budget. Get a pre-approval letter stating you can get the necessary financing needed to make this kind of purchase.
Then start your search. Once you find a unit, look closely at the co-op board requirements. What kind of down payment do they require? How much cash in reserve do you need to live there?
If you meet those requirements and are comfortable with the expectations of the board, then you make an offer and start to prepare your package for the board. You will need to have a purchase agreement with the seller and provide a deposit. This can be refunded if the board doesn't approve you later on.
You submit your financial package, letters of recommendation to the board. Then you interview with the board (more on this later). If the board approves your application, you move onto closing.
One aspect of purchasing a co-op potential buyers should be aware of are the financial expectations from the co-op boards.
One expectation is that most co-ops commonly expect between 20 and 25% down payment with many as high as 30% down.
Additionally, most New York City co-ops want a debt to income ratio after the purchase of around 25%. This would all be shown in the financial package you present to the board prior to your interview.
The flip tax is another potential expense to be prepared for when purchasing a co-op. The flip tax isn't really a tax, but instead, a fee paid to the co-op at the transfer of property from the seller to the buyer.
It can be either the seller or the buyer who is required to pay the fee, depending on the rules of that particular co-op. If you don't pay them as a buyer, then at some point you will pay them as a seller. Therefore, you should be aware of them.
The flip tax can be a percentage of the sale price, percentage of profits, or set dollar amount per share that is owned. Again, this depends on the co-op.
This is the part of buying a co-op that is notorious. Although, in many cases, it's not nearly as bad as folklore would suggest. You will have to sit down and be interviewed by the board. Treat this as an important job interview. The board wants to meet you and be certain they get a good impression.
One word of advice, don't go into the interview discussing all your plans for renovations to the co-op unit. The board will view this as presumptuous as all renovation plans need to be approved through them.
One reason that fewer international buyers are interested in buying a co-op for themselves or as an investment is because of subletting restrictions.
Co-ops often have strict regulations about subletting, often requiring the owner to live in the unit for up to two years before subletting. 9
The real estate market in Manhattan can be competitive and tricky. If you buy a co-op, the seller will have an agent. That agent is there to represent the seller. You want someone to also represent your interests and someone who is experienced in this type of real estate. It's a smart idea to use an agent to work on your behalf.
There are some beautiful and interesting co-op apartments in New York City. While the process of buying one can seem a bit daunting, ultimately investing in a co-op is a great idea.
If you're interested in learning more about available New York City properties, we can help. Contact us today to get started on finding the perfect place in NYC.