In a co-op, the building is owned by a corporation. The shareholders are the owners of the building. The shareholders buy shares in the co-op corporation, and their shares give them the right to occupy an apartment in the building.
When a shareholder sells an apartment in the corporation, they sell their share of the corporation. The corporation is the majority owner of the apartment. To buy a co-op, you must get approval from the Board of the corporation. Then you will be required to pay the corporation treasury fee, annual dues, and special assessments.
Co-op boards and shareholders make decisions together. They can vote on significant changes to the co-op that would affect the shareholders. Typically, the shareholders make their decisions on smaller issues.
Today, let’s explore some key questions you need to ask when you decide to buy a co-op. Here’s what you need to know:
Co-op vs. Condo?
We have all heard of condos, but what is the difference between a co-op and a condo? It depends. For example, if you want to purchase an apartment in Williamsburg, Brooklyn, your future home will most likely be a condo. This is because condos are less regulated than co-ops.
However, if you want to purchase an apartment in the Upper Eastside or other neighborhoods across Manhattan, the building will most likely be a co-op. Overall, your decision to purchase either a condo or a co-op should depend on your budget and preferences.
What is the Required Downpayment?
The required downpayment for purchasing a co-op depends on the location of the building and the building’s size. Typically, the required downpayment for buying a co-op will range from 5% to 20%. For example, you might be required to put down at least a 5% downpayment if you buy a co-op in Brooklyn. However, you might be required to put down at least a 20% downpayment if you buy a co-op in Manhattan.
How Much is Needed for Financial Reserves Post Closing?
After you purchase a co-op, you will be required to maintain financial reserves. You will not be required to maintain these financial reserves when you buy a condo. For example, you will need to maintain financial reserves equal to three months of common charges for the corporation. Furthermore, you will need to maintain financial reserves equal to six months of common charges for the building. These funds exist to cover the corporation’s operating expenses.
Am I Allowed to Sublet?
Subletting your apartment is not permitted in a co-op. However, there are some exceptions. For example, you may be allowed to sublet your apartment if you leave the state for business or military service.
Am I Allowed to Have a Roommate?
Roommates are permitted in co-ops. Each co-op association has its own rules and regulations regarding how many roommates you can have in your apartment. Typically, the maximum number of roommates you can have is two.
What is Flip Tax?
Flip tax is a fee that the co-op (or condominium) charges the owner when they sell the apartment within the first few years. The fee is usually calculated at one-half of the capital gain you make when you sell the apartment. For example, you make a capital gain of $100,000 when you sell your apartment, so that you will be charged $50,000 in flip tax.
The Bottom Line
Buying a co-op or condominium requires a lot of planning. You need to consider both the future and current value of the apartment and the long-term costs of owning a co-op or condo. Plus, your decision to buy a co-op or a condo will depend on your budget, preferences, and lifestyle.
Now that you know more about buying a co-op, you are ready to start your search and make the right decision!
If you are interested in living in Upper West Side Manhattan, we can help you. Lincoln Towers is an eight-building apartment complex. We are located on the prestigious Upper West Side in NYC. Contact us today to learn more about the Lincoln Towers neighborhood and apartments. Get started now!