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What is a Condo? Everything You Need to Know 


What's a punch list?

When you purchase a condo, you are purchasing real property as opposed to a co-op where you purchase shares in a corporation.  When you own a condo, you own the actual physical space the apartment occupies and it has its own tax lot. You will also own a percentage of the common interest, which includes areas such as hallways, the lobby, and any common outdoor space.

The percentage of the common space owned by each apartment is allocated when the condo is formed and that percentage never changes unless someone combines two apartments. 

Types Of Condos

Below, we’ll explore six different types of condos and how ownership varies.

 

Condo Home

If you are considering purchasing a condo home you will have greater flexibility in usage than a co-op. For example, some co-ops do not allow you to own the apartment as a second home but a condo does not have the same restrictions. However, you will still be required to follow the building rules which is necessary to keep a vertical living situation harmonious and compliant with local laws. You are also responsible for the legal usage around subletting. For example, short term subletting is for the most part not allowed by NYC law.

 

Condo Share

Condo shares or fractional ownership is very rare in New York City. The St. Regis Hotel located at 2 East 55th Street is the exception. Here you can purchase a week which offers great flexibility within the wider Marriott Bonvoy world of travel. A recent apartment listed for $60,000 for twenty-eight days. For luxury travelers it is a bit of a bargain and you have access to all of the hotel amenities. .

 

Detached Condo

A detached condo is not an offering you will see in New York City largely because it requires space between homes to create these single-family offerings. Land is at a premium on the Island of Manhattan. Even our townhouses are adjacent typically sharing a party wall.

 

Private Condo Or Private-Owned Apartment

Condos by their nature are private because you own the space within the four walls. These private-owned apartments give you flexibility in ownership allowing you to purchase within a trust or LLC.

 

Condo Building

A condo building is simply a building in which all of the apartments are condominiums which is a legal structure. When you purchase in a condo building you will receive a deed at the closing table and you will have your own tax lot. You will also own a percentage of the common elements in the building such as the hallways, lobby and any other amenity spaces shared by all residents.

 

Condominium Development

In a condo development you will be purchasing from the Sponsor commonly called the developer. The Sponsor is the entity who has purchased the land and built the building. In order to commence sales and marketing of the property, the Sponsor will have filed an Offering Plan with the Attorney General’s Office and received approval which can take a number of months.

 

Questions about condos

 

What financing options are available for condos?

Most condos qualify for a wide variety of financing options. There are even some in the city which are FHA (Federal Housing Administration) approved. The benefit to the buyer is the down payment can be as little as 3.5%. These are not very common because it requires a building to give up their right of first refusal. For a list of NYC FHA approved condos visit: https://fha-approved.condos/ny-new-york

 

What does it mean to rent a condo?

If you are renting a condo in NYC, you will be required to take a lease of at least twelve months and submit a rental application to the owner of the condo. Once the owner approves your credit check you will them be required to submit a rental application to the Board of Directors through the managing agent. It is a fair amount of paper work and it does take time. You should submit all of your documents approximately one month before you wish to move in.

 

What Is a Condo Assessment?

A condo Board of Directors will impose a condo assessment when there is a one-time capital improvement project coming up which needs to be paid in full and the building’s reserves are not sufficient to cover the cost of the repair or improvement. The board may also simply wish to increase the reserves for a future project. The term condo assessment covers a wide variety of situations so you should understand exactly why the assessment was imposed and what the duration is expected to be.

What are Common Charges?

The common charges, better known as HOAs in the rest of the country, will be reported separately from the real estate taxes when you are looking at listings online. As an owner, the common charges represent your portion of the bill for keeping the building running.

The formula for ascertaining common charges for each owner is simply the annual cost of running the building divided by the percentage of common interest owned by each apartment. Every owner pays one twelfth of their annual cost on a monthly basis. Separately you pay your own real estate tax bill to the NYC Finance Department. If you have a mortgage the bank will hold your real estate taxes in escrow and pay them on your behalf.

For most buildings the greatest annual costs are labor and insurance. Other costs include water, cooking gas and garbage removal along with many other ancillary items necessary to keep a building running.

What are closing costs for condos?

Closing costs are higher for a condominium than a co-op because one is real property and the other is simply shares in a corporation.

Of all the costs associated with purchasing a condominium, the highest ones are the mansion tax and the mortgage recording tax. The mansion tax starts at 1% of the purchase price for properties priced at $1 million and increases with eight hurdles with the top tax rate at 3.9% for properties priced over $25 million.

The other is the mortgage recording tax, which is 1.925% of your mortgage — if you are taking a mortgage greater than $500K while those below the $500K mark are charged 1.8%. Both of these taxes explain why many properties are priced at $999K and many buyers pay all cash.

Can you Airbnb a Manhattan condo?

Many homeowners around the country enjoy the benefit of short-term rentals, but in New York City the majority of buildings require you to rent for a minimum of 12 months. You might find a building with a six month rental term minimum, but they are rare.

Even if you find a condo without restrictions on the time you can rent, it is illegal in NYC to rent an apartment on Airbnb for less than 30 days. Any Airbnb rental less than 30 days requires the owner to register with the city and be present for the term of the rental. This has proven to be unpopular with owners and renters alike.

Can you renovate a NYC condo?

You can renovate a condo but this does require approval. Buildings want to be certain your plans do not negatively impact the structural integrity of the building. For example, if you are planning on installing a washer and dryer into an apartment where the building’s plumbing is not sufficient for the strain, you could end up causing leaks.

Plumbing, electricity and moving walls are the big three items which need approval. Simply painting or replacing bathroom fixtures or appliances does not require approval. However, your service providers will be required to provide evidence of sufficient insurance before they enter the building.

Renovating an apartment ultimately increases the value of that home and that is in the overall best interest of everyone who owns an apartment in the building. None of the rules are meant to be punitive or pass judgment on your design choices, they are simply watching out for the best interest of all.

What are the homeowner’s responsibilities in a condo?

When you purchase a condominium, you’re purchasing real property which comes with real responsibility. This can be challenging when a long-term renter decides to purchase. They are accustomed to reaching out to the landlord to facilitate repairs. Homeowners are responsible for maintaining everything inside the apartment  including appliances, floors, walls and even the heating and cooling system.

Typically, the windows are considered a building responsibility but there is one Upper West side condominium which requires owners to bear the cost of replacing the windows when they renovate. This beautiful landmarked condominium on Central Park West has many casement style windows which can cost up to fifty thousand dollars for just one apartment.

When you purchase a condominium anywhere in the city, the owner is required to have all of the appliances working. You will test each of them just before you close on the apartment. While they must be in working order, if they are old you will have to replace them sooner rather than later. As for heating and cooling, many buildings have PTAC units or heat pumps.

In either case, if these units — which pull in the hot or cold air into your apartment — break down, you will have to pay to have them fixed.  All but the smallest and self-managed condominiums have a superintendent who maintains the building’s mechanical systems and common elements.

You may be concerned about who will take care of repairs if you live out of town and rent out your Manhattan condo. If you purchase in a building with a managing agent and a dedicated superintendent, most of your concerns will be taken care of in your absence. The managing agent and the Board of Directors oversee the running of the building while the superintendent will handle the emergencies.

Typically, the building staff can also be relied upon to provide recommendations for vendors from painters to electricians to someone to repair appliances. In most cases you will not need to hire an outside managing agent, just remember to give a holiday tip each year to the building staff.

Is buying from a sponsor different?

When buying directly from a Sponsor as a first offering you are bypassing the need to submit a purchase application and there is no board to exercise a right of first refusal. However, the procedure to purchase is slightly different than in a resale.

The attorney general views the purchase of a new development as an initial offering — like an Initial Public Offering for a stock. Therefore the developer must file an offering plan and have it approved before they can publicly announce any apartments for sale. The plan will outline every detail of the development.

What is promised in the offering plan is what you should expect to receive with some minor variations. For example, if the exact appliances named in the offering plan are not available, then the sponsor must have appliances of the same quality or better.

The Offering Plan is where you will find the Schedule A indicating the initial sale price for every apartment, the square footage, the projected common charges and real estate taxes along with their percentage of common elements each apartment owns.

Before you sign your contract and hand over your deposit, your real estate attorney will read through the entire plan and advise you of any risks before you sign your contract and hand over your deposit. Should you wish to read it yourself, be aware that these plans can be up to 500 pages long!

What’s a transfer tax?

There are additional closing costs in new developments. The biggest additional cost is the transfer tax. All new developments require the buyer to pay the city and state transfer taxes, which is a tax assigned to the seller in the resale market.

There are city and state transfer taxes on every sale and the total is calculated on the price of the apartment. The New York City transfer tax is 1% for properties purchased below $500K and 1.425% for properties purchased above $500K.

The state transfer tax starts at 0.4% for properties purchased below $3 million and is 0.65% for properties purchased over $3 million.

That total amount of the transfer taxes you will owe is then added to the cost of the apartment and the taxes are recalculated on that amount and that is the tax you will pay.

Does a condo purchase take longer to close?

The wait to close is frequently longer than the developer anticipates unless the building already has its Temporary Certificate of Occupancy and the tax lots have been issued by the city. The projected closing date is typically based on the construction schedule assuming everything goes according to plan. Yet there can be unanticipated delays from materials taking longer to arrive to uncooperative weather making construction conditions difficult.

Additionally, there is city paperwork to complete including inspections which lead to the Temporary Certificate of Occupancy and the tax lots, which are required for closings. Coordinating with all of these third parties can lead to delays the developer cannot control.

What’s the walk through and the punch list?

One of the great benefits to purchasing a new development is having a perfect new home that no one has ever occupied. During your first walk through, the apartment may have flaws. Unlike a resale, where you purchase “as is”, in a new development sale you are entitled to go through the entire apartment, point out all the flaws and make sure it is perfect.

There is no need to be dismayed if a bathroom cabinet is missing or a tile was cracked during construction. The developer has a crew of specialists ready to sweep through and bring each apartment up to standard.

What are capital improvement requirements?

If you own a condo, you will be paying a monthly common charge and taxes. However, if the building doesn’t have sufficient funds and a major capital improvement project is required, you could wind up with an assessment on top of your usual monthly payment.

Examples of capital improvement projects include:

local law 11, replacing a boiler or a roof. If you are an investor these added monthly costs will impact how profitable your investment is in the long term. While you cannot predict the future you should not expect your common charges to remain constant. They will go up over time because of inflation and they almost never go down.

If you are buying a primary home and you want to keep your monthly costs down, look for a building with lower monthly costs which also offers a full suite of amenities. This way you will not also be paying for a gym outside of your building.

For example, there are a few larger condominiums in Murray Hill that boast swimming pools, full gyms, roof decks and even an outdoor running track. Yoga studios and libraries for quiet study areas outside of the home can now be found in many newer condominiums especially on the Upper West Side.

The good news about buying a manhattan condo

The good news about buying a Manhattan condominium is that it is easy to rent out. Unlike a co-op you do not have to live there for a set period of time before you rent it out. You can rent your condo the very day you close and own it for an unlimited period of time. Many owners, especially first-time buyers, find great comfort in this flexibility.

The tenants still have to submit an application for the same reason owners must, complying with firecode, insurance regulations and other disclosures required by law. In addition, there will be a number of fees associated with the rental application along with building move-in fees a prospective tenant will bear. Most renters will ask for a two year minimum lease to offset the cost of these one time fees.

The downside to purchasing with an easy rental policy is that if you are getting a mortgage and you’re buying into a building with more than 50% of the apartments rented out, it could be more challenging to get a mortgage. These buildings are deemed non-warrantable. Many traditional banks will not finance a condo unless it is warrantable. You can still get a mortgage but going through a portfolio lender may require a higher down payment and increase your borrowing costs.

Other factors which can impact if a condominium is warrantable or non-warrantable includes: one entity owning more than 10% of the building, pending litigation, unstable finances or more than 35% of the condo complex being dedicated to commercial space.

Have any questions? Feel free to reach out to me — that’s why I’m here.