Difference Between Condo and Coop

Curious about the difference between condo and coop apartments in NYC? Condos and co-ops have a number of differences which you should familiarize yourself with as a home buyer in NYC.

Co-ops in NYC are typically less expensive and have lower buyer closing costs, however co-ops have a rigorous board application process and subletting restrictions.

The largest difference comes in the form of the ownership structure: buying a condo means that you are buying real property and have a title, while buying a co-op means that you are purchasing shares in a corporation that owns the co-op building.

If you plan on staying in the same apartment for the foreseeable future, or perhaps even forever, then buying a co-op can make a lot of financial sense. You’ll have lower closing costs when you buy a co-op vs a condo primarily because you don’t have to pay the Mortgage Recording Tax nor title insurance. As a result, you’ll pay roughly 2% in closing costs on a $1 million co-op apartment vs approximately 4% in closing costs if you buy a condo.

Furthermore, co-op apartments are generally 10% to 40% cheaper than condos of comparable size and quality. In fact, being cheaper is really the primary benefit of buying a co-op apartment vs a condo. As a result, if you know you’ll be living in the same apartment for untold years to come, perhaps because your kids just started school in your neighborhood, then it may make a whole lot of sense to get more bang for your buck by buying a co-op apartment.

If your plans aren’t as definite and you don’t know where you’ll be living in several years, perhaps because you see yourself moving for a new job, then it certainly makes much more sense to buy a condo instead of a coop.

Condos are real property, and as a result you actually own your apartment (plus a pro rata portion of the common space in the building) unlike in a coop. As a result, you are entitled to rent out your apartment without restrictions as long as you aren’t breaking any laws.

In contrast, co-op buildings favor primary occupancy and generally discourage subletting. Many coop buildings will prohibit subletting altogether, and those that do permit it will generally have strict rules and limitations around subletting. For example, many coop buildings will only allow shareholders to sublet their apartments for two years out of every five years. Others may only allow a maximum of two or three years of subletting over the entire time that the shareholder is a member of the building.

Furthermore, coop apartments are much harder to sell than condo apartments because of the unattractiveness of not owning real property, restrictions around subletting and the coop board approval process. As a result, a wide swath of buyers such as foreign buyers and professional investors will not even look at coops.

Coop buildings also have their own set of coop financial requirements which are usually stricter than the financial requirements of banks. For example, the minimum percent down that a coop building might allow is 20%, and you’ll often see buildings requiring 25%, 30% or more in down payment. Coop buildings will also often have their own Debt-to-Income Ratio (DTI Ratio) requirements, typically 25% vs the more flexible 43% that most banks will allow.

Lastly, it’s important to understand that co-ops have more closing costs than condos when it comes time to sell. This is primarily because many co-ops have a flip tax that is traditionally paid by the seller. The flip tax is a tool to raise additional revenue for the co-op corporation, and is also a disincentive for speculators to try to buy co-op apartments solely to flip them for more money. Flip taxes are typically 1-2% of the sale price for regular co-ops, but can be much higher for HDFC income restricted co-ops.