There are various types of residential ownership in New York City. When contemplating purchasing an apartment in Manhattan, it’s important to define what type of property you want to buy.
This type of home ownership, is when one owns shares of stock in a corporation that owns the building. These shares are considered “personal property” similar any other shares of stock. For tax purposes, the IRS has recognized this form of ownership and under normal circumstances any mortgage interest incurred by an owner is considered tax deductible. The corporation (Coop) issues to each shareholder a “proprietary lease” which gives the shareholder the right to occupy their specific apartment. In addition, the corporation elects a board of directors who are responsible for overseeing the daily operations of the building, enforcing the by-laws, and acting on behalf of the shareholders to ensure that the building operates as an efficient entity. Owners pay to the Coop a maintenance fee, which pays for such items as; the buildings Real Estate Taxes, underlying mortgage, payroll, management fees, supplies and general maintenance. In addition, many coops accrue a contingency budget for future capital repairs. Typically, the portion of the maintenance that is attributed to the buildings Real Estate Taxes and mortgage interest are “tax deductible (td)” on your federal and state income tax returns. This “td” may change annually, as the mortgage on the building is amortized and Real Estate Tax charges change.
Additionally, as this type of ownership regards owning stock in a private corporation, approval to purchase such shares of stock must be granted by the board of directors. Thus, a purchase application must be submitted to the board requesting approval to purchase these shares. This application typically requires a minimum of the following: Net worth statement with full backup documentation (bank statements, brokerage and retirement account statements, etc.), 2 years tax returns & W-2′s, verification of employment or accountants letter, 2 personal and 2 business letters of reference, landlord reference, a credit check authorization, and a completed application provided by the board. In addition, the board will require an interview in order to meet you and make any inquiries regarding the information you submitted or questions they may have. The board has the right to approve or deny any applicant without cause.
This type of home ownership one owns “Real Property” much like owning a house. The condominium residents elect a “board of managers” who are responsible for overseeing the operations of the building and enforcing the “house rules” of the building. The main difference between owning a “condo” and a “house” is, in addition to owning the apartment, you also own a small percentage of the “common elements” of the building such as the halls, stairwells, basement, etc. Each homeowner receives a separate property tax bill from the city for their unit. In addition, each owner pays a “common charge” to the Condominium association to pay for such items as: payroll, building maintenance and supplies, management fees, and building repairs. In addition, some condominiums maintain a “reserve fund” in order to pay for major repairs and improvements to the building. It is important to note that although the Real Estate Taxes you pay on a condominium apartment are tax deductible, the common charges are not as they are solely to pay for the building operation and are not attributed to any tax deductible expenses.
In recent years many condominiums have implemented a procedure whereby purchasers must submit an application to purchase. Unlike in a coop, the board of managers must either approve the applicant or exercise the condominiums “right of first refusal” to purchase the apartment from the owner. Although this is not a common occurrence, it is an option for the board should they choose to exercise it.
In years past, most condominiums permitted the owner the right to sublet or sell their apartment with either no board approval or with a minimum board review. Condo boards have since tightened the reins on their rules.
In either case, the board must either approve the applicant or exercise their right of first refusal to match the purchase price. For this reason this form of ownership is very appealing to investors, foreign buyers and parents purchasing for their children.
By definition, a Cond-op is a residential Cooperative where the ground floor (typically commercial units) is converted into a separate “condominium” which is either owned by an outside investor or the original sponsor of the building. Thus, although the residential units are a coop, the commercial units are owned as a condominium by an entity other than the coop. Thus, the coop does not receive the benefit of the income from these units.
Many times, people will refer to Cooperatives that operate under Condominium rules as “Cond-ops”. This is not accurate although you will hear this quite often. A Cooperative that operates under condominium rules is just that but may be inaccurately referred to as a “Cond-op”.
This type of ownership provides the owner with a “fee simple” ownership of Real Property. The owner is responsible for payment of all Real Estate Taxes, maintenance and repairs of the property. The sale of the property may be conveyed to any party without prior approval by anyone other than the homeowner. There are two typical types of Townhouses; single family and multiple family. In a single family the property may only be occupied by one family although the entire house may be rented to another single (or family) user. In a multiple family residence, the owner may occupy (or lease out) one of the units while leasing out the other units as income producing entities.
Once you’ve determined what type of property you want to purchase, you will need to be completely organized.
To be prepared to act in a speed appropriate to the New York City real estate market, it is suggested that you take these steps before your home finding visit:
· Personal and business reference letters, for which your agent can provide examples.
· Employment verification letters and/or paystubs
· Bank verification letter
· Brokerage Statements
· Net Worth Statement
· Previous two years tax returns
· Mortgage loan application and commitment
· Landlord reference
· Credit check authorization
Condominiums sometimes require as much information as cooperatives. It is a good idea to have the above materials easily accessible.
Your agent/broker will work with you to complete your board package and submit it to the board on your behalf. A buyer could be turned down just from submitting an incomplete board package. Rely on your agent/broker as they know what boards require.
Ross Ellis is an award-winning residential New York City real estate broker. A dedicated professional with Halstead Property, one of the premier real estate firms in Manhattan, Ross caters to today's most discerning, local, national and International buyers and sellers. Featured and quoted in International Homes Magazine, Real Estate Weekly and Brokers Weekly, Ross' comprehensive market knowledge, persistent and strategic negotiating skills and commitment to each and every client are the keys to her years of success. Feel free to contact Ross at firstname.lastname@example.org with any questions or comments.
For more information contact Ross Ellis, Halstead Property
Sunday, November 02, 2014