Buying a Co-op vs. a House in New York: 4 Differences
1. The Way You Own.A house and a condominium are real property, a piece of land with a structure attached. A Cooperative (Co-op) building is owned by a corporation and your apartment is one unit within that corporation. When you purchase your co-op apartment, you are buying a certain number of shares in the corporation that owns the entire building. The number of shares is based on the size and location of your unit in relation to the entire building. You are essentially "going into business" with the other unit owners, or shareholders. Along with your particular unit, you purchase an interest in the "common areas," of the entire building, such as the entrance, hallways, and elevators.
2. The Approval Process.
As with any corporation, there is a Board of Directors that manages the daily business of the organization. This is the same for a Co-op. Since the ownership structure is such that you are essentially entering into business with the Co-op corporation, you are able to review the corporation's financial data and they are also allowed to review your financial data. This makes things a bit tricky because it means that the Board of Directors, who are also some of your neighbors, get to see your earning reports, tax returns and other financial information to determine whether they feel you are a good fit (or risk) for the corporation. Part of the review process is also an interview with the Board of Directors where they can ask you about those financials and other personal information.
3. The Amount of Your Tax AdvantageAs stated before, every unit in a Co-op has a certain number of shares allotted to it. This number of shares helps determine the monthly maintenance for the unit. Each month your maintenance pays your units' percent of the underlying mortgage on the entire building and the percent of the taxes for the entire property. When you own a single family home, you are responsible to pay the entire amount of real estate taxes for your property. Typically, real estate taxes and mortgage interest on a primary residence are deductible on your federal income tax return. Therefore, owning a co-op may provide you with a tax deduction, but it would likely not be as much as if you were paying the taxes on a single family home.
4. The Affordability.
If you are looking to get into your first home, a co-op may be the answer because prices are generally lower than single family homes. However, many co-ops require their sellers to only accept buyers who will have a down payment of a certain percentage. If you do not have a lot of money saved, say 20%, for your down payment, you may not be accepted by the Board. The good news is that 20 percent of a lower sales price is less money, so saving up should take less time.