The Condo vs. Co-op Question:
Advantages of New York City
Condos can offer owners many advantages over co-ops. The advantages come at a price: a look at Manhattan’s real estate market at the end of 2004 and for the 10-year period 1994-2003 shows that average condo prices quickly surpassed that of comparable co-ops.*
Plus, New York City’s Department of Finance recently revealed in its tentative property assessment roll for the 2006 fiscal year that the City’s overall real estate market value increased by 14 percent. How does that account for changes in New York condo and co-op prices?
Here are some of the reasons:
If you want to buy an investment property, a cooperative apartment board may not even let you have an interview. Co-op boards prefer resident owners for neighbors, and tend to dislike non-resident investors who want to buy apartments.
That can make condos an investor’s dream. Owning a condo gives you greater freedom to sublet or lease your apartment compared to the restrictions imposed upon most New York City co-op apartment owners.
Prospective buyers lacking U.S. citizenship will find that New York condos give them the chance to own a U.S. apartment without having to suffer from a weak dollar, along with potential for short and long-term appreciation.
Buyers Seeking A Pied-À-Terre
If you’re looking for a weekend apartment in the city, a condo pied-à-terre might be the perfect solution for your needs. Many co-ops forbid non-resident owners from using an apartment as a pied-à-terre.
Even if there is no specific co-op lease prohibition against it, getting co-op boards to approve non-resident owners as neighbors can be almost impossible. The general thinking behind this restriction is that co-op boards generally believe that it decreases the ‘quality of life’ for building residents to allow non-resident owners be drop-in neighbors.
That makes buying a condo a smart investment. If the apartment isn’t your primary home, and you only use it occasionally, the return on your investment from being able to sublet your apartment can be huge.
That’s because condos give non-residents and investment owners outstanding flexibility to sublet their New York City apartments. While condo owners pay a premium for this kind of flexibility, they can get regular income, and high returns on their investment, by subletting their New York City apartment.
The Fine Print
Two potential obstacles can limit a condo owner’s use of the unit, although in the big picture, neither is as restrictive it could be for a comparable cooperative apartment owner.
First, a condo’s Board of Managers can exercise what is known as a ‘right of first refusal.’ If you are trying to sell your condo to a third party, the condo can exercise its right of first refusal to prohibit the sale, but only if it buys the unit from you first on the same terms and conditions that you offered to your originally intended buyer.
Second, that right of first refusal generally extends to leasing your condo. If the condo wanted to restrict the summer time rental of your unit, most governing documents of a condominium association would require the Board of Managers to also exercise its right of refusal to reject your prospective sublessee(s) by once again exercising a right of first refusal to rent the unit itself.
Click here to learn more about buying or selling a condo in New York City.
Sources: Douglas Elliman
Note: State law requires that the NYC Dept. of Finance (‘DOF’) value cooperatives and condominiums as if they are rental apartment buildings. This means that the DOF’s value estimate is not based on sales prices but is based on an estimate of the rent that would be charged for the units in the cooperative and / or condominium if the building were a rental.