Co-op vs condo vs house? A first-time buyer sorts through her options

If you’re thinking of buying a place in New York, you’ll have to decide between three main types of properties: houses, condos, and cooperatives (better known as co-ops). We were familiar with houses and condos, but co-ops were a different beast. They seemed cheaper overall, but had relatively expensive monthly fees. And, as we got deeper into our search, we realized the differences were stark.

So we went to the source, so to speak, for our research: other property owners in the city. The majority of New Yorkers we talked to had co-ops, but almost everyone said to get a condo. To get to the bottom of what we should buy, we investigated the three main types of properties in New York.

Cooperative (better known as co-op)

The bulk of NYC real estate inventory—about three-quarters—is co-ops, which tend to be cheaper per square foot than other types of housing, both because of the nature of what they are and because they tended to be a little older. (That said, co-ops also usually demand at least a 20 percent down payment, if not more.)  In a co-op, owners own a share of a corporation, and you’re basically investing in the property. Typically, the larger your apartment, the more shares you own. You also pay what seems like a high monthly maintenance fee, which covers basics like building upkeep and staff salaries, and also your taxes.

We were warned to allow about six months between signing the contract and when we could move in for a co-op, while a condo could usually be completed in two to three months. Banks told us that the co-op approval process for loans took longer. Plus, getting a meeting in front of a board that will review your finances and bonafides takes time. (Yes, you will need to be vetted by the board.) We'd heard tons of horror stories about this. You’ll have schedule your time with the co-op board during one of their meetings, which could happen as infrequently as once a month. You’ll also need to show that you have enough money left in the bank after closing to pay for several months of fees and mortgage. Usually, co-ops ask for two years' worth of funds. Boards can easily deny a potential buyer, so knowing someone in the building can supposedly really help.

All that vetting is good in a way as it checks for financial stability, However, we heard from some friends they had a hard time getting home equity loans from most banks after the financial crisis because co-ops aren’t your property. There are some specialist banks that will do it, but you will have to pay a higher interest rate.

Subletting is either not allowed, allowed for a certain period of time, and/or may come with additional fees. But the stricter rules mean that your neighbors are owners in the building and as invested in the property as you, no pun intended. (For more on co-ops versus condos, read Brick's How to Buy guide on this subject.)

Condo

Condos are just like houses in the sense you will be the title owner of an actual piece of property. They require as little as 10 percent down, but know that if you fork over less than 20 percent, you may face additional mortgage insurance costs. Your monthly fees (aka common charges) tend to be lower than co-ops, but your real estate taxes are not factored into your monthly payments. And if you ever want to take out a home equity loan in order to purchase another property, you’ll easily be able to leverage your condo.

They also tend to be more relaxed about subletting rules. Originally we liked the idea of flexibility, even though we fully intend on living in our new place full time. However, we didn’t consider that everyone else would be able to rent out their place, meaning there was a chance the building was not going to be majority owner-occupied. Renters tend not to be as invested in the building as actual homeowners. You can always ask your condo the actual owner-occupied to rental ratio in case that is a huge factor for you.

Most condo boards have right of first refusal meaning owners must offer the apartment to the condo or contiguous owner at the same price as the buyer. For buyers, that usually means completing an application. If you’re accepted, you get to buy the apartment. If not, it means that the condo or contiguous owner must buy the unit at the same price. It’s rarely enacted upon, so the process is pretty smooth.

Condos tend to cost more per square foot so you’ll need a larger down payment. They also have higher closing costs than co-ops since you have to cover title insurance and bank fees. Also if you want to buy in Manhattan, condos, depending on your price point, can be in short supply—except for the luxury and super-luxury range. (Check here for more information about condos and whether they're worth the slightly higher asking price.) 

House

If you’re lucky enough to get a full house on your budget, congratulations—this option is usually the priciest of the bunch, meaning you’ll have to fork over a larger down payment. But because there are no formal monthly maintenance fees per se, we found that we were actually able to consider houses that were a bit over our price range for condos and coops.

Buying a house comes with a lot of responsibilities. If that roof leaks or the air-conditioning system breaks, it’s all on you. Snow shoveling and taking out the trash is your responsibility. You’re also going to pay more for home insurance because you’re covering the whole building. We realized school districts will become an even bigger factor for resale value; chances are the people who want that many bedrooms have kids. (For other factors—like schools—to consider when evaluating whether a property will make a great investment, read our Investment Bootcamp primer.) 

Houses often come divided into two- or three-family apartments. It’s great because you can rent out a unit or two and help cover the additional cost of the mortgage. The homeowners we talked to outside of NYC were all rooting for us to get houses since we could get additional payment from renters, and we didn’t have to pay condo fees.

However, we weren’t keen to be first-time owners and landlords at once. If you don’t want the hassle of tenants, it can be expensive to reconfigure the property to make it a one-family house. You may have to re-route gas lines, knock through floors, and add staircases—tasks we weren't ready to take on.

The decision

In the end, we decided to focus on condos unless there was a unicorn house that was fixed up and was a single-family, plus near a subway and in our price rage. And surprisingly we found one—but then ended up getting outbid! If it sounds too good to be true, then chances are someone else with more money is going to grab it.

We also were open to co-ops where we knew someone used to, or currently, lived in the building so we could get the lowdown on the financial demands, how strict the approval process was, and what it was like living there. One of the biggest complaints we heard was a large shareholder could easily outvote smaller shareholders. If the larger co-op owners wanted the lobby fixed because they had the disposable income to pay an additional assessment to make things nicer, smaller units were out of luck and had to come up with the additional funds.

We’ll definitely be open to buying a co-op, but condos seems the easiest for us right now. 

Up next: After you decide what kind of property you want to focus on, it's time to get a realtor to show you the ropes.

Michelle Castillo is on her way to becoming a (real) New Yorker, after moving to the city from Los Angeles in 2009. She's currently a reporter at CNBC.com, and has written for other publications including The Los Angeles Times, TIME, and Adweek.

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