New York Condos

• When you buy a condominium, you are purchasing real property.
• When you buy a co-op you are not actually purchasing the physical apartment; you're buying shares in the cooperative corporation that owns the building.
• Once the sale closes, you will own the number of shares allocated for that apartment based on its size and location.
• Instead of the deed you receive when you buy a house or a condo, with a co-op you get a stock certificate and a proprietary lease or occupancy agreement.

• When you own a condominium, you are a property owner, and you pay real estate taxes directly to the city.

•  In a co-op, your building is assessed as a whole and the building pays the real estate taxes.

• You, as a shareholder, are charged a percentage of these taxes, which are typically included in your monthly maintenance bill.

• Therefore, in looking at average monthly carrying costs for a condo versus a co-op, you must determine the annual real estate tax estimate on the condo, divide it by twelve, and add it to the monthly common charges.

• Whether you are a co-op or a condo owner, real estate taxes and mortgage interest on primary residences are usually deductible on your Federal income tax return.

• As a co-op owner, the interest on the underlying mortgage allocated to your shares may also be deductible.

• The co-op annually notifies shareholders of the dollar amounts of these allocations.

• Common charges are the costs associated with the upkeep of the building, which are in addition to the costs of your apartment.
•  The common charges may include payments on water and sewer fees, fuel costs, utilities for the common areas, salaries for building employees, insurance, and any other expense related to the operation of the building.
• In the case of a co-op, the monthly maintenance payments usually cover local real estate taxes on the building and may also include payments on the building's underlying mortgage.

• When you get a mortgage to buy a condominium, the property is collateral for the mortgage.
• Since you're not buying real property when you buy a co-op, you are not getting a mortgage in the traditional sense of the term.
• In effect, you are getting a loan to buy the shares and a proprietary lease to live in the designated co-op unit.
• Your shares in the co-op serve as your collateral. Shares are not as valuable to the bank, because they can't be sold as easily as the real property of a condo.
• The co-op's board of directors may put conditions on the sale of its shares.

• In a true co-op, where the sponsor is no longer the majority shareholder, the board of directors is made up of your neighbors--shareholders who function on a volunteer basis and usually have no training in building management or real estate financing.
• In most co-ops the board has broad authority to approve stock sales, authorize expenditures, hire staff, and adjust maintenance charges.
• The board can also change policy, rules, and regulations as long as they don't conflict with the bylaws or proprietary leases.
• They can determine such important issues to shareholders as prohibitions on the ownership of pets and the right of a proprietary lessee to sublet an apartment.

• Your long-term goals will help determine whether a co-op or a condo is appropriate for you.
•  The co-op's board of directors must approve whoever rents your apartment as well as whoever ultimately buys it.
• Aside from aiming for a compatible community of residents, the co-op has a stake in the financial reliability of each unit holder, since unpaid taxes and carrying charges ultimately fall upon the remaining shareholders if any unit holder defaults.
• If you plan to live in the apartment for five years or more, a co-op is a good choice, since the purchase prices tend to be 20 to 40 percent lower than comparable condominium units.
• There are some co-ops that still have a high percentage of sponsor-held units, or unsold shares.
• Majority ownership by the sponsor does not produce a true cooperative and may not be in the best interest of a purchaser.

• This reflects the indebtedness of the building, which is applied on a per-share basis to each individual unit.
• If there is a $100,000 mortgage on a 10-unit building and all the apartments hold an equal number of shares, then the debt per each apartment is $10,000.
• The size of the mortgage is what matters; the smaller the mortgage, the better the building is for the shareholders.
• If the terms of the mortgage call for full payment in four or five years, the co-op's board of directors will have to secure new financing without assurance that they can get favorable rates.
• If the building's payments are fixed for an extended period, there is greater certainty that your maintenance payments will not increase and therefore you will probably be able to make your agreed cooperative loan payments.

2. The Reserve Fund

• A co-op's annual operating budget should include adequate provision for ongoing maintenance.
• If the fund is large enough there may be no need for increased maintenance fees, assessments, or new loans.
• If there is a shortfall, shareholders might have to absorb maintenance increases to cover the cost of the installation or to pay the interest and principal on a loan.
• This can take the form of a one-time set amount or can be an addition to the monthly maintenance fee for a period of time or in any manner decided by the board.
  
• Typically a lender would like to see a reserve fund of at least $1,000 per unit with a minimum of $25,000 per building.
  

3. Building Repairs

• Check the physical condition of the building. Are there any major repairs that need to be done to the building? This could easily cause the maintenance for the apartments to go up.