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I live in the NYC area and there are several apartments for sale that are "Co-ops". They have a large purchase price along with monthly maintenance fees--and one sometimes gets a mortgage to buy one.
However, the way I understand it is that you are technically not really purchasing the apartment you live in--but rather shares in the building. Anyway, what's confusing is that when I read about people who live in co-ops they sometimes use terms that indicate that they rent. They call the maintenance fees "rent" and the building management the "landlord".
Is someone who has purchased a share in a co-op and lives in an apartment there technically a homeowner in NYC? Since you don't own your specific unit, does that mean the building could make you move into another apartment in the building if it wished?
It is like renting because everything needs to be approved by the board. If you need to make any alterations to your unit, you'll need the approval of the board. If you make too much noise, you'll get a letter from the board. But the unit you purchased belongs to you, they cannot move you to another unit. You own that unit until you sell it or pass away. Your children cannot continue the ownership. It will have to be sold after your passing.
inheriting a co-op doesnt mean you have to sell it.
When it comes to children most co-op leases at least here in nyc say ,that the board cannot unreasonably withhold the right of offspring to occupy apartments they have inherited.
for all intent and purpose your in theory no less a homeowner than a condo owner.
its a different structure than a condo and as a by product of your owning shares a perk is you get to live in an apartment. certain expenses like real estate taxes, part of your mortgage, heat and building expenses are pooled and payed as maintaince. these are for the most part things a condo or homeowner has to pay as well.
you get the same tax deductions for certain exenses.
just like a homeowner you can accumulate equity and sell your shares when you want to move.
the whole co-op concept is a very interesting one.
it was really conceived as a way for landlords to have a light at the end of the tunnel and get out from under the rent stabilization laws. once an origonal tenant moved or bought the apartment was destabilized.
the problem was in order to take a building co-op the owner of the building needed a percentage of insiders to buy.
many old time tenants couldnt qualify for a mortgage if the building was a condo if they had to take a mortgage for the full amount.
the answer was let the building hold a part of the mortgage. that way the potential co-op buyer's bank would be on the hook for a lot less since the buildings bank assumed the rest of the risk.
it now took alot less income to qualify and banks made the loans since they had less skin in the game at risk with the building taking the risk for part of the mortgage.
with a condo or home you have to take a mortgage for the full amount and your bank is on the hook for that full amount.
with a co-op the actual value of your shares are split between you and the sponsers bank with your personal mortgage only accounting for part of the value.
when you add together your personal mortgage and the buildings mortgage thats really what you owe but your bank is only funding part of it.
that structure worked beautifully ,the co-op craze took over as many many rental buildings went co-op. i have been buying,leasing out and selling co-ops for over 30 years now as an investor. we have been liquidating the business the last 10 years as we get ready to retire but we still have a few apartments left in some of nyc's most prestigious buildings.
there are advantages and disadvantes to co-op life but thats another discussion.
Last edited by mathjak107; 02-15-2012 at 03:23 AM..
inheriting a co-op doesnt mean you have to sell it.
When it comes to children most co-op leases at least here in nyc say ,that the board cannot unreasonably withhold the right of offspring to occupy apartments they have inherited.
for all intent and purpose your in theory no less a homeowner than a condo owner.
its a different structure than a condo and as a by product of your owning shares a perk is you get to live in an apartment. certain expenses like real estate taxes, part of your mortgage, heat and building expenses are pooled and payed as maintaince. these are for the most part things a condo or homeowner has to pay as well.
you get the same tax deductions for certain exenses.
just like a homeowner you can accumulate equity and sell your shares when you want to move.
the whole co-op concept is a very interesting one.
it was really conceived as a way for landlords to have a light at the end of the tunnel and get out from under the rent stabilization laws. once an origonal tenant moved or bought the apartment was destabilized.
the problem was in order to take a building co-op the owner of the building needed a percentage of insiders to buy.
many old time tenants couldnt qualify for a mortgage if the building was a condo if they had to take a mortgage for the full amount.
the answer was let the building hold a part of the mortgage. that way the potential co-op buyer's bank would be on the hook for a lot less since the buildings bank assumed the rest of the risk.
it now took alot less income to qualify and banks made the loans since they had less skin in the game at risk with the building taking the risk for part of the mortgage.
with a condo or home you have to take a mortgage for the full amount and your bank is on the hook for that full amount.
with a co-op the actual value of your shares are split between you and the sponsers bank with your personal mortgage only accounting for part of the value.
when you add together your personal mortgage and the buildings mortgage thats really what you owe but your bank is only funding part of it.
that structure worked beautifully ,the co-op craze took over as many many rental buildings went co-op. i have been buying,leasing out and selling co-ops for over 30 years now as an investor. we have been liquidating the business the last 10 years as we get ready to retire but we still have a few apartments left in some of nyc's most prestigious buildings.
there are advantages and disadvantes to co-op life but thats another discussion.
If I inherit a co-op, I'd just sell it & retire some place else with the money... either that or rent it out if it make sense enough.
However, the way I understand it is that you are technically not really purchasing the apartment you live in--but rather shares in the building. Anyway, what's confusing is that when I read about people who live in co-ops they sometimes use terms that indicate that they rent. They call the maintenance fees "rent" and the building management the "landlord".
I owned a co-op in NYC for almost 10 years, and I certainly considered myself a "homeowner." In that time I can't say that I ever heard any owner use the terms "rent" or "landlord." There were, however, several older tenants who had lived in the building before it converted to co-op and had decided not to buy their apartments; they continued to rent their units. Maybe that's what you've read about? Also possible that some older tenants who did buy their apartments continued to use those terms out of habit.
To answer your other question, the co-op cannot move you to a different unit. When you buy shares in the co-op, you're buying shares that are assigned to a specific apartment.
Thanks everyone for your responses--this has been very informative. It sounds like generally co-ops have more freedoms than rentals but less freedoms than condos--is that a correct? I've noticed that although many older buildings seem to be co-ops (probably to escape the rent stabilization that mathjak107 mentioned) most of the new buildings being built are condos. The condos always seem about 20% more expensive than a comparable co-op apartment.
Is one form of ownership better than the other? Can a co-op building ever convert itself to condos if everyone voted?
Yes. They have leasehold ownership as opposed to fee simple. You can deduct the interest and a large percentage of the maintenance is tax deductible. In addition, it has the potential to increase in value overtime. It is a great investment for people that prefer an apartment lifestyle but want the financial benefits of homeownership.
Thanks everyone for your responses--this has been very informative. It sounds like generally co-ops have more freedoms than rentals but less freedoms than condos--is that a correct? I've noticed that although many older buildings seem to be co-ops (probably to escape the rent stabilization that mathjak107 mentioned) most of the new buildings being built are condos. The condos always seem about 20% more expensive than a comparable co-op apartment.
Is one form of ownership better than the other? Can a co-op building ever convert itself to condos if everyone voted?
it could become a condo but everyone would have to cough up big bucks to pay off the building mortgage . if the sponser holds a number of apartments he would have to pay off a big nut too.
Another point about co-ops is that in many cases purchasers need to be approved by the board...who will ask for details of income sources, references, etc. One reads about this especially in NYC. To be honest I think dealing with a bank for a mortgage is less intrusive- and less uncertain.
it sure is . it all boils down to money and whether your bank will loan you enough to go condo or private home.
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