What Exactly Is A Cooperative Apartment?
What is a co-op in New York City, and how do you buy one?
I'm going to break it down, and I'm going to show you exactly how you can purchase a co-op, and just discuss a little bit about what a co-op is that we have here in the city, which makes buying in New York City so unique.
So what exactly is it co-op? On a very practical level, a co-op is a cooperative apartment, which means you are buying shares of a corporation.
So think of it like a combination between a country club, and getting issued a stock certificate of shares of, say, IBM, or Facebook, or whatever you're investing in. So that's the actual, literal, practical definition of a co-op. But really from an every day use perspective, the difference between a co-op, and any other type of apartment New York City is negligible.
You're not going to walk down the street, and say to yourself, this is a co-op, this is a condo, this is a co-op, this is a condo. You can't tell the difference between the two. So as much as buying in a cooperative is a unique experience, and one that is truly specific to New York City, it's not going to change all that much about the way, and the how, and the why of how you live. Meaning you're not going to change anything, other than how you're structuring and buying into it.
So basically there are, let's call it, four ways, if you will, of buying into a cooperative, right?
So I'll break those down, so that if you are a prospective purchaser of a co-op, obviously we'd love to help you, so feel free to reach out to us for that, but if you are a prospective purchaser of a co-op, there's really going to be four key ways you're going to structure that purchase.
Now the most logical and simple one, and the one we of course like to deal with the most because it keeps things clean and easy, is simply to buy it yourself.
Meaning when you get the stock certificate, and as I said, you are buying shares of a corporation so you get an actual stock certificate, when you buy the shares, and you're getting the stock certificate, you're just buying it as yourself.
You are the purchaser representing yourself, and you are putting it in your name, meaning the stock is issued in your name, and all is well. And you are funding the purchase with your own source of funding. That would be scenario number one, and, as you can imagine, the cleanest.
The second one is what we call a co-purchase, and that would be purchasing with a relative.
Occasionally you might purchase it with a friend, but more often than not, you're going to purchase it with your mom. You're going to purchase it with your dad, you're going to purchase it with your sister, your brother, et cetera. The purpose of that is because a cooperative has a set of rules. As I said, it's like a country club, and the country club has the right to turn you down, so just like that, a co-op has the right to say we don't necessarily think you're the right fit, and the majority of the time, as much as people hear rumors, the majority of the time, the reason the co-op doesn't think you're the right fit, is a financial one. They think that you might not be qualified financially to purchase the building.
Now, as ridiculous as that sounds, and quite frankly, it is ridiculous. There are a lot of pros to that setup, because it does insure, and insulate the building from financial problems. One of the reasons we, as I diverge a little, one of the reasons we were so protected from the recession in 2009, is because cooperative apartments have such stringent financial requirements, and we were able to rebound so quickly in the city because most of the people in the city could afford the homes they were living in. While the rest of the country went into foreclosure. So that's a really, really important sidebar, and I actually plan on talking about that next week, so we'll get into that hopefully next week.
But back to the scenarios. So when you purchase along with a parent, or sister, or relative, or friend, you're really doing that to beef up your financial profile, right? You need their liquidity position, and their financial stability to help purchase the home. So that would be scenario number two. That's what we call co-purchasing. So two people or more sign on the stock and lease certificate.
The third scenario would be what we call gifting.
Very simple. You get a gift from a source. That gift comes in a certain amount of money, that goes towards the proceeds or post-close liquidity requirements of the purchase, meaning you get a couple hundred thousand dollars, a couple million dollars if you're lucky. Hey, I'd love a couple million dollars, and you get to purchase the home in your name, but you get approval to use other sources of funding coming from an external source to help you with the purchase. As I said, that's called gifting.
And the fourth scenario, which quite frankly we don't see very often but does exist, is when someone else buys for you.
That means that someone else signs their name on the stock and lease, meaning the apartment is in somebody else's name, but you are living there, and the majority of the time we see that as called parents buying for children, meaning the parent is usually the one who buys for their kid. What you'll see most often in that scenario is, say, a student, undergrad, graduate, postdoc, etc, a student who doesn't quite have the income to support themselves yet, but is using their parents to purchase a home, and therefore the parent buys it in their name, but really it's intended for the kid to live in.
Now that is a scenario that is not always done, because to my next point, the three scenarios that I just outlined, other than buying it yourself, which is co-purchasing, parents buying for children, and gifting, those three scenarios are always case by case.
Now there are buildings across New York City, and we have a very good understanding of which those buildings are, that allow these scenarios, or one, or two, or three of these scenarios, and there are buildings that don't allow them.
Meaning, case-by-case implies that these other three scenarios of purchasing a co-op, are not a guarantee. So when you buy a condominium apartment in New York City, or when you buy a townhouse in New York City, or for those of you not in New York City, when you buy any other property across the world, other than a cooperative in New York City, you can just buy it, if you have the funds.
In New York city, that is not the case. So these three scenarios are what we call case by case, meaning we have to go through every purchase setup, every purchase scenario, and every building, and match the two together to ensure that it's the right fit.
As much as people think that they're able to purchase a home in the city by themselves, this is one of the most critically important scenarios, and setups, and pieces of the transaction, parts of the transaction where we can provide so much value to you, because we have the knowledge, and the skill-set to match you with the right building. We don't want to waste your time. Time is the most valuable asset, of which we all in the city have very little of. Therefore, when you work with us, we'll make sure that you're purchasing in the right place.
Now, there are other scenarios that exist. Now they're rare, but they do exist. We, for example, just completed a transaction where one of our clients purchased in a trust, and another one purchased in an LLC. Now we don't see that very often in a cooperative. Typically they're fairly gun shy about allowing someone who's not purchasing in their name to purchase.
But again, if you are being guided the right way, you then can ensure that you are going to be purchasing in a situation that is approvable by a co-op board. So of course we're very open-minded about how we want to get you to the finish line, but oftentimes the co-op is not as open minded as we are. So we're going to try to square up the scenario as best we can, to ensure your approval into the co-op.
That all sounds kind of crazy. I'm buying an apartment, I'm showing up with a check, why can't I get approved? And I'm going to tell you, it is crazy. Cooperatives are crazy, but there are a ton, and ton, and tons of upside and values to living in a co-op, and rather than divulging that this week, tune in next week so that we can tell you what makes buying in a co-op beneficial.
Hope that was helpful and informational. We'd love to hear your comments.