Condos vs Coops (vs Condops)

I've lived in both, and I sell both, so I can make the case for both -- but honestly, I prefer co-ops. Once you get through the hassle of getting in, you're there to stay, and your neighbors know that -- which makes for a friendlier, more neighborhood-y living situation. I live in a condo now, and some of my neighbors use their apartments as pieds-a-terre -- which makes it hard to borrow a cup of sugar. In addition, condos often attract renters into the building who don't see themselves as permanent citizens, so they're less quiet, throw more parties -- it can be more like living in a dorm.

Since co-ops are so out-of-fashion now, they also tend to sell at a significant discount to comparable condo space -- so I think they're a good value. Is it worth paying 20% or so more per square foot just to get more liberal rental rights?

ali r.
{downtown broker}

Ali,

My impression is that the main reason that coop price per square foot tends to be lower than for condos is that coops tend to be older construction and have higher maintenance due to underlying mortgages on the buildings.

Am I wrong?

Let me add to my coop concerns.

Inasmuch as most coops have underlying mortgages, the overall investment is inherently more leveraged in total and thus more risky. I believe this is reflected in higher interest rates on coop mortgages than condos.

In addition, condos give me greater flexibility if I ever wanted to rent out my unit. And they may be easier to sell in the future if I don't have to worry about a difficult board.

Ali makes a good point about the neighbor issue. When you're living in tight quarters, with other tenants above, below and on either side, it makes sense to ensure some stability, which a co-op does.

In a condo, your upstairs neighbor may decide to rent out his place to a guy who likes to play the drums right over your bedroom and throw crazy parties every weekend. Or perhaps your upstairs neighbor IS that guy. A co-op board gives you some manner of protection against this kind of thing. Or, maybe your neighbors start defaulting on mortgages and go into foreclosure (extremely unlikely in a co-op situation given the tight financial requirements). Nothing you can do in a condo except watch your property value fall.

Communal living is hard enough. A co-op board will vet the stinkers so they don't wind up living next to you.

Aren't there rules to living in a condo also? If you have the loud neighbor you still have the ability to complain to the managing agent, etc. I had a coop in Gramercy years ago and I loved it. But when we had to move out of the city for a job transfer we had to sell at a loss because it was after the 1987 debacle. (Bought it just before Oct 1987, and sold in 1993. Took a small hit, smaller than others, but a hit none the less.) My coop only allowed sublets 1 out of every three years. I guess I could have sublet illegally to a "relative" which would have appeased the board and allowed it to be for more than 1 of 3. If I had had a condo, I would have rented indefinitely. I wish I still had that loud( on third ave.) wonderful apt. Went up in value 4 times by the peak in 2005/2006/2007. It would have rented for a positive cash flow also, because prices were more reasonable then.

In the rest of the world, co-ops don't exist and for centuries people have been sharing buildings. Do we need to get treated like children controlled by a big brother to behave?

Snoop - From what I understand, co-op boards have no idea if a prospective buyer is a 'stinker' with regards to how loud they would be. I have a few good friends who were finacially stable and who would be very quiet neighbours ( some with new borns ) who have been rejected without a reason by the board.
My concern is, if I had to sell my property for a disired price and I found my buyer, the last thing I want is somebodyelse telling me I can't. This would make me feel as if i don't really own my property ( which in fact I don't as I own a share in a building). I may have to wait for a 'suitable' buyer who could only afford much less than I wanted.
Do all co-ops not allow owners to rent their propertys?

Ali - If you lived in a condo, and I was your neighbour, I would lend you a cup of sugar anytime :)

BWC

I was about to buy a condo and asked for the rules. All electric sound has to be turned off (including the TV) by 12:00 am. Can't rent for less than a year. Can't sit in the steps at the entrance, need to report visitors to managment co. and so on...

Mimi - surely this condo sounds an exception to the rule? Most condos don't care as long as the books balance.

All condos have by-laws and boards of directors that address nuisance behavior. It's not anarchy.

Topper - as a property investor would you not advice investing in coops due to the difficulty of selling to a 'suitable' tenant?
Does coops appreciate/depreciate like condos?

I bought a condo, but for my next purchase I might consider a co-op if I found the right apartment and my due dilligence showed that the board was not too extreme. NYC has held it's value, and even increased while most of the nation's real estate came crashing down. NYC is not immune and our recent job losses will affect prices. NYC's condo's generally required 10% down (some more, some less but generally 10%) which may have been slightly more stable than other places in the nation that often allowed 0% down payments. I do stress slightly. I believe condo's are much more likely to get hit first on the way down because of the likelyhood of higher default rates. Co-op's generally require 20, 25, 30% or in some instances 50% or more down payments AND they often require a buyer to have enough cash to have 2 years worth of maintence costs after closing. While that might not be feasible for many buyers- it does give the owners in the coop a sense of financial security that the next door neighbor isn't likely to default. Many coops trade at a discount to condo's because of these strict financial requirements that effectively eliminate many potential buyers (I am ignoring the crazy board approvals and rental issues for a moment).

I do like the flexibility of having the option to use my condo as an investment property somewhere down the line, and many coop's don't offer that same flexibility.

I suspect mimi's experience with a condo with the electric sound was building specific...just a guess but the walls were probably paper thin.

As Treasurer of my condo it's a balancing act of keeping the common charges low (because we have investors renting out their apartments in the building that want to keep the value of their apartments up by keeping expenses as low as possible) and saving enough for an adequate reserve fund. Perhaps someone that has lived in co-ops can clarify this for me...but I would suspect that a co-op that is strict on rentals would have less of a struggle raising money (and I stress less of a struggle- I am not saying that it's easy) for adequate reserve funds because the apartments are viewed as the owner's home rather than as an investment.

I would think that after effects of recent lending practices have become so clear, that the ability of a coop board to exercise judgement on the economic qualifications of a potential buyer would be seen as a virtue. Understandably, it would be annoying to have a potential buyer rejected by a board, but on the other hand you bought at a discount to properties unencumbered by this restriction in exchange for this potential inconvenience.

However, the quality of boards vary considerably. Before buying a coop, you should personally obtain the minutes of meetings and all financial statements and form your own opinion as to the quality of governance that the board is providing.

Another reason that condos trade at a premium over coops is that all speculative investment is directed at condos due to the occupancy restrictions on coops, and that condos represent a small fraction of the housing stock. I would expect the spread to narrow in a downturn as speculative interest exits the market.

Many of the coop mortages are associated with retail or professional space in the building that throws off rental income. In this case, it would be hard to argue that this increases leverage.

Condos can have a wide range of rules (take Trump Soho for an extreme example), and my take on the trend is that these rules are edging towards coops. Who wants to buy a condo in a building where investors are taking short term rentals? Coop rules can serve to protect you when your upstairs neighbor wants to rent a 1BR to 5 college kids or decides they like to lift free weights every morning at 5AM. In a good, well led coop, the rules serve to protect the environment where we choose to live and in many cases raise a family and to protect what is for many their single largest investment.

Most coops will allow you to suplet to an approved tennant, usually for a minimum of a year, and for a maximum number of years. The owners corp will generally take a cut. If you don't ever have to sublet, this would be a benefit to you.

Coop mortgage rates are greater than those of condos due to the increased risk of the mortgage being secured by shares in the owners corp ranther than by real property.

{{Snoop - From what I understand, co-op boards have no idea if a prospective buyer is a 'stinker' with regards to how loud they would be.}}

Then you've never been grilled by a co-op board. You'd be amazed at the questions they ask.

{{Do all co-ops not allow owners to rent their propertys?}}

Most do, with very strict policies (such as 2 years max within a 5-yr period).

brainwashedconsumer:

I wouldn't think that a coop would make much sense for an investor as it would difficult to rent it out.

As regards market movement, coops prices and condo prices track each other closely over time. You can check out the Miller Samuel web site data tab for confirmation of this assertion.

Co-op are phenomenon that's limited almost entirely to Manhattan, cooperative apartments have been the traditional form of owning an upscale apartment for close to a hundred years. In fact, in New York City, 85% of all apartments available for purchase - and almost 100% of the grand pre-war apartments on Fifth, Park and Central Park West - are in co-operative buildings. Co-ops are owned by an apartment corporation. When you purchase within a co-op building, you're purchasing shares of the corporation that entitle you, as a shareholder, to a "proprietary lease." Generally, the larger your apartment, the more shares of the corporation you own. Co-op shareholders contribute a monthly maintenance fee to cover the building expenses. The fee covers such items as heat, hot water, insurance, staff salaries, real estate taxes and the mortgage indebtedness of the building. Portions of the monthly maintenance fees are tax deductible due to the building's underlying mortgage interest. Also, shareholders can deduct their portion of the building's real estate taxes.

Co-op owners are generally not allowed to do anything inside their apartments beyond simple maintenance. A co-op owner cannot put in a new kitchen or bathroom or tear down any walls. In this regard, co-op living is very much like apartment living. The positive side of this is that residents are not responsible for making their own repairs; the on-site maintenance crew or superintendent handle those.

Co-ops are more restrictive than condominiums, but they also offer residents greater say in several aspects of how the property is managed.

{{Co-op owners are generally not allowed to do anything inside their apartments beyond simple maintenance. A co-op owner cannot put in a new kitchen or bathroom or tear down any walls.}}

Absolutely not true. Major reno work can indeed be done as long as the plans have been approved by the board.

{{In this regard, co-op living is very much like apartment living}}

Huh? Co-op living IS apartment living.

{{The positive side of this is that residents are not responsible for making their own repairs; the on-site maintenance crew or superintendent handle those.}}

Again, you are way off base. Co-op shareholders are absolutely responsible for repairs within their apartment. Yes, the building's maintenance people can handle these repairs, but the shareholder pays for them (small repairs such as fixing a leaky faucet are generally covered by a tip to the super or handy-man who does the work - larger repairs are either billed to the shareholder, or payment is worked out directly with the super. The only exception is when the problem is outside the shareholder's apartment, for example, a burst pipe in the wall that causes damage to the apartment. Then the necessary repair work is paid for by the building.

snoop you are correct that any major improvements must come before the board of directors for approval. I was speaking "generally". Co-ops are not considered real property so your not at liberty to do whatever you want without direct approval from the Board.

earlier you responded to a comment
{{Do all co-ops not allow owners to rent their propertys?}}

Your answer: Most do, with very strict policies (such as 2 years max within a 5-yr period).

I differ some, not all boards are so strict. Some are quite liberal and very easy to work with. If you have a good relationship with the board, quiet and good tenants and the maintenance fees are kept up with the board will continue with longer tenancies. Of course this also has be approved by the board of directors.

I stand corrected on this point, Co-op living is apartment living

One reality of Co-op living is that there are limitations on some of your activities such as playing loud music, cigar smoking or major renovations beyond simple repairs or cosmetic touches without seeking the board of directors approval. One of the many duties of the Co-op board is to help maintain apartment values so limitations are in place regarding repairs, renovations, noise, odors and other areas. The house rules are stated in the corporations by-laws. Regarding subletting policies there may be riders beyond the by-laws added to govern rules for subletting limitations.

The most obvious difference between Co-ops and Condos are that Condo owners actually own their own apartments. It used to be that Condo owners ran their apartments almost like hotels. After they purchased an apartment and furnished it they would lease them on short terms as in a few months or a few weeks with a transient population but currently Condo boards are tightening up their house rules requiring at least a one year lease to almost mirror a Co-op. Thus, they are very similar with only one obvious difference distinguishing them . . . price. Co-ops are generally cheaper.

Topper you wrote: My impression is that the main reason that coop price per square foot tends to be lower than for condos is that coops tend to be older construction and have higher maintenance due to underlying mortgages on the buildings.

Am I wrong?

Some of the older Co-op buildings have low maintenance fees and no building indebtedness. I wouldn't know about the newer construction.

I have lived in several coops. Never again. Coop restrictions on renting are absurd. The trading restrictions devalue the apartment. I can buy my own cup of sugar -- this is manhattan. I can have it delivered.

It is not true that owners cannot make changes -- I completely gutted my apartments after having my plans approved by the coop board.