parents buying with/for children - and condos vs coops

Go for a condo will make your life much easier, plain and simple!

thank you!

A condo will cost 20-30% more for the same kind of space, no? I think 75% of the units in the city are coops so you may find yourself trying again with another board. I am sorry to hear about your problems. What is L&T?

Coop boards are allowed to rule on purchases based on financial risk. I'm not saying anything about this particular case. I don't think a real estate agent would be able to do anything for you. Your lawyer might be able to do something for you. You do have a lawyer, right? You should have a lawyer from day one.

The selling agent should have known the board's requirements.

>>I'm under the impression from my real estate agent that coop boards in Manhattan are basically allowed to do whatever they want because it's their building, even if it doesn't make sense. Is this impression correct?<<

That is correct.

The fact that you have a history of L&T court is NOT good from a board's perspective, regardless of the fact that your dad is the purchaser. It suggests the possibility (rightly or wrongly) that you could be a problem tenant (after all, it would be YOU living there, not your dad). No board would want to take that chance.

The board here acted reasonably and you have no recourse I can see against the building. In addition to financial reviews of those living in the cooperative (the building "community" as boards and shareholders often see it), the board wants to insure that those moving in and living among them will "fit in." The literally do not want "problem children." They do not want people who have histories of law suits or litigation--particularly of the type that could indicate potential future problems for the building. Boards generally don't like children because they have "no skin in the game." Daddy pays the bills and boards fear the child just parties, comes home at all hours bringing a different stranger into the building every night; they are concerned kids won't abide by building rules about trash, noise, and are sometimes not the best neighbors generally.

If you will essentially be a tenant and you ended up in court with your last landlord, that isn't good. Boards just don't like people who sue or who get sued. Litigious people make them nervous.

All that said, condo may be much better way to go for you. One thing I absolutely would not do is try to hide from a future coop board the fact you will be the actual tenant. If the plan were to be that dad buys the place and you just move in without telling anyone there is likely to be a big problem and it could cost your dad a fortune by the time it is over.

In the meantime, do anything you can to get that landlord tenant thing off your report. If that isn't possible, and you have information that would somehow prove it wasn't a big deal (for example: a college landlord didn't return your security deposit after promising to for 3 months and you had to sue in small claims to get it back), or that the suit against you was dismissed, package the info in the most concise, clear and convincing way you can and be prepared to offer it as an addendum with any application where you think it will be an issue.

And yes, you are looking for "parents buying for kids OK" policy such as some of the coops around NYU have. Pied-a-terres have nothing to do with a non-shareholder living there.

Good response kylewest. Sorry, I blanked on L&T. Landlord and Tenant Court. Luckily, a nightmare I have never had to go through in New York, from either side.

I think 407PAS is vastly overstating the price difference between comparable coops and condos. The condo premium might have been that big when credit was easy. Now that 20-25% down is the rule, and banks and GSEs are tightening other guidelines, I suspect the real difference in execution prices (as opposed to asking) is much smaller.

acm34: "I'm under the impression from my real estate agent that coop boards in Manhattan are basically allowed to do whatever they want because it's their building, even if it doesn't make sense. Is this impression correct?"

Two points: (1) Yes, absolutely. So long as they don't discriminate on the basis of race, sex, etc. Even then, it's nearly impossible to prove since they can always find a colarable basis for rejecting you. (2) Be honest with yourself--in this case, it does make sense that they rejected you. Coop boards are tightening up around NYC, going above and beyond their usual strict standards. If I were on the coop board, the Landlord-Tenant court incident would be an automatic, no question about it, reason to deny your application. From their perspective, why take the risk on someone with a previous history of being a difficult tenant? They only have very limited potential upside in granting your application and a TON of potential downside. And since you didn't include the details of that incident, I'd wager a guess that it wasn't as innocuous as the scenarios described by kylewest.

I don't know what L&T is either but the co-op board wants to make sure that you are going to be a good neighbor; it's their community & you have no financial responsibility in the deal & maybe you're irresponsible & will make your neighbors' lives miserable. A good realtor may know a particular building & what they're looking for but otherwise they will have no clout with the board.

West81st,
I don't have an exact percentage on the price difference between condos and coops, but condos are certainly more expensive. What do you think is the difference, in terms of percentage?

I don't like playing with those tax abatements, which hit you with seemingly low prices at purchase, and kill you in later years. I also feel the old standards of 10% down let too much risk into those buildings.

I wouldn't touch a condo in this city, for the above reasons, and because I don't trust banks. I think the coop boards have done a better job of protecting the financial health of buildings than any banks have done.

Help me out with the acronyms, I deal with them all day long, and GSE does not spring to mind. Government Sponsored Equities?

The supply problem is not going to go away, there are a lot more coops in the city. Does anybody have accurate numbers on that?

407PAS:

E = "Entity". "Equity" would be ironic, since the shareholders no longer have any. At the moment, "EIR" might be a more appropriate acronym, for "Entity in Receivership", a category that is certain to grow.

The condo premium varies widely, and it is building-specific. I wouldn't be surprised to find examples in the next six months where it is demonstrably negative, for exactly the reasons you mentioned.

Any board that says "parents buying for kids OK" is still going to want to know about the kid. Many will take the step of asking for references and credit checks on you, and then your red flag will come up.

If I were you, I would follow justy26's advice and go for condos only.

ali r.
{downtown broker}

Regarding telling the board who will be living there...don't circumstances change..marriage, divorce, babies, etc. Why would the father need to tell..

Julia, of course circumstances change but daddy closes on the purchase & then kiddo moves in....... People aren't stoopid.

Julia: For one thing, the proprietary lease probably gives the Board the right to evict a tenant for fairly flimsy reasons, and prima facie fraud isn't flimsy.

West81st,
Yeah, there is no point in trying to do a bait and switch on the board. That won't end well.

The issue of having a Landlord and Tenant case on your record raises the question of whether it is proper for the board to deny you based on this fact. If the tenant won their case and the landlord was clearly at fault, why should the tenant be penalized when they go to buy? If the landlord won, and the tenant raised something that was frivolous, perhaps there is some basis for the board's ruling.

None of this matters, because the board is going to most likely claim financial reasons for denying you, leaving you with no recourse.

I'm not a lawyer so I don't know the answer to these questions. I find it interesting that defending your rights in court can expose you to future punishment, but this is a tough town. Perhaps this is another reason why I have always bought and have not exposed myself to the whims of landlords. Then again, you have to expose yourself to the whims of board, with coops, or banks, in the case of condos. Nothing is perfect.

Whether condos trade at premiums or discounts, they are inherently more valuable than coops. You are not subject to a lease or a coop board with a condo. A condo is real property and there is no sponsor (unless it is a conversion). Condo buildings are jointly owned, with all the risks that that entails, but so are coops, plus coops often have underlying mortgages and some even have land leases. I would rather be in a fully sold condo, than almost any other type of apartment building, but I would rather it not be one sold out in the last six years at sky high prices (and risk).

While condos are generally more expensive, the monthly maintenance costs are usually considerably lower - so I think it's a tradeoff. I'd definitely stick to condos - no board approval and if your own circumstances change and you decide not to live there anymore, it'll be much much easier for your father to rent it out.

I am bothered by the maintenance issues with regards to condos and how well the building can be maintained under this type of ownership structure. I think it is harder for condos to raise the needed capital (through mortaging) in order to perform the work, and therefore have to rely instead on special assessments.

As for risk, how does one even begin to assess the risk in a particular condo building? At least I know my neighbors had to put down 25% at one time and that they were vetted thoroughly. Of course, things can go wrong in either type of building. There are no perfect systems when having to split up the ownership of large buildings, buildings which no single person can reasonable be expected to own.

407PAS's comment about risk prompted me to ask something I've been mulling for quite some time. How do people assess risks on co-ops and condos? It's not directly related to this discussion, so I've started another thread:
http://www.streeteasy.com/nyc/talk/discussion/8209-co-op-vs-condo-risks-worst-case-scenario

Most coops have no interest in a kid living in an apartment. If you have not made it on your own enough to afford a place, and you cannot handle maintenance yourself, that is a bad long term sale. Your prior background is a negative that would not likely be overlooked. Labeling you as a problem child, with prior LT Court incident translates into potential tenant pain in the ass.

Sadly, co-ops are a form of legalized discrimination. Do whatever you have to do to get that incident off your credit report ASAP.

Sadly, co-ops are a form of legalized discrimination. Having said that, you have a big blinking neon sign that says "I am a bad tenant". You're basically giving them a reason to reject you.

Do whatever you have to do to get that incident off your credit report ASAP.

But isn't the flip side that a condo owner can rent to anyone? I mean, as an owner-occupier I would be concerned about that. I would hate to have to live next door to some of my rental neighbors.

Good point, lookingforhome, there is less control in a condo building over who your neighbor rents to, and that may mean that you can get caught with some bad neighbors. Interest rates are lower for owner-occupied property as opposed to investment property, because the banks recognize that owners take better care of the property than do renters. This difference is figured into the interest rates.

Coops boards also vet all people who sublet and can refuse to renew a sublet if there have been problems with the tenant.

Julia: "don't circumstances change..." People's living situations change, of course, and who lives in a coop apt. can change, with one proviso: The shareholder must reside there, too. The shareholder is the one approved to live there and rules permit the shareholder to shack up, marry, have children, have a relative move in. The shareholder may not abandon the property to others and become an absentee owner. That is one of the points of having a coop--requiring high owner occupancy rates and thereby hedging bets toward a more enjoyable living environment.

Think about the problems absentees cause. If the unit is occupied by someone other than the owner, with whom does the board speak about problems? They have to play detective and track down the shareholder. What is occupant is real nuissance and board wants them out? There are rules for a shareholder who is a problem, but with a tenant, Landlord-Tenant laws could kick in, eviction laws become relevant, legal fees add up. Meanwhile the problem occupant keeps leaving nasty garbage in bags on floor of incinerator room without throwing them down chute, the occupant has drug dealers with thugs in tow coming and going from building, the occupant blasts the bass on his stereo no matter what neighbors ask, the occupant has strangers coming and going from apartment and graffiti appears in elevators or halls or someone even urinates in a public hallway one night. These are 100% real-life situations I've seen in coops that had more permissive policies re: non-owners occupying units. It only takes a couple of these situations before a coop tightens up the rules.

I'm one who strongly favors coops. I couldn't care less about a board reviewing my taxes and finances, I am quiet, have manners, and make an great neighbor, and enjoy having the ability to insure I live with similar people. I work my ass off all day and worked very hard to be able to buy and maintain an apartment. I like the vigilence of coop boards in protecting my investment. In a condo, who exactly is striving to protect my quality of life and investment? A bunch of absentee investors and transcient tenants? I don't think so. So while coops are not for everyone, they are not only acceptable--they are even preferable--for many people.

407PAS, Gee, you make Coops sound so nice. Why is it that no new developments are sold as Coops? Could it be you have one for sale? I'll repeat myself, I would rather live in a fully sold condo building. Not a recent prewar conversion that has 45% owned by a sponsor, that are rented out, and 55% owned by people with 2006 and 2007 price basis (if they paid more, they have higher mortgages). I want to live in a seasoned condo where two-thirds of the tenants bought ten or twenty years ago, and have lots of built in equity. I don't mind if some people rent out their units. Sponsors of luxury coops rent out their units or sell them with no board approval. Coop resident have neighbors not approved by the board. Most condos have their board review all owners and tenants financial status which is a deterrent to unqualified people.

It is interesting to read the comments by kylewest and PMG, one after another, to get different views on the coop versus condo debate. I agree with what kylewest has said with regards to coops. I don't necessarily disagree with PMG, if I could find something fully sold, like he says. I feel that I won't be able to afford anything decent, though.

Sure, I'm selling a coop, but I am going off to buy into another coop, so it isn't like I have had a bad experience with my coop ownership and am turning away from purchasing another one. I have had a good experience as a coop owner over these last seven years, with a building where the staff is great, the services are good, the building is well maintained, and the maintenance has been stable, even if high when compared to other buildings.

"Coop resident have neighbors not approved by the board."

Sublets are approved by the board so I am not sure how you can make this statement. I suppose there are always some boyfriends hanging around and such, but subletters have to submit a package and be interviewed by the board, at least in my building.

I am not sure why current buildings are not being converted to coop ownership, to be honest with you. Can someone else comment? I looked at some recent conversions on the Upper West Side and was scared away because of the potential downsides. I was very excited about one place but backed off because of the risks. I am just one data point.

I bet no new buildings convert to coops because the sponsors can cheat you more effectively with those tax abatements. That's my cynical take on the situation.

If any of your coop neighbors bought from the sponsor or rent from the sponsor, my understanding is those deals bypass the board.

407PAS, well if that is the case, that is another reason to be in a seasoned condo. The abatement has expired and the value of the unit will be priced with fully taxed status (no premium!)

PMG,
Good point with regards to buying into a fully phased in condo so that you know all of the true costs. Unfortunately, I have just not seen that many condos that I can afford. Condos are more valuable than coops and trade at higher prices, as others have remarked.

Yes, you are right, sponsor deals can bypass the board, I had forgot about that point. Well, so, a greater percentage of rentals are vetted in a coop versus in a condo, although I suppose it depends on the condo board.

In order to figure out why buildings are not converting to coops any longer, we're going to have to look at this issue from the point of view of the sponsor. Condo ownership must favor the sponsor financially, I would think, or they would pick coop ownership.

407PAS, I think your point that the tax abatement option favors the developer is a valid point. But I think you are over thinking it a bit. Condos favor buyers because they come with more rights of ownership (renting, fewer restrictions on sale or transfer). It is principally these extra benefits which result in a value premium that the developer also benefits from when they are selling.

I think the main hard-dollar difference is that coops usually have an underlying mortgage, so when you buy a coop (more precisely, shares in a coop corporation), the asset is encumbered by a pro-rata share of that mortgage, which is reflected in higher pre-tax monthly costs. With a condo, any underlying debt is fully monetized in the purchase price.

All the other differences are a trade-off: More control of your proprty vs. more control over what your neighbors do with theirs. In recent years, the condo premium has generally exceeded the NPV of the excess monthlies, meaning that buyers tended to value autonomy over community (or at least over community as defined by the friendly local coop board). That relative valuation could change, though. One type of control is not inherently more valuable than the other.

PMG,
Yeah, maybe you're right and I'm putting too much emphasis on this point about the tax abatement. I wish I had more money to buy into a well established condo. I will keep my eyes open and consider both kinds of units as I go forward.

West81st, is that true? I thought (in non-abatement situations) the typical coop maintenance is lower than an equivalent condo's maintenance+taxes (the former has taxes included, so that's the true apples-to-apples comparison).

Tech Guy: Since coops generally have an expense (debt service) that condos don't, I would expect that if two buildings were otherwise identical and had similar sales histories, the coop would have higher monthlies. Nonetheless, I suppose a TYPICAL condo could run higher monthly costs than a TYPICAL coop for various reasons - for example, the typical condo has more expensive amenities and might be assessed (abatements aside) at levels closer to current market than a typical coop.

This really isn't my area of expertise. I would gladly defer to somebody like Front_Porch on this question.

I just posted this to another thread but you might want to check the following Miller Samuel Inc. paper on "The Condo vs. Co-op Puzzle":

http://www.millersamuel.com/pdf-tank/1051930559WFulr.pdf

The general findings are that in the long term Condos are the more valuable type of property.

Again, I'm not sure myself, but I did mean for the comparison to be for equal amenity buildings. The vague idea I had was that condos typically pay much more tax for equal apartments than coops.

tech_guy,
My gut feeling is also that condos shoulder a heavy tax burden but I don't have any good evidence for this besides what I have seen in the listings.

I should have said a heavier tax burden than coops.

Here's the flaw--or recognized exception--to the posted "draft" paper, ogden. A primary residence is not just another type of investment. Unlike which stock we buy, an apartment purchase shapes and contributes (or detracts) a tremendous amount from the quality of our lives. If you live in an apartment for 20 years, you have spent 1/4 of your life there. Adding and subtracting the dollars and cents to figure out if it ought to have been a condo or coop will not necessarily get you to the right answer; it could be a factor, but that's it. "Irrational" behavior from an economic standpoint abounds because quality of life issues interfere with a strict economic analysis. The ability to transfer ownership in an unrestricted way may increase monetary value, but for many, many people, the benefits of exclusivity and restrictiveness that coops offer are actually benefits. What the article casts as the "inefficiency" of the coop form in an economic model is desirable to many people. That is why the coop persists beyond the other reasons cited (transactions cost of conversation, etc).

In a recent search, where the price differential between coops and condos was irrelevant to me, I focused on coops exclusively. For me, they are the right choice. I like boards, I like restrictiveness, I like vetting the people who will share my investment, I enjoy having a tighter reign on what goes in in my building and with its finances. Let's see how the two forms compare in the coming couple of years in NYC. I do not have high hopes for the new condos jammed with investors, renters, aging finishes, increasingly unaffordable amenities, and expiring tax abatements.

I think kylewest raises some good points. It is possible to know the cost of everything and the value of nothing. I think a well run coop can be a great place to live. We can't forget that in order to live in New York, we have to share space in crowded conditions. Neighbors need to treat each other with a modicum of respect in order for the whole thing to work out. Coop boards have to try to enforce some level of appropriate conduct so that people can enjoy their property.

We looked at co-ops to house our working (freelancer) offspring for two years, eventually submitting packages to two different boards resulting in one immmediate dismissal and one delayed turndown. The "process" was frustrating since we had no real insight or influence in the review of our information. With secure incomes in the upper six figures , attempting to buy a co-op way below the mortgage amount we'd qualified for , we ended up with rejections which ultimately resulted in our purchasing a much more suitable pre-war condo in an elevator building. These units are available all over Manhattan and you need to remember that if a place is difficult for you to get into that it will be even more difficult to exit. Condos (like divorce) cost so much because they are worth it. No rental or habitation restrictions, no sales restrictions and no neighbors in your wallet .

Raddoc: you give perfect example of why I prefer coop. I don't want to live with your "freelancer" offspring if they wouldn't independently qualify to share my investment. I don't want people dependent upon mommy and daddy to pay their bills in lean times. I prefer adequate cash reserves of the buyer and the financial wherewithall to pass the board on their own.

Condos offer situations better suited to your child's circumstances. Isn't it nice to have choices? That's why I keep saying over and over, coop or condo is a matter of personal choice. For me, I like coops. The last coop I owned for 18 years ostensibly cost less than a comparable condo would have. It increased 490% in value while the money I saved by not buying a condo was in the bank working for me for 18 years. In addition, when I thought the building needed change a couple of times over the time I lived there, I participated on the board and committees and very much enjoyed the sense of friendship and community we fostered while enhancing our overall quality of life. The first buyer to make an offer I accepted was passed by the board without incident and "getting out" was as easy as "getting in."

Condos aren't just for people who derive some of their income from their parents, but also ex-spouses or their children. My neighbor is an elderly woman living in an apartment owned by her daughter. She has no mortgage so I'm not worried about her families' wherewithal to pay her common charges. In my building, we have had a well known, working actor, a tv anchor and people who may have been concerned about coop board discrimination because of the color of their skin and sever other about their sexual orientation. Not all coops would unfairly discriminate against these people, but isn't owning actual real estate just easier for them?

Most coops will not allow a parent buying for their adult child. Many coops will allow co-purchasing or a guarantor for working adult children. Even if the parents pay for the apartment, the coop will want the adult to be working with their own income and be responsible to pay the monthly maintenance and/or mortgage payments. The monthly housing costs can not exceed 25-30% of the adult child's monthly income.

http://nycblogestate.com/2011/12/guarantors-parents-purchasing-homes-for.html

good lord, this thread is 2 years old. where does the time go?