Considering buying a coop - how small is too small? (apartments, mortgage)
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We are considering buying a coop apartment and saw one we liked. One thing that concerns me is that there are only 10 apartments in the building. How much of a concern would it be in terms of sharing the cost of any major renovation? We do not yet have information on the building's reserve funds. The elevator is quite old and might need replacing a few years from now.
I would be a little afraid of purchasing in such a small co op not only because of potential major renovations or emergencies but because of the risks involved if even 1 or 2 shareholders becomes unable or unwilling to pay monthly maintenance charges.
Good point, bluedog. At what point would you feel comfortable? 20 apartments? 30?
I would say at least 25 or 30 and even then ( as should always be the case) carefully scrutinize the financial history,reserve fund,etc.
My co op keeps an absolute minimum of a year's operating expenses in reserve and has a $500,000 open line of credit in case of emergencies. There are 125 units in the building.I think the size of a credit line is important because it means that a bank has analyzed the finances and made a positive decision re the credit worthiness of the co op.If a place doesn't have substantial reserves a no credit line I'd pass.
Also,find out if there is an underlying mortgage on the building and it's terms and figure out what percentage of the buildings value it represents.a lot of people seem to think it's good the be in a co op where 50% of the monthly maintenance is tax deductible. To me that just indicates the the corporation is too highly mortgaged because it is the mortgage interest payments that make up the bulk of a co ops tax deductions.
Excellent point. I had a friend in a building with a half-dozen units, and when they had roof problems, it was a financial disaster. I'd hope for at least 20 units.
With a boutique co-op, I would look for one where mortgages are not allowed, so as to hedge any potential for future non-payment due to financial insufficiency on the part of any other shareholder, due to a change in circumstance from the original purchase. A larger building with 20 units could be fine, depending upon the financial qualifications of shareholders upon application, mortgage limitations (technically a share loan in a co-op), and the financial and structural health of the building.
One family member lives in a boutique co-op, but purchases are in cash, so there has been little turnover in the building, and no financial hardships. Another person I know lives in one that allows purchasers to borrow, and while there have not been any headaches to date, since it is a converted townhouse, there could be problems looming. Both, however, have maintenance that is on the high side, with the cash building representing the luxury end of the scale, but the converted townhouse is at a mid-level (for NYC), but maintenance is higher than a similar amount of space would be in a larger building.
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