Co-op Basics (Lofts & Apartments)
Of the vast majority of apartments for purchase in New York City, at least 80% are in cooperative buildings. Other areas like Queens, Brooklyn and Long Island also have cooperative apartments for purchase. One advantage of purchasing a cooperative unit versus a condominium unit is that the majority of the time, you'll be able get more square-footage space for the price paid. After the purchase of a cooperative apartment or residential unit, you own shares within a Cooperative Housing Corporation and receive a proprietary lease, which gives you the right to lease space in the building.
Cooperative shareholders pay a monthly or quarterly maintenance fee, to cover the building expenses. The maintenance fee covers such items as:
a) mortgage and property taxes,
c) master insurance policy – this may just cover damage to the building not what's inside each residential unit (confirm with the association bylaws) and
d) staff salaries such as security.
Note: Portions of these maintenance fees are deductible due to the buildings underlying mortgage interest and the owner's proportionate share of the buildings property taxes. Consult your C.P.A. to learn more about Federal tax deductions.
As a general rule, your total annual housing costs (mortgage interest, cooperative maintenance fees, secondary residences and any other mortgages which your name appears) shouldn't exceed 25-30% of your gross reported income. Your total debt shouldn't exceed 35-40%.
Prospective or potential purchasers/buyers need to prepare a detailed “Board Package” containing:
a) thorough application,
b) specific financial information with statements as back-up's,
c) personal and professional letters of recommendation,
d) a letter of employment stating job function/title, salary and length of employment and
e) mortgage information – if financing is involved. Note: Applicable processing fees need to be rendered before the Board of Directors will review the “Board Package”
After review (generally up to 30 days), the Board of Directors will determine if an applicant qualifies for an interview. All prospective purchases must interview with the Board of Directors and be approved before any sale can be completed.
A cooperative Board of Directors chooses prospective purchasers based on financial resources and background. They also have the power to determine the rules of the building and admission standards. Standards such as:
a) the amount of financing allowed,
b) pied a terre policy - part time or temporary residential use,
d) co-purchasing and
e) parents purchasing for their children, etc.
All standards should be verified with the building management company.
Subleasing a cooperative depends on each individual building sublet policy - generally this is restricted or limited. As with standards, the policy should be verified with the building management company.
The co-op board can reject an applicant without a specific reason.
Luxury Lofts and Apartments - Condominium Basics
Popular alternatives to cooperatives are condominiums since they have much less restrictions of ownership. In contrast to a cooperative, a condominium is considered “real” property. A purchaser receives/owns a deed – fee simple ownership, just as though he or she were purchasing a house. The purchaser then owns an undivided share (an interest) of common areas used by residents such as recreation areas and parking lots. Each individual apartment within a condominium is considered as separate entities and each individual owner is taxed separately – which is 100% tax deductible. Also a monthly or quarterly common charge fee is accessed for the building's operation – which are not tax deductible.
There are certain benefits or advantages in purchasing a condominium such as:
a) more flexibility to sublet, b) less restricted building rules, c) generally, they don't require a board review, d) use of the space for business purposes, e) less of a down payment – traditionally 10% and f) your finances are less likely to be investigated or scrutinized.
A disadvantage in purchasing a condominium is that a residential unit usually costs more to purchase than cooperatives due to the fact of the limited number of residential units and purchase flexibility. Generally, the closing costs are also higher for condominium purchases but you have the ability to close the deal faster.
Luxury Lofts and Apartments - Cond-op Basics
Cond-op refers to a residential cooperative where the ground floor is generally used as commercial space – which is a condominium unit. Just this space is considered a condominium unit while rest of the building is a cooperative. Note: The cooperative cannot receive over a certain percentage of income benefit from this condominium unit space. (Please check into the 80/20 rule for Co-ops.)
Most cond-ops operate with less restrictive building rules similar to a condominium building – usually they don't require a board of directors review. As taxes are concerned, cond-ops are classified as cooperatives in that you receive and monthly or quarterly maintenance bill in which only portions are tax deductible.
Luxury Townhouse Basics
Similar to condominiums, you own real estate or "real property". The purchaser receives/owns a deed or title - fee simple ownership. The owner will receive an individual tax bill and is solely responsible for all costs of the upkeep of the home and land. (i.e. painting, roof repair, shoveling walks, trimming shrubs, etc.)