How to Buy Real Estate in New York
PICK A CO-OP, CONDO OR A COND-OP
Most of New York apartments – approx. 80% of the buildings are co-ops. The newly built ones are condominiums. Condo apartments are considered to be real property. When buying a co-op, one purchases shares in a corporation. There is also a third category of apartments – cond-ops (co-ops with condo rules).
Co-ops are less expensive than condos, but in order to qualify for purchasing, Buyer has to go through Board approval.
- CO-OPS: This ownership structure is known in New York only. A corporation owns the building and residents own shares (stock certificates). They have a proprietary lease, which allows them to occupy their unit. Residents are shareholders or tenants instead of owners.
- CONDOS: New York Condos are like any other condo in the country or like single family houses. Buyer still has to get approved by the Condo Board (unless they are purchasing in a New Development), but the process is way less complicated that the co-op Board approval. A Buyer cannot really get rejected by a condo Board (though such cases do exist). In case a condo Board rejects the purchaser, they have to buy the apartment themselves.
MONTHLY MAINTENANCE AND ASSESSMENTS
Condominium owners pay Common charges (which go toward the maintenance of the building and paying salaries of the staff) and Real Estate Taxes separately each month. Common Charges are collected by the Management. Real Estate Taxes are paid directly to the State.
Co-ops pay a Maintenance fee, which is collected by the building Management and includes Real Estate taxes as well. Monthly maintenance is usually raised by 3% each year on the average.
Both Condos and co-ops collect assessments. That is when the building needs a major renovation – repair of the roof, lobby, hallways, change of the elevators, etc.
MINIMUM DOWN PAYMENT REQUIREMENTS
Purchasing a Condominium usually requires 10% down payment.
A Co-op requires a minimum of 20% down, but very often as much as 25% down. Some Park Avenue co-ops even require 40 or 50% down payment.
Buyers also have to have a sufficient amount of money left over in liquid assets once you close on the apartment, which should be equal to 2 years worth of maintenance payments. One also has to meet a debt-to-income ratio around 25-29%, meaning their total monthly payments (the maintenance plus the mortgage) can’t exceed a certain percentage of your income. Buyer needs to have a good credit score as well.
BOARDS AND APPROVAL PROCESS
When purchasing in an old building, one needs a Board approval for both co-ops and condominiums. When buying an apartment in a new development, or in an old building from the Sponsor (Developer), no approval is needed.
Boards (coop Boards) can turn down a Buyer for any lawful reason.
CONDOMINIUMS ARE BETTER FOR INVESTMENT PURPOSES
Only Condos are good for investment. There are too many restrictions on renting a co-op. Typically, Buyer has to live for 2 years in the apartment prior to being able to rent it out. After 2 years they are allowed to rent their unit for two years. Then they have to get back and live in the apartment again.
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