So you’ve been thinking about buying a home and you’ve been talking to some friends, and they’ve told you, “Get a condo—don’t get a co-op.” 

Everywhere you look, though—especially in Manhattan—there’s a co-op. And when you dig a little deeper, it seems like condos are way more expensive than co-ops, too. 

At that point, you might be asking yourself, “Why shouldn’t I buy a co-op? What is a co-op?”

These are the two questions I want to answer today. First, the term “co-op” stands for cooperative apartment. That means the land the apartment building sits on is owned by one company, and that company is a corporation. 

For example, if you bought a house, it would be on a piece of land. Let’s say you bought that house with a roommate and instead of splitting up the rent, you split up the property tax, and in order to make that legal, you made a company and made two shares of stock in the house. Your roommate would have one share and you would have the other. Let’s say your roommate then wanted to move and wanted to sell their share, but you didn’t want to sell yours. A co-op allows you to make that decision. It doesn’t matter if it’s two roommates or 500 roommates.

 

"Many people have done very well investing in and living in a co-op."

 

It’s possible you’ve heard stories about some co-ops being very strict, and some of those stories can be true. For the most part, though, the original “roommates” of a co-op only care that the new roommates pay enough money to justify the sale so their equity isn’t eroded and the new roommate will be able to pay for things like a roof replacement. To verify this, they’ll check things like your bank statements. 

Condos do the same thing, though, and co-ops have other rules too. For instance, they don’t let you rent it out without limitation. For example, if your roommate sold their place to some stranger but the stranger wanted to start some hotel, a co-op allows you to limit that if you don’t want that. 

As a homeowner, you might be thinking that you don’t want to be limited to who you can sell or rent to and wondering why co-ops are so expensive, but co-ops do have some great attributes. 

For one thing, their closing costs are considerably lower than condos. You also collectively pay a lower tax rate and have lower utility costs. Most importantly, if you want to be in certain neighborhoods or certain buildings, you have no choice than to go with a co-op. Let’s face it—no one is building any new ones. If you want to buy a property that was built in New York City before 1990, there is a strong likelihood you’ll have to buy in a co-op, and you shouldn’t be afraid to do so. Many people have done very well investing in and living in a co-op. 

If you have any more questions about owning a co-op, please feel free to reach out to me any way you can. I’d be happy to speak with you.

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