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credit: By Jennifer D. Ames (Own work) [CC-BY-SA-3.0 or GFDL], via Wikimedia Commons
Many of you who live outside of NYC or urban areas probably aren’t too familiar with housing cooperatives, but the majority of apartments sold in NYC are co-ops. When you purchase a co-op, you do not technically own the apartment, but you own shares of a co-op corporation that owns the building. There is a monthly maintenance fees that covers expenses such as heat, hot water, property taxes and staff salaries. For those outside of NYC, co-ops are somewhat similar to condo associations and homeowner associations.
My wife and I have been renting for the past 6 years and we think that it might be time to buy a place. Buying a house here in NYC seems out of our reach. I would say that if we wanted to purchase a one-family house in a good school district in Queens, it would cost in the $400,000 to $600,000 range. It is probably closer to the higher part of that range. The houses in the lower range would not have convenient public transportation and we would have to either pay more in commuting or buy a second car. So my wife and I have been contemplating buying a co-op.
The Good
A Co-op is much more affordable. A 2 bedroom co-op in the neighborhood where we live currently, which has a good school district and is close to public transportation, costs around $270,000 to $350,000. Yes, that is affordable in NYC terms.
We won’t need to worry about fixing the roof, the boiler and other structural issues. No need to shovel snow or take care of the lawn as all of these will be covered by the maintenance fee. However, that maintenance fee is also one of the downsides of owning a co-op. A very big downside.
The Bad
The maintenance fee. I’ve checked out maintenance fees in the co-ops in my neighborhood and they range from around $700 to over $1000. Yes, this is for maintenance (which also includes property tax and is generally 50% deductible). This is like the cost of a mortgage in many other cities. Even when you finish paying the mortgage, you’ll still be paying the maintenance fee. The maintenance fee will often increase annually.
Co-op Board. I think that co-op boards can be a good and a bad thing. The bad part of the co-op board is that you have to jump through a lot of hoops and provide a lot of financial information to be approved before being allowed to go through with the purchase. Moreover, if you want to renovate your place, you have to ask for permission from the co-op board and possibly pay an application fee! If you later decide to rent out your co-op (if that is even allowed), the board will have to approve your tenant. Same with selling the co-op.
Unlike living in a house, there is less privacy living in a co-op. It is still apartment style living, even though you technically “own” it. You still might have neighbors next to you or above you. The good part of the co-op board is that hopefully they will weed out undesirable neighbors. Much like I have now…neighbors who like to smoke pot and have their friends over at crazy hours. (I guess I got payback because I have a newborn that likes to cry and scream at crazy hours…)
Have you had any experience with co-ops, home owner associations, or condo associations? What you do you guys think about buying a co-op?
The co-ops around here are usually for those with income restrictions, and you have to be able to demonstrate them. However, looks like the structure there is quite different and may be a valid option for you. Can you sell a co-op?
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No, the co-ops are different here I guess. You can sell a co-op, but the person you sell it to has to be approved by the co-op board.
I’m a country girl so I don’t have any experience with condos or co-ops. Houses in my area are crazy cheap. Starting at $20k and the mansion like houses with a ton of land being at $200k. I think that where you live a co-op could be a good deal but the maintenance fees seem pretty high to me.
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Wow $20k! My wife and I often wonder how it will be living somewhere with more affordable home prices. We’re both city people though and we have family here…otherwise I’d definitely contemplate moving to a lower cost of living area.
Wow, I’ve always heard New York was expensive, but never knew how expensive it actually was. My entire rent is a maintenance fee? Wow! That’s really shocking! I’ve never had experience with co-ops so, I don’t thing I should weigh in on the topic. Thanks for the great read though!
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Yes, it very expensive! Can’t believe your entire rent is a maintenance fee! I’m jealous.
I know nothing about co-ops, but it sounds like a good option for some people who want to move from renting an apartment to having some sort of ownership/equity in a property without purchasing a home. I don’t like the idea personally because I would rather have full control over the property I own. I know that’s unrealistic for the city, but that’s just how I view it.
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Yea, I understand wanting to control over the property and not having to ask permission from the board. I would prefer to buy a house and my sister who lives in a co-op has mentioned that not having control is one of the reasons she doesn’t like co-ops. But it is very difficult to buy a house here.
Co-ops sound almost socialistic in regards to who they approve to buy into the building. Are you going to put 20% down?
I was watching house hunters and a lady bought a three story brownstone that had two rentals, she lived on the top floor. Can you get something like that in Queens and rent it out?
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Most Co-ops require 20% down. The 3 family house around the block from me sells for $1.8 million. So no I won’t be able to buy it and rent it out. Though each floor has 3 bedrooms which rents for over $2,000 a month. It’s expensive in Hawaii too…what do people who can’t afford house buy? Condos?
Most people buy condos. We have the lowest percentage of home ownership in the country. You gotta start somewhere with a condo, then a house
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Really…didn’t know that about Hawaii. Not too many condos in my area…and condos are around $400k. Makes me wonder if I should buy a house instead.
I honestly don’t know much about co-ops, as I’ve never lived in one. But I do have some cautionary tales about investing in residential real estate (although I do hear commercial real estate is much better).
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Well I’m not really investing in residential real estate…I’m buying a place to live. If you think residential real estate is expensive…what do you think about commercial real estate here…
Homeownership (condo) has been great and horrible for us. While we love being a homeowner (well with a mortgage) we hate our downstairs neighbor and the drama he causes. We’re a small condo association (only 5 units in the building), which is good and bad. Good because we have a lot of say proportionately about what goes on in the building, bad because when there are repairs we owe 1/5th of the cost which can be really expensive-esp. after hurricane Sandy.
If we could have afforded a single family we definitely would have. But single families here are about $1mil. which was slightly (very!) out of our price range. $400k got us a 800sq foot 2 bed-condo.
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Thanks for sharing your experience. There aren’t too many condos in my area. Condos cost more but have lower maintenance fees. I’d probably prefer a condo, but for the asking price…I don’t know, I wonder if I could buy a house instead. Crazy that a single family house is $1 million right?! How can people afford it.
We live in the boonies, so no co-ops here, but we do live in an HOA neighborhood. Our fees are very reasonable, but I think in some cities, HOA dues are similar to your co-op expenses. I have certainly not agreed with all the things the HOA had decided over the years, but we do have a nice neighborhood, and everyone takes care of their homes for the most part. It only takes one bad property to lower the value for everyone. We were discussing HOA’s with a friend recently. She lives in an HOA neighborhood, but previously did not. She had a group of meth heads move in next door in the old neighborhood and that’s why she moved. I guess when you look at it that way, rules can be a good thing.
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Yes, I think one benefit of the HOA or Co-op boards are they try to weed out people like those meth heads. While it is not 100% guaranteed, I think it is better to have people go through some sort of screening process.
When I lived in DC, I gave this some serious thought. I ended up moving to Indiana, so it never became a concern. My conclusion was that it just really depended upon the apartment. If you have a great co-op board I can see it being an awesome experience and a great way to get involved with your community… but if they are terrible, I can see it being a nightmare. Hopefully you can attend a meeting and talk to some residents before you have to make any decision.
Good luck!
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Yes, that’s a good point. If we plan on purchasing the place, we definitely have to do our due diligence and speak to the residents living there. Thanks!
Wow, housing is really expensive there! The idea of a co-op sounds to me like the best option right now, even though there are many bads and the fact that you don’t really own the place doesn’t sound right to me. However, this is clearly something that is working for a long time now and if you really want to get your house, go for it!
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I know it is very expensive living here.
I never had a chance to stay in any co-op but I had few friends who stayed in co-op. They had some restrictions in their income but they used to tell that it is almost like living in an apartment.
Yep, it is similar to living in an apartment.
I owned a co-op out on Long Island (there are a few sprinkled across the island) and I was actually the treasurer of the board for a short while before I moved to Virginia.
The whole “board approval” aspect is largely overblown, as this is usually a formality. I assume it would be similar in most places in Queens; obviously it would be much different in Manhattan (and now some parts of Brooklyn?) , and that’s where you hear the horror stories from.
I absolutely despised the maintenance fee and we still talk about how selling that place was one of the best financial moves we’ve made. You’re paying $700-$1,000 a month for essentially nothing. Just completely thrown away. It makes the “investment” part of buying one of those places very dubious. You’re almost certain to have a negative return, not to mention that there are tons of them in Queens and often difficult to sell (I have two friends going through that now).
I know it feels terrible to rent for years on end, but the housing market in the greater NYC area is nuts. There really aren’t many good options other than renting, unless you want to be house poor for the next 30 years.
If you need/want more info, shoot me an email…
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Thanks for the info Brad and sharing your personal experience. Well the maintenance fee isn’t really for nothing…though it is expensive. It covers the property tax (but when the apartment is about 900 square feet, why is is so expensive?) It also covers heat, hot water and upkeep. Maintenance is very overpriced though. I agree with that. Do you think it is difficult to sell because of the co-op board or because there is not as much demand for co-ops. They seem to be the only game in town when housing is so expensive. Thanks for the offer to pick your brain some more about my housing dilemma.
I guess I used a little hyperbole with my “for nothing” comment, but clearly when you’re talking about $1,000 a month or $12,000 a year, the property tax makes up only a few thousand of that on a 900 sf apartment.
The big gimmick is usually the “underlying mortgage” and that’s what nobody knows about or understands (still not sure I understand the legality of it to be honest). On my little 45 unit co-op in Smithtown, there was a multi-million dollar underlying mortgage and each shareholder paid towards it each month. This made up easily 30-40% of the maintenance fee.
I advise in the strongest terms possible that you review the financial statements and see what this mortgage is (if I’m correct), how much has been paid down, when they have to refinance and how much in the way of cash reserves the co-op has on hand.
I always assumed it was a supply/demand issue with the Queens co-ops, but I’m not an expert, so I don’t want to give you bad advice. I’m really not against you buying, but if you realistically don’t think you’re going to live in this place for more than 5-10 years, it might not be the greatest financial move.
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Good point about checking the financials…my friend’s mother bought a co-op in Brooklyn which had financial problems and it was a mess. I can see myself living there about 5-7 years or so. It was a better idea before the mortgage rates jumped. As always Brad, thank you for your insightful comments.
i lived in co-op for the last 8 years ..i paid $7000 for the membership …
the rent was really cheep at that time (about $330) but now is almost $450
i bought a house few months ago but my problem now i how to get rid of the co-op …!
it is a nightmare …they used $3000 for the rehab ..$2000 rent for the last 4 months …couldn’t sell it …and they want me to keep paying it for life ..
only when it sold you don’t have to pay anymore ..!
make sure before you sign anything and ask them :if i don’t want to live her after 4 or 5 years what is the options …remember this co-op is not a good place
to invest money …!
$7000 for membership? Was that a co-op in the NYC area…I’m not sure I’m familiar with what you’re referring to. Why do you pay rent in a co-op? Aren’t you a shareholder?
If you’re intent on buying, I would determine a realistic timeframe for how long you might live in the place and compare the total cost of each option over that time period. Without running the numbers to get an apples to apples comparison, you really won’t know which one makes more financial sense. I found this out looking at cars, where a more expensive car up front was actually less expensive over the long term than some that cost less at the point of sale.
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Yes, I’ve been thinking about the timeframe as well. I wouldn’t want to buy the co-op if it is just for the short term. Back when my wife got married we contemplated buying a co-op but then when that fell through, we decided to rent and hopefully buy a house. But prices are still sky high.
My only question would be about the historical track record of the co-op. If they increase in value, it could offset the higher maintenance costs.
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I’ll have to look into that more. Co-ops do increase in value…maybe not as much as houses though.
I’m looking into buying a place in NYC too and have been trying to weigh the pros and cons of condos, co-ops, and houses. While I do intend to live there awhile, I’d like to find a place that has flexibility and will allow me to rent it out or sublet if I wanted to. Some boards are very strict about it (you must live there for X amount of years, etc.)
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Very true. The neighborhood I live in is convenient and pretty desirable so I could see myself subleting it if we decided to move. We went to an open house recently and the co-op did not allow sublets. My sister wanted to sublet her co-op and the board has a rule that you can only sublet for 2 years for early 5 years you’ve lived there. I don’t like that rule…but many co-ops I’ve visited require you to have lived there for a few years before subletting which is reasonable. You want people who want to live there, not investors.
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I didn’t know you were in NYC…Long Island here.
First I have to disagree with Brad, selling with a board is a HUGE pain the ass. HUGE. I had a buddy who was stuck in his place for 18 months longer than he wanted b/c of it.
Second, where in NYC are you that a 2 bedroom is $350K? even on Roosevelt island you are looking at 700K+ for a 2 bedroom
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I’m in Queens. Roosevelt Island is much more expensive because of its proximity to Manhattan. I’m about a 20 to 25 minute subway ride to Midtown on the express train. http://livingrichcheaply.com/2013/09/07/week-in-review/
If you recognize that building or street…you’ll know exactly where I am. I work out on Long Island, but since my wife doesn’t have a car and she will start working in Queens…it’s more convenient to be by the subway. Thought about moving out east (like eastern Queens or Western Nassau)…but I just don’t see myself going that far out.
Before buying a NYC coop, I would scan the net for comments about the coop first . The coop board may be reasonable but the management company can impossible to deal with if the coop is large. Management companies can rule like a city department and be quite inflexible with arbitrary enforcement of of rules.
Thanks for the advice Victor. I have seen comments regarding various coops and apartments and it definitely is useful to hear what an insider has to say. And yes, there are many inflexible and arbitrary rules. Although sometimes I notice that most comments are usually negative because people with positive experiences don’t feel compelled to post in general. Thanks for stopping by.
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Why are all these people replying? Many of them have no experience in a co-op or never heard of them…. what a waste of time.
I own a co-op in Brooklyn. Yes, it was a process. Yes, it took FOREVER for everything to close. Yes, several dates were missed, meaning I had to move out of my rental and in with a friend for several weeks until we were able to actually close. The problem is that you’re at the mercy of the co-op to close. Now that we’ve closed and I’ve lived here a year, I appreciate the co-op rules about noise, etc.
We had to put 20% down (it’s rare to have to put less down here), but at least I see equity with each payment. When I go to sell in a few years (will probably move up to a 2 bedroom sometime), I’ll have some money to work with.
I was fortunate that the co-op board took my application for July otherwise they were off the entire month of August and would not consider my application until September by which time my mortgage commitment would have expired. Although I had a harder time with my incompetent mortgage processor. I think co-op rules can be a good thing, but still can get very restrictive. I don’t think renting is a bad thing, but for the same amount of space, it would have come out to around the same cost. And you’re right…at least I’ll see some equity and I think appreciation as well. Brooklyn is pretty hot so I’m thinking your co-op may have appreciated as well. We plan to move to a 2 bedroom sometime in the future as well…do you plan on staying in BK?
So it’s been 2 yrs since your original post on this topic. Did you get the coop?
Yep, bought a co-op last September and living there now.
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I’m considering buying a co op now. This post has been very helpful. How was your experience been? Are there things you’ve learned now that would have changed your mind about your decision? Any advice you can offer for someone starting to think about this?
I think my experience has been fine. However the management company and the staff that works at the co-op are great. If not, I might have a different opinion. Ultimately, co-ops seem to be the only option for many in NYC who want to buy because a house is too expensive. When you start looking at co-ops, definitely talk to the residents living there…I’m sure they can be much more helpful in providing you with good information about how it is living there.
Wow. Your post is quite helpful. We are putting offer on a co-op in long island. We intend to stay there for 3-5 years as we have jobs in long island. How was your experience with paying HOA? has it increased for you? i wrote that 50% of HOA is tax deductible. our is $800 without star exemption. The co-op we are considering is refinanced about 2-3 years ago and they used the cash out for lot of updates in the property such as new roofs, windows and heating systems in all units. It is a bigger co-op community and closer to LIRR train station which has express trains to Penn Station taking less than 45 mins to travel to the city. So if all goes well and even if change our jobs to NY, we can travel easily to the city with about an hour one way travel. So we might stay here for more than 5 years. What are your thoughts?
Thanks! It’s hard to say since I don’t know the property or your situation. But since you may only stay for 3 years, but possibly more, check out the NY Times Rent vs Buy calculator: https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?_r=0
The maintenance increases every year about 2 or 3%, I don’t remember exactly. I think only 35 or 40% is tax deductible for us, but the property taxes are higher in LI so your number sounds about right. As for the financials of the co-op, your attorney should go over that as well. That’s good that the co-op has taken care of those updates so there’s less of a chance they’ll hit you with a special assessment to pay for those repairs. I think it’s good to be close to the LIRR so there’s easy access to NYC. I’ve considered moving to LI. I didn’t think there were too many co-ops out there. Good luck!
Thank you so much. You are right. It is making sense to go for Co-op rather than wasting 100% money in rent. Our rent is the equal to what we would pay for mortgage and HOA together if we purchase the co-op. We put the offer and it is accepted. The co-op has a long process so it is just started. One weird thing we found is this particular co-op is not approved for financing by major mortgage lenders in long island. The co-op want us to use their own mortgage house for financing. We are hoping to get all their financials to our lawyer and our mortgage lender just to be sure that we are not getting into stock ownership of the co-ops whose debt is higher and has lower reserves for maintenance.
Once again thank you!
Yea, that’s how we decided to buy a co-op also. The mortgage and maintenance together was the same as rent for similar place so I might as well get the tax deduction and have some principal pay down. Congrats on the offer being accepted. Great that you’re doing your due diligence with the financials as it not being approved for financing by major mortgage lenders seems to raise some red flags.
You are right. There were red flags. WE insisted on looking at the financials ourselves along with our real estate lawyer. They were shocked to see their high mortgage costs, operating expenses and next to nothing reserves. Besides that their rules were too strict for selling the unit again. So we canceled to proceed with the purchase currently. We will wait and see if we can get a condo with relatively better terms. The problem is long island property market is so expensive. Single family homes have outrageous taxes, most of them in our budget need massive repairs, so we cant move in early. Co-ops have their own dramas, very few condos in our budget- so there are awalys bidding wars. Looks like currently it is a seller’s market.
Sorry to hear that it didn’t work out. It’s probably best since there were such high costs and no reserves…likely that they’ll make the shareholders pay an assessment or raise the maintenance fees. Good luck with the search. Housing in the NYC metro area is tough!
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This is a really informative post. It was shocking to see that my entire month of salary is just a maintenance fee in New York. But doesn’t the fee raised this year? Though, what do we expect? It’s New York City. Anyways, great read by the way. Keep it up!
Thanks! Yep the maintenance fee goes up every year. But so do property taxes which is included in the maintenance fee.
May i ask couple questions to coop unit owners?
1) what happens if the owner for example loses the job and won’t be able to pay maintenance fee for sometime? Does the board cancel the deal? Or do they wait until you owe them the amount equal to the unit price and then throw you out? Can it happeb in condo?
2) what happens if the company goes bankrupt or puts mortgage on the building after you buy it? Or what if the board decides to sell the building?
How does the Law protect the unit owners?