Buying a Co-op

What is a Co-Op?

Co-operative ownership developed as a way for apartment dwellers to own their living space. Co-ops are more frequently found in the greater New York City metropolitan area than in other parts of New York State.

Typically, in a co-operative, title to the land and the building is held by a corporation. Tenants buy shares, in proportion to the size of the unit purchased, in the corporation and receive proprietary leases to their apartments. So, a co-op unit or apartment is the interest of a shareholder in the corporation. Tenants pay monthly fees to cover maintenance costs, property tax, and the mortgage on the co-operative. As stockholders, tenants exercise control over management of the co-operative through a board of elected directors. In most cases, directors will approve or disapprove prospective buyers, with their decisions adhering to nondiscrimination laws.

A co-op apartment may be in a high-rise or mid-rise apartment building or in a garden-style complex. It may have all of the rooms on one level or it may consist of two or three floors. Parking, if available, may be included in the monthly maintenance fee or may require an additional monthly payment. Should the co-operative require capital improvements such as a new roof, a new heating system, etc. or experience a significantly increase in heating costs, the cost will be passed on to the tenants/shareholders in an amount based on the number of shares they hold, over a specified period of time.

Although the stock in a co-operative is considered personal property, owners of co-op apartments are allowed to treat their units as real estate for income tax purposes. The co-operative provides each shareholder with an annual statement of that shareholder’s proportionate share of the property taxes and mortgage interest paid as part of their monthly fees. A tax professional can then determine if those costs can be used as income tax deductions.

Keep in mind that if you require a mortgage to purchase a co-op apartment, the payments for that mortgage loan are in addition to the monthly fees that cover the costs of the overall mortgage on the co-operative.

Buying a Co-Op

In our area of New York State, a co-op is often the most affordable home purchase option. There are pluses and minuses to buying a co-op. If you are considering this form of home ownership, we strongly urge you to engage a buyer’s agent, consult a mortgage specialist and discuss your purchase plans with a real estate attorney before starting your search.

Here are some of the items you can enter in your “plus” column:

  • Co-ops are often located close to public transportation, shops and other community amenities.
  • The purchase price is generally lower than a condominium or single family residence.
  • Monthly maintenance fees generally include heat, hot water, and gas. In some co-operatives additional utilities and/or off-street parking is included.

The items for your “minus” column include:

  • The co-op may require a minimum down payment if the prospective buyer needs to obtain a mortgage. This is typically 10% to 20%.
  • The co-op may require that the prospective buyer have a minimum income, usually based on a ratio of income to housing costs.
  • There are mortgage loan programs that preclude the purchase of a co-op apartment, especially if the co-operative is not financially sound. This could be due to any number of factors and the buyer’s attorney should always review the co-operative’s financial statements before the buyer signs a contract of sale.
  • The co-operative’s board of directors may have set rules that are not consistent with a prospective buyer’s lifestyle. For example, there could be rules against having certain types of pets or any pets on the premises. Tenants may be prohibited from installing laundry appliances or dishwashers in their apartments. Renting may be prohibited or allowed only after the shareholder has been in residence for a specified period of time.
  • These potential drawbacks aside, co-ops are a very popular form of home ownership. Please contact us with any questions you may have.

This website is intended to provide general information to buyers and sellers of real property. The information it contains is believed to be accurate, but it is subject to errors and omissions. All information should be verified.