Why It May Make Sense to Buy a Co-op if You’re Going to Live In It

Co-ops cost on average 59% less than condos: you get more space for your money. Average monthlies are lower on co-ops than on condos so you also pay less for the ongoing use of the space. This is partly because on average co-ops are older than condos, and because of the way the NYC tax system works, taxes on older buildings are lower than taxes on newer buildings (taxes are not assessed using comparable sales in the vast majority of Manhattan apartments).

Lest you be afraid older buildings are less sturdy than newer buildings: some of Manhattan’s most valuable real estate is in prewar Park Avenue co-ops that have been standing (in many cases) for more than 100 years. There are more co-ops, so more choice, and more leverage when negotiating a purchase: 64% of the individually owned housing stock in Manhattan is co-op.

The downsides? You buy shares in the corporation that is the building that contains the apartments, so you are buying a share of the assets, and the debt, of the corporation. Some buildings have more debt than others and some buildings have better financial management than others: stay away from those that aren’t prudent (same goes for condos on the prudent financial management, but condos don’t generally have underlying building debt).

Co-ops have the ability to turn down a buyer for any legally discriminatory reason (e.g., financial): you cannot always sell to the highest bidder. Board turndowns and irrational, unreasonable boards are the exception and not the rule (again you can diligence this before you buy). Co-ops can change their rules; however, there are many shareholders used to the rules in place so it is a bit like turning the Titanic and again the exception and not the rule.