About Townhouses and Brownstones,  Condominiums and Co-operatives

What are Townhouses and Brownstones?

While Townhouse and Brownstones are quite common throughout the country, they are a rather new concept for New York City. Townhouses and Brownstones are also real property in Manhattan. The buyer gets a deed to the house. Since this is real property there is a separate tax for a home.
 

What is a  Condominium?

While condominiums are quite common throughout the country, they are a rather new concept for New York City. A condominium apartment in Manhattan is real property. The buyer gets a deed just as though you were buying a house. Since this  is real property there is a separate tax lot for each apartment. Hence, this means you pay your own real estate taxes for your property. An owner will also pay common charges on a monthly basis. Common charges are similar to maintenance in a co-operative. However, they will not include real estate taxes since these are paid separately, nor will it include the building’s mortgage and interest given that a condominium, by law, cannot have an underlying mortgage.

Condominiums are attractive for a variety of reasons:

I) Financing the purchase of a condominium apartment is much more flexible than in a co-operative. Generally, a buyer can finance up to 90% of the purchase price.

2) While there is an application process, this is not as formal as in a co-operative. The likelihood of rejection is minimal.

3)   There is greater flexibility in sub-leasing your apartment. This makes condominiums the choice for investment property.

4) They are the ideal choice for non-U.S. citizens or for those with their assets held outside of the United States given that co-ops are unlikely to approve a buyer whose funds are not in the U.S.

Given that there are fewer condominiums than co-operatives and that they are 'easier’ to purchase, they are generally more expensive than co-ops. Additionally, monthly combined common charges and real estate taxes in a condo are typically less than a co-op's monthly maintenance charges, again resulting in higher purchase prices.
 

What is a Co-op?

Co-ops are not a new concept, although they seem to be a type of ownership that is more common in New York City than elsewhere in the United States. In New York City, 35% of our apartments available for purchase are in co-operative buildings, while 13% are in condominiums. This means two very simple things to potential buyers in New York City:

1) There is more inventory to choose from if the buyer incorporates coops to the mix of properties, and

2) Prices are, in general, more attractive for co-operatives - simple supply and demand.

Co-operatives are owned by an apartment corporation. Individual tenants do not actually “own” their apartments as they would in the case of “real" property. One owns “shares" in the corporation which entitles the individual to a long-term “proprietary lease." The corporation pays the total amount of the building's mortgage (importantly, a co-operative may have an underlying mortgage on the entire building, whereas a condominium must be owned outright), real estate taxes, employee salaries, and other expenses for the upkeep of the building. The tenant-owner, in turn, pays a share of these expenses as determined by the number of shares the tenant owns in the corporation. Share amounts are dictated by apartment size and floor level.

The considerations when buying a co-operative are:

1) The tenant-owners have the right to “approve" or “disapprove" of any potential owner. The Board of Directors, which is elected by all of the tenant-owners of the co-op, interviews all prospective owners. They have the responsibility of protecting the interests of their fellow tenant-owners by selecting well-qualified candidates.

2) The quality of services and the security of the building are kept at high standards.

3) Portions of the monthly maintenance are tax deductible. Each building has its own tax structure, but all coops offer a tax advantage. Shareholders can deduct their portion of the building's real estate taxes, as well as the interest on the building's mortgage.

4) The amount of money that may be financed is determined by each co-operative. Some buildings require substantial down payments. Generally speaking, in Manhattan prospective purchasers should be prepared to 'put down' at least 20 to 25% of the purchase price. Importantly, this could be higher in some buildings.

5) Subleasing a co-op must be approved by the Board of Directors of the co-operative. Each corporation has its own rules, and they should be examined if a potential owner intends to sublet.

With this in mind, it is important to remember that co-ops are the norm here in Manhattan, not the exception. However, beginning a search for a co-operative apartment, think about the financing limitations and the application and interview process.

If I can be of further assistance please feel free to contact me via e-mail at jhicks@JOH9.COM , my partner Jeff Kelson via e-mail at jkelson@JOH9.COM or call 212-946-1102.
 

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