Caught in the maze of buying an apartment in New York City? The rules are different in New York City than in other parts of the country! For the inexperienced some of the differences may be perplexing, however, we can guarantee that if you do your homework and keep this guide handy, the process will flow much more smoothly.

New York is a city comprised mainly of cooperative and condominium apartments with a smaller selection of private homes, which we call townhouses or brownstones. Most important is understanding the differences between the types of apartments you will find in Manhattan.

Co-operative Buildings

Cooperatives 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, approximately 80% of our apartments available for purchase are in cooperative buildings, while 20% 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 includes co-ops into the mix of properties, and
2. Prices are, in general, more attractive for cooperatives – simple supply and demand.

Cooperatives are owned by an apartment corporation. Individual tenants do not actually “own” their apartments as they would in the case of “real” property. Owners, (shareholders) of co-op apartments, actually own “shares” in the corporation which entitles them to a long-term “proprietary lease.” The corporation pays the total amount of the building’s mortgage (importantly, a cooperative may have an underlying mortgage on the entire building, whereas a condominium building 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 portion 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 cooperative are:

1. The Board of Directors has the right to “approve” or “reject” any potential owner. The board, elected by all of the tenant-owners of the co-op, interviews all prospective owners. It has the responsibility of protecting the interests of all 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 co-ops offer a tax advantage. Shareholders can deduct their portion of the building’s real estate taxes, as well as their proportionate share of the interest on the building’s mortgage.
4. The amount of money that may be financed is determined by each cooperative. Some buildings require substantial down payments. Generally speaking, in Manhattan prospective purchasers should be prepared to “put down” at least 20 to50% of the purchase price (depending on the building) when purchasing a cooperative apartment.
5. Subleasing a co-op must be approved by the Board of Directors of the cooperative. 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, before beginning a search for a cooperative apartment, think about the financing limitations and the application and interview process.

Condominium Buildings

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 if he were buying a house. Since this is real property, there is a separate tax lot for each apartment. Hence, this means the buyer pays his own real estate taxes for the property. An owner will also pay common charges on a monthly basis. Common charges are similar to maintenance in a cooperative. However, they will not include real estate taxes since these are paid separately, nor will they 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:

1. Financing the purchase of a condominium apartment is governed by the financial markets not a board of directors and thereby much more flexible than in a cooperative. In the past, a buyer could finance up to 90% or more of the purchase price. However, with the current  conservative credit practices, you should be prepared to “put down” about 20% or more even for a condo.
2. An approval process is usually required, and most condo boards are requiring application packages with financial disclosure. Generally, however, the requirements are not as rigorous as the co-op boards. A board meeting may or may not be required. The length of time for approval varies from building to building, but it is usually not as long as a co-op approval process.
3. There is greater flexibility in sub-leasing your apartment. This makes condominiums the better 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 cooperatives 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.

Excerpted and modified from Prudential Douglas Elliman.