Buying a Cooperative (co-op) unit - Questions to ask

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Singlemoi
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Buying a Cooperative (co-op) unit - Questions to ask

Post by Singlemoi »

Good morning, Bogleheads!

In my search for the condo w/in my price range and the acceptable location, I came across a coop near my work. The location is very desirable within the city, but the coops for my city (unlike NYC) are rare. Four buildings went up post WWII and now mostly condos are being built. There are no condos that are in my price range in that location that would even come close to this coop.

The specific coop in question is a 600-unit hi-rise and claims to never have had an assessment in its 50-year existence. Realtor said currently there is no mortgage on the property. The only thing I know of requirements is 20% down and that they work with a finance company for mortgage approval. From personal research, all the studio and 1 br units that were sold were sold for the asking price or a few thousand higher and went to contract within 30-60 day range. Don’t know if it’s a good thing.

I recognize that coop is a completely different “animal” and have come up with a bunch of questions for the realtor and/or to ask attorney or CPA should I ever decide on buying. Please let me know if I am missing something, if there is something else I should consider when thinking of buying a coop and if something should be scratched from the list. Thank you in advance.

Exit strategy

This, perhaps, is the most confusing part for me, but, probably, most important.

· I understand that the board would have to approve a potential buyer. I presume they have a say so in the sale price? What happens if the sale price is acceptable to me, as the seller, but not to the board?

· If there is a mortgage on coop building, what happens at settlement? Does the mortgage get pro-rated per unit and then get deducted from the settlement proceeds?

· Let’s say I paid off my share loan. If I owned a condo or a house, I could potentially tap the equity should I need money. What happens in the coop scenario? Is it either sell the coop unit or nothing?

· What are other important things to understand?

Financials
· What are the financial requirements for the prospective owner? (How many months of coop fees must be available in bank (or in escrow), income requirements, etc.)
· What are other requirements? (reference letters, etc.?)
· What interest rate is available for the share loan from the bank coop uses?
· Can share loan be pre-paid without penalty?
· Are there points, transfer tax, what fees, etc. to expect to pay at “settlement”?
· What part of coop fees are tax deductible?
· Must I use coop recommended bank or can I find my own?
· (probably for CPA) Does coop have adequate reserves for repair or replacement of a major project?
· Is there a loan or a line of credit currently that coop is paying on?
· (review minutes) Are there any pending engineering projects yet to be completed that will require future assessments?
· (review bylaws?) How are renovations within the unit handled? Specifically, must I use board-approved contractors, get renovations approved by the board , etc. (This could be a sticking point because the unit bathrooms and kitchens are old and most require renovations…I would not want to deal with the approvals for months and months on end)
· (review bylaws?) Who handles with repairs within unit?

Legal
· Is there a pending litigation against the coop?
· How much time do I have to review minutes, bylaws and financials? (By the way, is the board obligated to provide them to me, specifically minutes?)
· What does master insurance policy cover?
· (For attorney) What happens if the person files for bankruptcy protection? Is the coop considered an exempt property or can the shares be liquidated as part of bankruptcy estate (hoping I’ll never have to deal with this, just curious)?
· Name of management company of coop (I presume some are better than others).

General

· Are rentals allowed? If so, what percentage of units are currently rentals?
· Is the heat centrally controlled (meaning, does the building turn the heat on at city-approved times or can I turn it on within the unit)?
· Is there a washer/dryer hookup within the unit?
· Are dogs allowed?
· Is there visitor parking within the garage and does it cost anything?



Board Interview
What are the questions typically asked by coop board during the interview?



Now that I wrote all these out, I am wondering if I should even consider coops at all. Please let me know your thoughts on the questions I missed and/or general ideas. Thank you all in advance.
Last edited by Singlemoi on Sun Jun 07, 2015 9:10 pm, edited 1 time in total.
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Uncle Pennybags
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Re: Buying a Coop - QUESTIONS to ask

Post by Uncle Pennybags »

Singlemoi wrote:Board Interview
What are the questions typically asked by coop board during the interview?
In NYC Barbra Streisand and John Lennon were denied admittance to co-ops.
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4nursebee
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Re: Buying a Coop - QUESTIONS to ask

Post by 4nursebee »

Coop? I thought this was to be a chicken question...
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Uncle Pennybags
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Re: Buying a Coop - QUESTIONS to ask

Post by Uncle Pennybags »

4nursebee wrote:Coop? I thought this was to be a chicken question...
I had to look it up. When the OP said "coops" were common in NYC I thought maybe it refereed to single room occupancy hotels.
cheesepep
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Re: Buying a Coop - QUESTIONS to ask

Post by cheesepep »

4nursebee wrote:Coop? I thought this was to be a chicken question...
Me too because I had a similar question.
U5512
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Re: Buying a Coop - Questions to ask

Post by U5512 »

Coop? If you can fill it up with chickens I don't see why not! :mrgreen:
"If you can enjoy Saturdays and Sundays without looking at stock prices, give it a try on weekdays." Warren E. Buffett.
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Singlemoi
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Re: Buying a Cooperative (co-op) unit - Questions to ask

Post by Singlemoi »

haha! Thank you, guys, I didn't realize how things might read without the hyphen. Had a bit of a laugh myself. The questions remain though. :-)
randomguy
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Re: Buying a Coop - QUESTIONS to ask

Post by randomguy »

Uncle Pennybags wrote:
Singlemoi wrote:Board Interview
What are the questions typically asked by coop board during the interview?
In NYC Barbra Streisand and John Lennon were denied admittance to co-ops.
Would you want to live in a place with either of them? Would you really want papparri and crazy people standing outside of your building constantly? Having some anonymous multimillionaire wall streeter is probably a lot more pleasant of a neighbor.


The list of questions is impressively long but about half of them apply to condos also (things like rental rules, parking,insurance, reserves,...). The other stuff is pretty straightforward questions that they can answer. The unknowable is how hard it will be to sell the unit in the future. The board adds one more level of difficulty to that already hard to answer question.
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Rob5TCP
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Re: Buying a Cooperative (co-op) unit - Questions to ask

Post by Rob5TCP »

Coops (in NY anyway) are a totally different animal than condos. Boards can be open and rather flexible or they can be narrow and impossible to deal with (and frequently that DOES have an affect on the sales price of the units).

The mortgage on the coop is on the entire building - you pay your prorated share based on the number of shares you own when you buy (technically you do not own your unit but shares in the coop). From a practical standpoint it's not relevant. When you sell the underlying mortgage to the building is unaffected. The next owner has that portion of the mortgage as his 'liability". All underlying mortgage payments are paid through your monthly maintenance. That's one reason coops (at least in NYC) usually have higher maintenance then equivalent condos.

Your coop maintenance that pays r.e. taxes and the interest on the underlying mortgage is tax deductible. You should get a form yearly from your coop board stating your deduction.

Since every coop board is different, the agent you use should have a great deal of information. The legal papers from the coop are usually huge and should be reviewed with an attorney that is familiar with that building (ideally).
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ResearchMed
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Re: Buying a Cooperative (co-op) unit - Questions to ask

Post by ResearchMed »

Rob5TCP wrote:Coops (in NY anyway) are a totally different animal than condos. Boards can be open and rather flexible or they can be narrow and impossible to deal with (and frequently that DOES have an affect on the sales price of the units).

The mortgage on the coop is on the entire building - you pay your prorated share based on the number of shares you own when you buy (technically you do not own your unit but shares in the coop). From a practical standpoint it's not relevant. When you sell the underlying mortgage to the building is unaffected. The next owner has that portion of the mortgage as his 'liability". All underlying mortgage payments are paid through your monthly maintenance. That's one reason coops (at least in NYC) usually have higher maintenance then equivalent condos.

Your coop maintenance that pays r.e. taxes and the interest on the underlying mortgage is tax deductible. You should get a form yearly from your coop board stating your deduction.

Since every coop board is different, the agent you use should have a great deal of information. The legal papers from the coop are usually huge and should be reviewed with an attorney that is familiar with that building (ideally).
If there is no mortgage on the building (apparently the OP's case, per the real estate agent), how does the purchase work?
Who is buying what from whom?

RM
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Rob5TCP
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Re: Buying a Cooperative (co-op) unit - Questions to ask

Post by Rob5TCP »

the purchase works the same whether there is an underlying mortgage or not. You buy x number of shares in the coop corporation and you own apt 1x. If there is an underlying mortgage that will be reflected in your higher monthly maintenance. If there is no mortgage, your monthly maintenance will be less (and the % that is deductible will be less). You have NO direct connection to that underlying mortgage. It's not your liability it's the coop corporation.

From wikipedia:

The corporation is membership-based, with membership granted by way of a share purchase in the cooperative. Each shareholder in the legal entity is granted the right to occupy one housing unit. A primary advantage of the housing cooperative is the pooling of the members’ resources so that their buying power is leveraged, thus lowering the cost per member in all the services and products associated with home ownership.

Another key element is that the members, through their elected representatives, screen and select who may live in the cooperative, unlike any other form of home ownership.[1] Housing cooperatives fall into two general tenure categories: non-ownership (referred to as non-equity or continuing) and ownership (referred to as equity or strata). In non-equity cooperatives, occupancy rights are sometimes granted subject to an occupancy agreement, which is similar to a lease. In equity cooperatives, occupancy rights are sometimes granted by way of the purchase agreements and legal instruments registered on the title. The corporation's articles of incorporation and bylaws as well as occupancy agreement specifies the cooperative's rules.

full article: http://en.wikipedia.org/wiki/Housing_cooperative
hlfo718
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Re: Buying a Cooperative (co-op) unit - Questions to ask

Post by hlfo718 »

When buying a co-op you are essentially buying shares and you are not an owner, you are a shareholder and you are actually leasing the space.

Most co-ops in NYC have an underlying mortgage or some sort of line of credit because unless the co-op has sufficient income to offset all the fees and expenses, they will use the loan to foot some of the bills or they may need to increase maintenance.

So before you commit, ask your agent to see a few year's financials to see what that looks like and how much maintenance has gone up from say 5 years ago. You should also make sure there is some sort of reserve capital at the co-op in case the roof, sidewalk, building needs to be upgraded. Otherwise your board will increase the maintenance to offset the expense. Take a look around to see if the sidewalk or other parts of the building needs work.

If you don't like all these steps you need to take to buy a co-op, think about what happens when you want to or need to sell. Other buyers will feel the same way. The board can also reject the sale if the price is below what they feel it should be sold at. This happens in Manhattan.

You should also start calling banks to see if they finance co-ops since not all banks do and some will charge a slightly higher rate. If your co-op has large percent as rental units, that is a no no for banks.

Good luck
rooms222
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Re: Buying a Cooperative (co-op) unit - Questions to ask

Post by rooms222 »

When I looked at a Coop in Detroit, I found that this bank was the one that specialized in individual coop mortgages, as the national lenders only did coop loans in cities where coops were plentiful and well established (i.e. NYC). https://www.ncb.coop/default.aspx?id=3682
philc
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Re: Buying a Cooperative (co-op) unit - Questions to ask

Post by philc »

It's worth getting financials for several buildings, just to get a feel for what's typical.

A few samples from the web:

http://apartment.report/building/504-ea ... ials/2015/
http://apartment.report/building/32-wes ... ials/2012/

Note the considerable mortgage on the latter property, $5m over 100 ish units, something on the order of $50,000 debut per apartment.

It's worth asking for financial apartments for every apartment you're even vaguely interested in, as something of a litmus test and just so you can develop a baseline. The broker will often fob you off with something along the lines of "oh, don't worry your pretty little head about that, your attorney will check it during due diligence after an offer has been accepted". That's odd, because buying an apartment is mainly a financial decision, and there's a pretty big difference between a building with a nominal mortgage like $1m, and a building with something huge like $10m which could be in real trouble in a high interest rate environment.
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Re: Buying a Cooperative (co-op) unit - Questions to ask

Post by jfn111 »

The thing that would concern me is what you said "but the coops for my city (unlike NYC) are rare".
They are rare in my area also and the few I've taken clients to look at the clients ultimately felt that the whole process was to confusing and wouldn't pursue the purchase.
The eventual resale value will be affected by a smaller pool of buyers.
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Rob5TCP
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Re: Buying a Cooperative (co-op) unit - Questions to ask

Post by Rob5TCP »

Seeing that this conversation was from 2 years ago - what did the OP finally do?
And what was the outcome ?
t3chiman
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Re: Buying a Cooperative (co-op) unit - Questions to ask

Post by t3chiman »

jfn111 wrote:The thing that would concern me is what you said "but the coops for my city (unlike NYC) are rare".
They are rare in my area also and the few I've taken clients to look at the clients ultimately felt that the whole process was to confusing and wouldn't pursue the purchase.
The eventual resale value will be affected by a smaller pool of buyers.
I owned a nonluxury co-op in Chicago; even was president of the board of directors for a while. So, even though the original poster is long gone, I think it valuable to address the co-op vs condo argument, if only to give future googlers a hook to start their own comparison.

First off, my opinion: the co-op is the single most cost-effective way of living in a nice apartment in a big city. Two major advantages: 1. expenses, such as maintenance and taxes, are divided by the individual's proportionate ownership factor, and 2. day-to-day building management has, at least in theory, the building's residents interests at heart (as opposed to, say, maximum fee extraction).

Buying into a co-op is not a nightmare of confusion, it's just a purchase of shares in a private corporation that grants the buyer a lease on an apartment. Different boards of directors can (and do) inject barriers into the process that can be exasperating, but, by and large, their concerns of financial stability and social maturity are well-considered.

The original poster had quite a checklist of pre-buy factors. In practice, by the time one ran down the checklist items, the buying opportunity would have passed. The general way is that a trusted friend or relative clues you in to a recent death of a shareholder, and you discreetly inquire of a board member regarding the unofficial decision criteria for acceptance (Every building has them; best to be aware.). Then, a quick phone call to the estate executor to gauge pricing; then, make your offer.

There are lots of ways to go wrong in any big ticket item purchase. The board can be power-mad, or unethical. Your neighbors can be jerks. Or, saddest of all, elderly residents can deteriorate to the point of neglecting their apartments--vermin, insect infestation, garbage accumulation. I've seen it; it's a mess.

But a solid building with a good roof and heating plant, decent residents, and a reasonably able board, can be a joy to live in.
Hope this helps.
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Re: Buying a Cooperative (co-op) unit - Questions to ask

Post by ImmigrantSaver »

t3chiman wrote:
jfn111 wrote:The thing that would concern me is what you said "but the coops for my city (unlike NYC) are rare".
They are rare in my area also and the few I've taken clients to look at the clients ultimately felt that the whole process was to confusing and wouldn't pursue the purchase.
The eventual resale value will be affected by a smaller pool of buyers.
I owned a nonluxury co-op in Chicago; even was president of the board of directors for a while. So, even though the original poster is long gone, I think it valuable to address the co-op vs condo argument, if only to give future googlers a hook to start their own comparison.

First off, my opinion: the co-op is the single most cost-effective way of living in a nice apartment in a big city. Two major advantages: 1. expenses, such as maintenance and taxes, are divided by the individual's proportionate ownership factor, and 2. day-to-day building management has, at least in theory, the building's residents interests at heart (as opposed to, say, maximum fee extraction).

Buying into a co-op is not a nightmare of confusion, it's just a purchase of shares in a private corporation that grants the buyer a lease on an apartment. Different boards of directors can (and do) inject barriers into the process that can be exasperating, but, by and large, their concerns of financial stability and social maturity are well-considered.

The original poster had quite a checklist of pre-buy factors. In practice, by the time one ran down the checklist items, the buying opportunity would have passed. The general way is that a trusted friend or relative clues you in to a recent death of a shareholder, and you discreetly inquire of a board member regarding the unofficial decision criteria for acceptance (Every building has them; best to be aware.). Then, a quick phone call to the estate executor to gauge pricing; then, make your offer.

There are lots of ways to go wrong in any big ticket item purchase. The board can be power-mad, or unethical. Your neighbors can be jerks. Or, saddest of all, elderly residents can deteriorate to the point of neglecting their apartments--vermin, insect infestation, garbage accumulation. I've seen it; it's a mess.

But a solid building with a good roof and heating plant, decent residents, and a reasonably able board, can be a joy to live in.
Hope this helps.
Thank you for your perspective. I am currently in the market to purchase a small coop in Manhattan and would like to pick your brain on a few points. 1) What's your view on self-managed buildings? There is an obvious advantage of a lower maintenance but is there any hidden potential cost? 2) What are your views on a strict board in terms of liquidity requirements (more than 2 years of monthlies and up to a full value of coop) and its effects on resale value. 3) Is it reasonable to expect to be able to rent the unit out at some point or the hurdle is too high to do that in Manhattan coops?

TIA

I.S.
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Re: Buying a Cooperative (co-op) unit - Questions to ask

Post by t3chiman »

ImmigrantSaver wrote:...

Thank you for your perspective. I am currently in the market to purchase a small coop in Manhattan and would like to pick your brain on a few points. 1) What's your view on self-managed buildings? There is an obvious advantage of a lower maintenance but is there any hidden potential cost? 2) What are your views on a strict board in terms of liquidity requirements (more than 2 years of monthlies and up to a full value of coop) and its effects on resale value. 3) Is it reasonable to expect to be able to rent the unit out at some point or the hurdle is too high to do that in Manhattan coops?

TIA

...
Gosh. I am flattered that my insights in the matter are valued. That said, I can offer some off-the-cuff remarks.

The Co-op marketplace is divided into two parts: NYC, and Everywhere Else. I have direct experience with the latter.

Re self-managed, mine was self-managed, and it worked out fine. The secret was a super-cheapskate building manager. I mean, super-cheapskate. And personally conservative (In a good way. No bad habits. Ethical. Open-minded. But hated to be critiqued. I had a helluva time moving the building's checking account to an interest-bearing one. The stories I could tell..). The sales pitch from professional real estate management firms is that they have seen it all before, and bring a degree of day-to-day expertise to the building's problems. In my opinion, such a claim is largely self-serving. You do need a 24/7 watchdog function, but a decent retired person with a rolodex of plumbers and HVAC guys can do as well, and for the price of a free apartment, it's worth it for the rest of the building.

Boards have to be cautious when it comes to refusing or excluding buyers. It's theoretically a private transaction, but a phone call to a HUD investigator can bring anxiety, inconvenience, and expense into your life. The legalities are complex; consistency is the key. A building's nightmare is the buyer who moves in and promptly defaults on paying assessments. 100% and 2 years seems excessive. Then again, my building's assessments were $200/mo for a 2BR, 900sqft apartment (20 years ago, don't go shopping now).

Renting units is usually forbidden, except when permitted by the board, and permission is never given. The whole idea is to keep out poor people; renters are by definition poor. It happens, though. And renters have rights, regardless of agreements signed by buyers at closing. No idea about Manhattan in particular, sorry.
HTH
ImmigrantSaver
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Re: Buying a Cooperative (co-op) unit - Questions to ask

Post by ImmigrantSaver »

t3chiman wrote:
ImmigrantSaver wrote:...

Thank you for your perspective. I am currently in the market to purchase a small coop in Manhattan and would like to pick your brain on a few points. 1) What's your view on self-managed buildings? There is an obvious advantage of a lower maintenance but is there any hidden potential cost? 2) What are your views on a strict board in terms of liquidity requirements (more than 2 years of monthlies and up to a full value of coop) and its effects on resale value. 3) Is it reasonable to expect to be able to rent the unit out at some point or the hurdle is too high to do that in Manhattan coops?

TIA

...
Gosh. I am flattered that my insights in the matter are valued. That said, I can offer some off-the-cuff remarks.

The Co-op marketplace is divided into two parts: NYC, and Everywhere Else. I have direct experience with the latter.

Re self-managed, mine was self-managed, and it worked out fine. The secret was a super-cheapskate building manager. I mean, super-cheapskate. And personally conservative (In a good way. No bad habits. Ethical. Open-minded. But hated to be critiqued. I had a helluva time moving the building's checking account to an interest-bearing one. The stories I could tell..). The sales pitch from professional real estate management firms is that they have seen it all before, and bring a degree of day-to-day expertise to the building's problems. In my opinion, such a claim is largely self-serving. You do need a 24/7 watchdog function, but a decent retired person with a rolodex of plumbers and HVAC guys can do as well, and for the price of a free apartment, it's worth it for the rest of the building.

Boards have to be cautious when it comes to refusing or excluding buyers. It's theoretically a private transaction, but a phone call to a HUD investigator can bring anxiety, inconvenience, and expense into your life. The legalities are complex; consistency is the key. A building's nightmare is the buyer who moves in and promptly defaults on paying assessments. 100% and 2 years seems excessive. Then again, my building's assessments were $200/mo for a 2BR, 900sqft apartment (20 years ago, don't go shopping now).

Renting units is usually forbidden, except when permitted by the board, and permission is never given. The whole idea is to keep out poor people; renters are by definition poor. It happens, though. And renters have rights, regardless of agreements signed by buyers at closing. No idea about Manhattan in particular, sorry.
HTH
Thank you - appreciate the feedback!
Manhattan coop mkt has been a difficult subject to grasp :)
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Re: Buying a Cooperative (co-op) unit - Questions to ask

Post by Rob5TCP »

I've had experience with two coops. One that I owned (Tudor City) and one that I helped my friend with.
Tudor city though it had high maintenance (due to the sponsor's high underlying mortgage) was tight with expenses and for 12 years had fairly minor increases in maintenance (mostly r.e. taxes and fuel). There was good supervision, 2 lawyers and a CPA were on the Board. The president was an attorney at the time. Though I sold it a few years ago, I hear the maintenance is well kept and has not had too many major expenses for a building its size.

The other unit was just the opposite. The board was corrupt and while hard to prove; there were kickbacks. It had a flip tax if you sold within x number of years (about 35% of the profit). I heard, though not provable, that it was selectively enforced which is illegal. My friend loved the building, but hated the board. When she became president, she was straight as an arrow. There were LITERALLY death threats (though hardly credible). She quit after one year and will never do it again.

KNOW YOUR BOARD.
Also what % of the tenants live there vs. what % are renting form the owner. If it's too high of a transient population, they have less stake in the building. If you plan to rent out your unit, how lenient are the policies. What is the surcharge. I tried to buy a co-op in Riverdale as an investment and while you could rent it out; you had to live there 2 years first. What is the reserve fund in dollars and as a % of the yearly budget. When was the last assessment. Is there an engineer's report and how old is it? There are whole books on buying co-ops in NY. A good broker could help you tremendously with the board.
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Re: Buying a Cooperative (co-op) unit - Questions to ask

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ImmigrantSaver wrote:1) What's your view on self-managed buildings? There is an obvious advantage of a lower maintenance but is there any hidden potential cost? 2) What are your views on a strict board in terms of liquidity requirements (more than 2 years of monthlies and up to a full value of coop) and its effects on resale value. 3) Is it reasonable to expect to be able to rent the unit out at some point or the hurdle is too high to do that in Manhattan coops?

TIA

I.S.
1. Is the self-managed building very small, say under a dozen apartments? That will be a completely different experience than buying in a larger building.

Self-managed buildings do not have the benefit of advice from a management company. In my large building, the manager is technically an employee of the management company while the rest of the staff (super, doormen, porters, handymen) are employed by the tenants corporation. The management company provides a lot of knowledge and support about best practices, prices, etc. This is especially useful with special projects such as choosing a software system or replacing building systems. A self-managed building must rely only on the expertise and knowledge of the tenants and the people they elect to the board and people they hire. A smaller building may have no choice financially and may only have a part-time janitor. There was a recent article in the NYT about small co-ops, most of which would be self-managing.

https://www.nytimes.com/2017/02/24/real ... s-nyc.html

2. Liquidity requirements are not always stated. Co-op boards do not have to give any reason for rejection of prospective shareholders and rarely do because of potential liability. Some buildings are very strict and require cash purchase but the majority are much more liberal. It is in the shareholders' best interest to ensure that all shareholders are financially secure. My building had no problems with tenants in arrears because of the financial crisis because the board does a good job of screening. The building has a good reputation for strong finances and maintenance slightly below average due to good management over the years and that is a real plus when it comes to resale value. When you become a shareholder, a portion of the building's finances become your responsibility.

3. All buildings have a sublet policy and it is generally discouraged. The view is usually that allowing sublets is primarily a way to allow some flexibility for shareholders who may be temporarily working elsewhere or who need to move when the resale market is difficult. Boards are generally very strict about enforcing the policies.

Most buildings do allow limited subletting, often after a period of owner occupancy and for a limited time. All potential subleases must submit financials and are screened by the board. There are usually significant fees involved, initial and monthly. If you are looking for a rental property, a NYC co-op should probably not be your first choice.

You should ask for a copy of the co-op rules, which should include information about subletting, you can ask the real estate agent, and you could ask what percentage of apartments are sublet, as that is a legitimate concern for shareholders. If a board allows the number of sublet apartments to go over a certain percentage, it will be difficult to get a co-op loan, so even in a building that allows subletting, new sublets may not be allowed until current ones have ended.

There are two good resources for co-ops:

https://www.habitatmag.com
https://cooperator.com (has region-specific content)
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Re: Buying a Cooperative (co-op) unit - Questions to ask

Post by ImmigrantSaver »

Pajamas wrote:
ImmigrantSaver wrote:1) What's your view on self-managed buildings? There is an obvious advantage of a lower maintenance but is there any hidden potential cost? 2) What are your views on a strict board in terms of liquidity requirements (more than 2 years of monthlies and up to a full value of coop) and its effects on resale value. 3) Is it reasonable to expect to be able to rent the unit out at some point or the hurdle is too high to do that in Manhattan coops?

TIA

I.S.
1. Is the self-managed building very small, say under a dozen apartments? That will be a completely different experience than buying in a larger building.

Self-managed buildings do not have the benefit of advice from a management company. In my large building, the manager is technically an employee of the management company while the rest of the staff (super, doormen, porters, handymen) are employed by the tenants corporation. The management company provides a lot of knowledge and support about best practices, prices, etc. This is especially useful with special projects such as choosing a software system or replacing building systems. A self-managed building must rely only on the expertise and knowledge of the tenants and the people they elect to the board and people they hire. A smaller building may have no choice financially and may only have a part-time janitor. There was a recent article in the NYT about small co-ops, most of which would be self-managing.

https://www.nytimes.com/2017/02/24/real ... s-nyc.html

2. Liquidity requirements are not always stated. Co-op boards do not have to give any reason for rejection of prospective shareholders and rarely do because of potential liability. Some buildings are very strict and require cash purchase but the majority are much more liberal. It is in the shareholders' best interest to ensure that all shareholders are financially secure. My building had no problems with tenants in arrears because of the financial crisis because the board does a good job of screening. The building has a good reputation for strong finances and maintenance slightly below average due to good management over the years and that is a real plus when it comes to resale value. When you become a shareholder, a portion of the building's finances become your responsibility.

3. All buildings have a sublet policy and it is generally discouraged. The view is usually that allowing sublets is primarily a way to allow some flexibility for shareholders who may be temporarily working elsewhere or who need to move when the resale market is difficult. Boards are generally very strict about enforcing the policies.

Most buildings do allow limited subletting, often after a period of owner occupancy and for a limited time. All potential subleases must submit financials and are screened by the board. There are usually significant fees involved, initial and monthly. If you are looking for a rental property, a NYC co-op should probably not be your first choice.

You should ask for a copy of the co-op rules, which should include information about subletting, you can ask the real estate agent, and you could ask what percentage of apartments are sublet, as that is a legitimate concern for shareholders. If a board allows the number of sublet apartments to go over a certain percentage, it will be difficult to get a co-op loan, so even in a building that allows subletting, new sublets may not be allowed until current ones have ended.

There are two good resources for co-ops:

https://www.habitatmag.com
https://cooperator.com (has region-specific content)
Thank you for the info! The self-managed building I considered (lost my bid to an all-cash offer) was rather large (200+ units). Coincidentally it was the most strict so far in terms of board approval, sublet rules and liquidity requirements. Makes me think it's not the worst thing I lost that apt..

What concerns me the most in my search, is that the apartments I look at (alcove studios under 500k) have increased in price by as much as 100k over the past 1-2 years. And I am not experienced enough to recognize whether it's the bubble in the making. Makes me pause and reconsider..
enki
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Re: Buying a Cooperative (co-op) unit - Questions to ask

Post by enki »

My aunt has a coop in NYC and has lived there for many, many years. Fortunately, the board has been pretty good in terms of operational management and they don't act like power hungry idiots. Recently, things worked out even better for the owners because they ended up leasing some retail space on the ground floor for a price high enough to cover all the operational expenses of the building. While this is of course subject to change in the future, right now they pay ~$20/month, which covers the building mortgage, taxes, doorman, etc. She no longer has a personal mortgage on her shares, so outside of utilities, this is her only expense. $20/month to have a 1BR apartment in a nice area of the West Village. If this was not a coop, that type of arrangement would obviously not be possible. So it can work out fairly well depending on the circumstances.
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Pajamas
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Re: Buying a Cooperative (co-op) unit - Questions to ask

Post by Pajamas »

enki wrote:Recently, things worked out even better for the owners because they ended up leasing some retail space on the ground floor for a price high enough to cover all the operational expenses of the building.
Here is an interesting article on that topic. Owners in the building make $20k a year from the retail space:

http://www.nytimes.com/2013/04/14/reale ... usive.html

Some more background info:

http://www.nytimes.com/2008/01/20/realestate/20cov.html

Maintenance definitely affect share value. When you see a co-op at what seems to be a bargain price, the maintenance is often high, especially if the listing does not state how much it is. Sometimes that is because of a land lease, either expired or soon to expire. Other reasons include a rent-controlled tenant ("For Investors Only!") or there is an income restriction.
ImmigrantSaver wrote:
Thank you for the info! The self-managed building I considered (lost my bid to an all-cash offer) was rather large (200+ units). Coincidentally it was the most strict so far in terms of board approval, sublet rules and liquidity requirements. Makes me think it's not the worst thing I lost that apt..

What concerns me the most in my search, is that the apartments I look at (alcove studios under 500k) have increased in price by as much as 100k over the past 1-2 years. And I am not experienced enough to recognize whether it's the bubble in the making. Makes me pause and reconsider..
Well, strict requirements and rules work to your benefit as a shareholder. A disproportionate share of serious problems are caused by subletters as opposed to owners, in my experience. Some buildings even have special rules for subletters, such as no pets.

I was looking at prior sales in my building earlier this week and prices have gone up significantly over the past couple of years. The market here is cyclical. I do see some of the same warning signs of the big bubble, but not nearly to the same degree. Available apartments are fewer, they sell quickly near or above the asking price, people place notices looking to buy, the number of post cards from real estate agents bragging about their latest sale have increased, the luxury market for new apartments has softened, concessions on rentals are back in vogue, and the number of non-U.S. buyers will likely decrease. Also people are using cash offers like you saw on the apartment you bid on.

Definitely use a rent/buy calculator, don't just buy an apartment to buy one. Many of the newer buildings have more amenities so you don't necessarily get a better apartment by buying, but of course it is nice not to have to deal with a landlord.
ImmigrantSaver
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Re: Buying a Cooperative (co-op) unit - Questions to ask

Post by ImmigrantSaver »

Pajamas wrote:
enki wrote:Recently, things worked out even better for the owners because they ended up leasing some retail space on the ground floor for a price high enough to cover all the operational expenses of the building.
Here is an interesting article on that topic. Owners in the building make $20k a year from the retail space:

http://www.nytimes.com/2013/04/14/reale ... usive.html

Some more background info:

http://www.nytimes.com/2008/01/20/realestate/20cov.html

Maintenance definitely affect share value. When you see a co-op at what seems to be a bargain price, the maintenance is often high, especially if the listing does not state how much it is. Sometimes that is because of a land lease, either expired or soon to expire. Other reasons include a rent-controlled tenant ("For Investors Only!") or there is an income restriction.
ImmigrantSaver wrote:
Thank you for the info! The self-managed building I considered (lost my bid to an all-cash offer) was rather large (200+ units). Coincidentally it was the most strict so far in terms of board approval, sublet rules and liquidity requirements. Makes me think it's not the worst thing I lost that apt..

What concerns me the most in my search, is that the apartments I look at (alcove studios under 500k) have increased in price by as much as 100k over the past 1-2 years. And I am not experienced enough to recognize whether it's the bubble in the making. Makes me pause and reconsider..
Well, strict requirements and rules work to your benefit as a shareholder. A disproportionate share of serious problems are caused by subletters as opposed to owners, in my experience. Some buildings even have special rules for subletters, such as no pets.

I was looking at prior sales in my building earlier this week and prices have gone up significantly over the past couple of years. The market here is cyclical. I do see some of the same warning signs of the big bubble, but not nearly to the same degree. Available apartments are fewer, they sell quickly near or above the asking price, people place notices looking to buy, the number of post cards from real estate agents bragging about their latest sale have increased, the luxury market for new apartments has softened, concessions on rentals are back in vogue, and the number of non-U.S. buyers will likely decrease. Also people are using cash offers like you saw on the apartment you bid on.

Definitely use a rent/buy calculator, don't just buy an apartment to buy one. Many of the newer buildings have more amenities so you don't necessarily get a better apartment by buying, but of course it is nice not to have to deal with a landlord.
Great resources! Now it makes sense why all the cute mom and pop shops got replaced with TD banks.. Sigh

Understand the logic behind the restrictions. But in my case, since I am buying a fairly small place I won't stay there for longer than 5-7 years and was hoping to be able to rent it out rather than being forced to sell it.

As for rent vs buy calculator, it get's a little tricky. If I were to rent a similar (to what I am trying to buy) place in a similar building, then the total monthly payments come out to be roughly same (or up to $200 more per month depending on maintenance). However I have a good deal on my current rent in a low key elevator building (with outdoors!), with a rent of $900 - 1000 less than projected monthly payments, were I to buy. Of course the apartments are not comparable and it would be a huge upgrade for me if I buy. But I am wondering if it's worth the cost given where the prices are and my fairly short-term horizon.
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Pajamas
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Re: Buying a Cooperative (co-op) unit - Questions to ask

Post by Pajamas »

ImmigrantSaver wrote:
Great resources! Now it makes sense why all the cute mom and pop shops got replaced with TD banks.. Sigh

Understand the logic behind the restrictions. But in my case, since I am buying a fairly small place I won't stay there for longer than 5-7 years and was hoping to be able to rent it out rather than being forced to sell it.

As for rent vs buy calculator, it get's a little tricky. If I were to rent a similar (to what I am trying to buy) place in a similar building, then the total monthly payments come out to be roughly same (or up to $200 more per month depending on maintenance). However I have a good deal on my current rent in a low key elevator building (with outdoors!), with a rent of $900 - 1000 less than projected monthly payments, were I to buy. Of course the apartments are not comparable and it would be a huge upgrade for me if I buy. But I am wondering if it's worth the cost given where the prices are and my fairly short-term horizon.
Given your 5-7 year horizon, it is probably not worth the transaction costs, which have increased rather than decreased. Not only do you have the real estate commissions, which are ridiculous with the inflated value of apartments, you have the application fees, various mortgage fees and attorney costs, paying for moving and all those small expenses that come with a new place, fees for moving in & out, stock transfer tax, flip fees, and probably more that I can't think of right now. Plus it is simply a real pain to buy or sell.

Here's list of costs:

https://www.elliman.com/reports-and-gui ... sing-costs

Also you have no guarantee of being able to rent your apartment even if it is allowed on a limited basis. The rules could change or there may already be the maximum number of sublets that the board will allow when you want to sublet. If you are planning to sublet or rent an apartment, you should consider a condo instead, or perhaps look for those rare co-ops with unlimited subletting allowed. Some of Tudor City allows unlimited subletting after a few years, but the location is not the best for most people and many of the apartments are very small and have mini-kitchens like you would find in a hotel. Plus, do you really want to live in a building with such liberal subletting policies?
mindboggling
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Re: Buying a Cooperative (co-op) unit - Questions to ask

Post by mindboggling »

I would be careful buying a co-op apartment. Be aware that when you go to sell it, the co-op board can turn down your buyer for any reason or no reason and do not even have to tell you the reason. I own a co-op apartment in Da Bronx and I'm having trouble selling it. Subletting is not permitted. My first buyer was rejected. I am now going through the process with a second buyer.

While co-operative ownership is still popular for luxury apartments (value many millions), for the middle-class it is an almost obsolete form of ownership. It became popular for lower priced apartments in the 1970s, when NYC had severe fiscal problems and a high crime rate. Since then, co-op boards have gotten a reputation for secrecy and capricious decision-making. It's almost impossible to challenge a board's decision unless one can prove a civil rights violation. And I mean PROVE.

steve
In broken mathematics, We estimate our prize, --Emily Dickinson
ImmigrantSaver
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Re: Buying a Cooperative (co-op) unit - Questions to ask

Post by ImmigrantSaver »

Pajamas wrote:
ImmigrantSaver wrote:
Great resources! Now it makes sense why all the cute mom and pop shops got replaced with TD banks.. Sigh

Understand the logic behind the restrictions. But in my case, since I am buying a fairly small place I won't stay there for longer than 5-7 years and was hoping to be able to rent it out rather than being forced to sell it.

As for rent vs buy calculator, it get's a little tricky. If I were to rent a similar (to what I am trying to buy) place in a similar building, then the total monthly payments come out to be roughly same (or up to $200 more per month depending on maintenance). However I have a good deal on my current rent in a low key elevator building (with outdoors!), with a rent of $900 - 1000 less than projected monthly payments, were I to buy. Of course the apartments are not comparable and it would be a huge upgrade for me if I buy. But I am wondering if it's worth the cost given where the prices are and my fairly short-term horizon.
Given your 5-7 year horizon, it is probably not worth the transaction costs, which have increased rather than decreased. Not only do you have the real estate commissions, which are ridiculous with the inflated value of apartments, you have the application fees, various mortgage fees and attorney costs, paying for moving and all those small expenses that come with a new place, fees for moving in & out, stock transfer tax, flip fees, and probably more that I can't think of right now. Plus it is simply a real pain to buy or sell.

Here's list of costs:

https://www.elliman.com/reports-and-gui ... sing-costs

Also you have no guarantee of being able to rent your apartment even if it is allowed on a limited basis. The rules could change or there may already be the maximum number of sublets that the board will allow when you want to sublet. If you are planning to sublet or rent an apartment, you should consider a condo instead, or perhaps look for those rare co-ops with unlimited subletting allowed. Some of Tudor City allows unlimited subletting after a few years, but the location is not the best for most people and many of the apartments are very small and have mini-kitchens like you would find in a hotel. Plus, do you really want to live in a building with such liberal subletting policies?
Seems like the better course of action would be to keep renting and saving for a bigger place although with a risk of being priced out..
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Re: Buying a Cooperative (co-op) unit - Questions to ask

Post by Jazztonight »

DW and I live in a Co-op; it is one of two or three in the SF Bay area. The rest are condos.

Sellers sell their units just like they would a house. The buyers need to be approved by the co-op board, but the only qualifications are financial (need to show net worth of a certain value, generally equal to the selling price, regardless of whether the buyers are getting a mortgage). I think Streisand or Lennon would not live here because the units would have been too small for them--just 2 or 3 BR, 2BA.

We are not a 55 or older building. We welcome kids, and have a few. But our building is only 55 units.

Assessments have been rare through the life of the building, but we're probably going to face some soon--older roof; new boilers; earthquake retrofit. It's not cheap to live here, but it's a nicely maintained building with a 95 walkability score.

You don't know what problems are going to arise until they do. Just like home-ownership. Each of us is a "shareholder" as opposed to a tenant or owner.

The building will have a handbook indicating what can be done and what can't. This describes whether you can rent your unit, for how long, restrictions, etc. If the board says everyone must change their front doors because of new fire marshall ordered code, you either do it on your own or you get a bill at the end of the allotted time period.

We recently discovered one shareholder was renting his apartment on Air BnB. The board put an end to that.

The board makes most decisions after "input" from shareholders. But the shareholders will only have a vote on major expenditures.

I like living here. We have a doorman, good security, nice neighbors. Problems are dealt with as required. It's a little community, with get-togethers in the lobby for winter holidays, and people gather on the roof to watch fireworks on the 4th of July, etc. When someone goes on a vacation, you have neighbors who will feed and care for the cat.

Read the handbook. Ask questions. Talk to residents. When I first saw our building, one of the numbers of the address had fallen off the side of the building. When I visited the next week, it had been repaired/replaced. I knew then that someone was taking care of the place, and was happy to buy here.
"What does not destroy me, makes me stronger." Nietzsche
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