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What are the pros and cons of condos vs. co-ops?

Historically, in New York City, most of the apartment buildings were co-operatives, and condominiums were bought as pied-a-terres (second homes) by non-New Yorkers.

Now, however, we’ve reached an interesting point: half the inventory on the market is condos, and half co-ops. So how to choose?

Pros of condos:

* Generally newer construction, with a higher level of finish and amenities. The NYC luxury market (think $2mm and above) is cycling so quickly that at this point, a six-year-old kitchen looks dumpy.

* Easier or unlimited subletting, so if your job takes you to London, your apartment can still generate income to cover some of its costs.

* Easier resale as your buyers do not have to go through a stringent board approval process.

Cons of condos:

* Danger of part-time neighbors (we live in a condo and it’s tough to make friends; the people to our left are here only on weekends; the people on our right are here only during the week)

* Less control over the community (more renters in the building — they tend to be more transitory and louder)

* Since they tend to attract buyers that like “new-new-new,” the appeal of a condo building can fall off pretty quickly once it’s ten or twenty years old — it’s like the way a new car depreciates quickly once you drive it off the lot

* 421(a) tax abatements (not all condos have these, but many new ones do) wear off. This causes your taxes to rise, sometimes dramatically, as you own the apartment. Also, the building’s underlying value for tax purposes will reset in the future — which could cause another tax shock

Pros of co-ops:

* Generally cheaper — currently the market discount is running 20% to 30% per square foot;

* Quieter environments — since homeowners have to pass a board to get in, hard-partying twenty-year-olds are generally not a problem;

* Tighter communities — if, for example, you have young kids, it can be easier to find a co-op with other families with young kids in it.

* Since they tend to be older buildings, co-ops have often stabilized in terms of market appeal and don’t tend to depreciate over time in a buyer’s eyes — in a sense, they already have

Cons of co-ops:

* Longer lead time to re-sell — it might take you six months to sell instead of three, because you have to build in time for the board to review — and possibly reject — your first buyer;

* Tighter community can mean more stringent rules — you may need board approval for even simple renovations, for example; you may need to get your handymen bonded with $1 mm worth of insurance to do even fairly basic work.

* Financial stringency. Higher down payment requirements and income tests limit pool of potential buyers; also, many wealthy buyers who would qualfy do not want to undergo the financial proctology a strict board package requires.

Posted in For Buyers 13 years, 3 months ago at 8:08 am.

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