Condo vs. Co-Op as a Second Home? Pros and Cons

[FLSUnFIRE]

I will definitely make sure I'm educated on all the restrictions and ask the realtor a lot of questions. However, it looks like the co-op units in the building I'm researching sell quickly when one comes available. Once again, I'm still researching the pros and cons.

Seeing the level of control the board and management has is terrifying to me. Certainly could be a worst case scenario between state law (NYC) and a loony-tunes board but it's not something I would risk, especially after seeing this mess. I feel horrible for my friend but short of becoming an amateur arsonist I'm not sure what I could do to help. I'm just a second-hand data point from SGOTI, but I have pretty a pretty strong aversion myself at this point.

ETA: There have been lots of lawsuits and bills proposed to protect (generally buyers perspective but hurts the owner that wants to sell too) from over-aggessive co-op boards. I'd Google and read up on some of the issues especially in the jurisdictions you are considering.

 

[DrRoy]

We would never consider it. Too restrictive and expensive.

 

[G-Man]

We would never consider it. Too restrictive and expensive.

Based on my research, the co-ops at the beach in my area is more economical than condos. Just need to weigh the pros and cons of each housing type (co-op vs condo).

 

[G-Man]

Any other comments on owning a co-op as a vacation/second home? I'm thinking this may be a great way to get into an ocean view place at a more cost-effective price than a condo with the eventually goal of selling both properties during my slow-go retirement years for 1 property near or on the beach. That's my thinking at the moment.

 

[G-Man]

Would a co-op unit count toward your personal net worth? Since you don't technically own the property, I'm curious how it would be reported as part of your overall financial picture. Would it be considered a capital asset that you own from a tax point of view?

 

[teej1985]

I used to own a co-op unit in the Phoenix area. I'd have no issues owning another. I plan to buy back into one eventually in early retirement. My parents currently own a co-op unit a 55+ community. The 55+ co-ops are the only places I would be able to afford in coastal California. I'll probably buy into one of those in normal age retirement.

 

[Chuckanut]

I owned a condo and the HOA was a nightmare. There were a number of elderly people and a couple disabled who were on fixed incomes. Every time a serious repair matter came up for the building there had to be a special assessment because no one would vote to raise the monthly HOA fee. This meant regular hits of $5-10k most years I was there. Also a number of those residents were in arrears on their monthly payment, and no one had the heart to throw them out (including me) since they would be in real financial trouble. I vowed to never get into another HOA if I have a choice.

In terms of appreciation, there was some but with all the assessments and internal repairs needed I basically broke even after 5 years.

It sounds to me like the HOA had a lot of members who under estimated the costs of owning a home. Who did they think would pay to maintain and repair their homes? Perhaps the homeowners should have been more proactive in finding ways to reduce costs of ownership.

 

[G-Man]

Is anyone aware of lending institutions that will provide mortgages for a co-op if the co-op is considered your second/vacation home? It seems based on my research you have less flexibility from a financing point of view for a co-op if you are not in the New York area.

Also, I'm curious if can tap into the equity of your co-op via a home equity loan or HELOC if you own the co-op outright and it's considered your second/vacation home.

I'm not able to quickly find answers to these questions online.

 

[teej1985]

Is anyone aware of lending institutions that will provide mortgages for a co-op if the co-op is considered your second/vacation home? It seems based on my research you have less flexibility from a financing point of view for a co-op if you are not in the New York area.

Also, I'm curious if can tap into the equity of your co-op via a home equity loan or HELOC if you own the co-op outright and it's considered your second/vacation home.

I'm not able to quickly find answers to these questions online.

Usually co-ops are cash only.

 

[LateToFIRE]

Usually co-ops are cash only.

Nope - not true. In NYC it is very common to finance a co-op purchase. Lending rate is slightly higher owing to the structure (collateral is corporate shares vs real property). Sure, there are fancy Park Avenue co-ops that require all-cash, but that is not the norm.

Edit: ok, I see where you're talking about outside NYC, so ignore the above statement.

 

[G-Man]

Nope - not true. In NYC it is very common to finance a co-op purchase. Lending rate is slightly higher owing to the structure (collateral is corporate shares vs real property). Sure, there are fancy Park Avenue co-ops that require all-cash, but that is not the norm.

Edit: ok, I see where you're talking about outside NYC, so ignore the above statement.

That's the fear I have. If I purchase a co-op outright now and later need to sell it in the future, then financing by the potential buyer would not be easy or possible at all. It would have to be a cash sale. This is a co-op with an ocean view on the east coast but not in New York that I'm looking at.

 

[teej1985]

That's the fear I have. If I purchase a co-op outright now and later need to sell it in the future, then financing by the potential buyer would not be easy or possible at all. It would have to be a cash sale. This is a co-op with an ocean view on the east coast but not in New York that I'm looking at.

Florida?

 

[G-Man]

Florida?

Virginia

 

[Brat]

I have a neighbor who owned a coop in DC. They made provisions in their bylaws that allow a purchaser to have a loan to purchase shares. Virginia may have similar provisions.

 

[W2R]

My weird and totally unconventional viewpoint on this and similar problems

Ah, one more problem/conundrum which will never cause me the slightest concern. Why? Because I made a decision to actually choose one location that I like best and to LIVE there.

No need to spend a fortune on travel.
No need to buy yet another home.
No need to furnish said un-needed extra home.
No need to pay for someone to watch over the second home when I'm not living there.
No problems when needing a handyman, HVAC company, plumber, inexpensive grocery store, great place to picnic, good orthopedist, and so on. You learn about these things and so much more, when you live somewhere 24/7/365 for decades.

Honestly I can't see what's so complicated about this, but apparently the vast majority of retirees would rather be flitting around the world than to commit to one location and spend time there.

Maybe they spent their youth in one location, and then spend their older years complaining that they don't have the advantages of living in one place now that they don't. As the song goes, "you don't know what you've got till it's gone".

 

[mathjak107]

Nope - not true. In NYC it is very common to finance a co-op purchase. Lending rate is slightly higher owing to the structure (collateral is corporate shares vs real property). Sure, there are fancy Park Avenue co-ops that require all-cash, but that is not the norm.

Edit: ok, I see where you're talking about outside NYC, so ignore the above statement.

the problem here in nyc with coops is mortgages are available for owner occupied but very hard to get if not full time home .

coop mortgages are junior to any maintenance charges you owe and any building mortgages the building has .

so banks either charge a higher rate for owner occupied or shy away

 

[HMMY]

Typically, condos trade at a premium to co-ops due to flexibility. Condo boards cannot veto sales or rentals unless they agree to purchase/rent the unit at the offer price. Co-op boards can refuse a sale and you may never know why, but that also means there is more scrutiny of potential buyers/renters.

You can finance both purchases, however, a co-op board may have rules regarding the amount of financing permitted, e.g. 20% down to 100% cash. You can get a HELOC with either as long as there is sufficient equity. For tax purposes, if you can itemize (above the standard deduction threshold), you can itemize interest and real estate for both ownership models.

As mentioned before, co-ops can have underlying debt, so pay attention to the financials. Whatever you purchase, make sure there is a reasonable reserve if you don't want to get hit with a lot of assessments.

If things go sideways, co-ops get paid before banks. In a sale, the co-op gets paid any outstandings before a mortgage holder. In condos, banks get paid first, so if an owner has huge arrears and no equity, the condo absorbs the loss.

Co-ops are cheapers. Condos have fewer restrictions. Make sure the building has reserves and is well managed.

 

[mathjak107]

you have to be careful comparing coop to condo pricing .

many coops have their own outstanding building mortgage holding part of your apartments worth .

it’s like when i bought my first co-op back in 1987 , we paid 77k .

however the building mortgage actually held another 33k which was paid thru maintenance..

so an equivalent condo may have been 110k if you asked how much , while the coop was 77k .

eventually as the building mortgage was paid the equity the building held shifted. to our value .

coop structure is very very popular here in nyc .

many coops were rentals that converted to coop back in the 1980s .

they needed a certain amount of insiders to buy in order to convert .

most renters were renters because they couldn’t afford to buy.

so tp make it easier for tenants to get mortgages the building held a piece of each apartments value . that way the tenants bank wasn’t holding the whole amount and were more inclined to loan

 

[G-Man]

Typically, condos trade at a premium to co-ops due to flexibility. Condo boards cannot veto sales or rentals unless they agree to purchase/rent the unit at the offer price. Co-op boards can refuse a sale and you may never know why, but that also means there is more scrutiny of potential buyers/renters.

You can finance both purchases, however, a co-op board may have rules regarding the amount of financing permitted, e.g. 20% down to 100% cash. You can get a HELOC with either as long as there is sufficient equity. For tax purposes, if you can itemize (above the standard deduction threshold), you can itemize interest and real estate for both ownership models.

As mentioned before, co-ops can have underlying debt, so pay attention to the financials. Whatever you purchase, make sure there is a reasonable reserve if you don't want to get hit with a lot of assessments.

If things go sideways, co-ops get paid before banks. In a sale, the co-op gets paid any outstandings before a mortgage holder. In condos, banks get paid first, so if an owner has huge arrears and no equity, the condo absorbs the loss.

Co-ops are cheapers. Condos have fewer restrictions. Make sure the building has reserves and is well managed.

It seems like you have a lot of knowledge on co-ops. Thanks for your insight and responding to this thread. In my area, I'm leaning toward a co-op at the beach as opposed to a condo. The co-op is at the price point that I'm looking for. We have put a contract on a co-op at beach this week. I'm reading the bylaws document which includes the financials right now. We still have time to exist the contract since we have not closed yet.

 

[HMMY]

It seems like you have a lot of knowledge on co-ops. Thanks for your insight and responding to this thread. In my area, I'm leaning toward a co-op at the beach as opposed to a condo. The co-op is at the price point that I'm looking for. We have put a contract on a co-op at beach this week. I'm reading the bylaws document which includes the financials right now. We still have time to exist the contract since we have not closed yet.

Look at expense increases on an annual basis. Are they stable? Has anything jumped recently, e.g. insurance, taxes? Look for any deferred maintenance. How old is the roof, the boiler, elevators, etc? How big is the capital reserve relative to expenses? Is there money set aside monthly for reserves or does the co-op prefer assessments on an as needed basis? Is there an underlying mortgage? If so, what is the rate, amortization and maturity? Does the co-op have a line-of-credit? Make sure you or your attorney read the minutes of the monthly meetings.

Is it possible to meet your neighbors above, below, and next to you?

 

[G-Man]

Look at expense increases on an annual basis. Are they stable? Has anything jumped recently, e.g. insurance, taxes? Look for any deferred maintenance. How old is the roof, the boiler, elevators, etc? How big is the capital reserve relative to expenses? Is there money set aside monthly for reserves or does the co-op prefer assessments on an as needed basis? Is there an underlying mortgage? If so, what is the rate, amortization and maturity? Does the co-op have a line-of-credit? Make sure you or your attorney read the minutes of the monthly meetings.

Is it possible to meet your neighbors above, below, and next to you?

Thanks for all your insights. I'm looking at the financials now. I do think it will be possible to meet my neighbors above, below, and next to you.

 

[Sunset]

I hate having folks live above me.

Get to hear kids jumping, bouncing a ball, dropping something, or a person walking in high heels on a hard floor.

 

[G-Man]

I hate having folks live above me.

Get to hear kids jumping, bouncing a ball, dropping something, or a person walking in high heels on a hard floor.

For us, it will be our weekend getaway and most of the time we will be on the beach.