In a cooperative you buy shares in a corporation with a proprietary lease over an apartment, rather than real property. The board approves purchases and can generally decline without reason, financing is frequently capped by the building, and sublet restrictions are usually tight.
Not a variety of condominium but a different form of ownership, with different economics and a purchase that can end for reasons nobody is obliged to explain.
Cooperative apartments are common in some markets and almost unknown in others, which means a substantial number of buyers encounter them for the first time while trying to buy one.
They are not a variety of condominium. They are a different form of ownership with different economics, different restrictions and a purchase process that can end for reasons nobody is obliged to explain.
A corporation owns the building. You buy shares in that corporation, and those shares entitle you to a proprietary lease over a particular apartment.
You are a shareholder and a tenant rather than a property owner. That single fact explains most of what follows.
Purchases require board approval, and boards can generally decline without giving a reason, subject to fair housing law.
The application is extensive: financial statements, tax returns, employment and reference letters, and usually an interview. Boards examine liquidity after closing, debt-to-income position and the overall financial picture, and they frequently apply standards stricter than any lender would.
Buyers who are asset-rich but income-light are sometimes declined despite being able to pay cash several times over. That is the board's prerogative.
Prepare the package properly and take the interview seriously. Both are more decisive than the offer.
Many buildings cap how much of the purchase price may be financed, and some permit none at all.
Establish the limit before making an offer, because it determines what you actually need in cash and is not negotiable.
The monthly figure looks high compared with condominium dues, and it covers different things.
It typically includes the building's operating costs, property taxes on the building, and debt service on any underlying mortgage the corporation carries.
Because of that structure, a portion of maintenance is frequently deductible for shareholders. Ask what proportion and confirm the treatment with a tax advisor.
Ask specifically about the underlying mortgage: the balance, the term, when it matures and what refinancing is anticipated. A large underlying mortgage maturing into an unfavorable rate environment is a future increase in everyone's maintenance.
Subletting is frequently limited, sometimes to a couple of years across an entire period of ownership and occasionally prohibited outright. If flexibility to let matters to you, establish the rules before anything else.
Renovation approval is typically stricter than in a condominium, with defined work windows and requirements about contractors and insurance.
Many buildings levy a flip tax on sale — a payment to the corporation calculated on price, on gain or per share. It is a real transaction cost and should be in your figures from the outset.
Cooperatives are frequently cheaper than comparable condominiums, and the reason is the restrictions. A smaller pool of buyers can satisfy a board, finance within the cap and accept the sublet rules.
That makes them less liquid. Resale takes longer, and your eventual buyer must clear the same board you did.
Against that, the scrutiny produces neighbors who are financially sound, and buildings that are frequently well run and well maintained.
Confirm the financing cap, the sublet policy and the flip tax. Review the corporation's financials and the underlying mortgage position. Read the proprietary lease and house rules properly.
And be realistic about the board. An excellent offer that the board declines is not a transaction, and the preparation for that meeting is the part of the purchase most worth your attention.
A corporation owns the building and you buy shares entitling you to a proprietary lease over an apartment. You are a shareholder and tenant rather than a property owner, which explains the board approval, financing caps and restrictions.
Generally yes, and usually without giving a reason, subject to fair housing law. Boards frequently apply standards stricter than any lender, and buyers who are asset-rich but income-light are sometimes declined despite being able to pay cash.
Because it covers different things — building operating costs, property taxes on the building, and debt service on any underlying mortgage. A portion is frequently deductible for shareholders; confirm the treatment with a tax advisor.
Often only in a limited way. Subletting is frequently capped across a period of ownership and occasionally prohibited. If flexibility to let matters, establish the rules before anything else.
Because the restrictions narrow the buyer pool, which makes them less liquid. Resale takes longer and your buyer must clear the same board. The scrutiny does produce financially sound neighbors and well-run buildings.
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