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Category: Home and Apartments : Apartment Hunting
As the pre-millennial market boom has inflated many a young New Yorker's net worth and monthly apartment rental obligations, it has crossed the minds of some of us to cease "throwing money down the toilet" and consider buying a place.
My quick advice: if you're a single non-millionaire who is even slightly uncertain about where life will take you over the next five years, buying is probably not the right call at this time. That said, I'll present the facts, gleaned from a recent intensive personal experience on the subject. If you wish to live in a place other than Manhattan, are settled, or have a trust fund from hell, disregard the remainder of this article.
First of all, understand that Manhattan apartments come in two flavors: condos and co-ops.
A Manhattan condo is like any other condominium in America in that the purchaser buys the apartment outright from the seller. Once bought, you own the condo, subject to a mortgage, the concept of which I will outline later on. Ownership, in this case, entitles you to do with your apartment whatever you desire. You can make any number of reasonable improvements to your place, live there yourself, rent it to others, or sell it at any time and at any price to whomever is willing to take it off your hands.
A co-op is a different type of dog entirely. With a co-op, a real estate arrangement unique to Manhattan and its peculiar lifestyles and characters, you actually buy a share in the building or "housing corporation" rather than your apartment outright.
This arrangement has a couple of strongly negative implications for the maverick young homeowner. First off, the owner of a co-op may not sell to whomever he desires or do with his apartment whatever he wishes.
A "Co-op Board", ostensibly elected by the shareholders of the housing corporation, must approve all transactions and new tenants before they happen. So, if Person X wants to sell his co-op apartment to Person Y for a mutually agreed upon price, the Co-op Board has complete authority to block the transaction for any reason whatsoever! One reason for such a refusal is a low purchase price, which a Board might think would lower apartment values in the building, implying that if real estate values plummet from their current high levels, a co-op owner would be completely unable to sell. A Board could also block a transaction because they don't approve of the potential buyer. In order to buy a co-op, a hopeful homeowner must get all his financing in order first and then sit for an interview with the Board. If the Board feels the potential buyer is not financially secure, not a good person, too wild, or even doesn't dress well, it can reject his application! And then the buyer, having spent six to eight weeks and at least a few grand on non-refundable legal and mortgage fees, is back to square one in the home buying process. And the potential seller must put his place on the market all over again.
To be sure, a co-op seller and his real estate broker won't allow a potential buyer to go too far along in the process unless they think he has a very good chance at Board acceptance, but the risk of failure is always out there.
Another drawback to the co-op structure is that, once approved and moved in, the Board sets limits on what an owner can do with his apartment. Some Boards are more easygoing than others, but generally speaking, a co-op owner must live in the apartment for a minimum of two years before he can sell or sublet. Usually, he is only permitted to sublet once to a tenant who must gain Board approval, for a maximum of two years. And, when it comes time to sell, the owner faces the restrictions outlined above.
The good news about Manhattan apartments is that most new buildings entering the market are choosing to elect condo status. The bad news is that most Manhattan apartments on the market are still co-ops, including nearly all studios and one bedrooms, the likely targets of the up-and-comers still reading this article. Above all, keep in mind something that a property manager friend told me during my brief flirtation with premature home ownership: never buy a studio. Because when the market goes south, the market for studios goes down disproportionally, since potential studio owners would almost universally opt to rent if the world were to undergo even a minor correction. Still want to buy? Read on in Part II.
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Dave |
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Market Guru |
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Other Articles in this Category
10 Tips to Getting (and Keeping) a Good Deal on an Apartment
by Gary Rimar
Buy or Rent an Apartment in NYC? Part 2: The Numbers
by Dave Feinstein
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