Are Co-ops a Good Investment?
Co-ops in New York City can be great investments. It's incredibly important to understand the nuance of a co-op and how the term investment relates to it from the perspective of purchasing one.
A co-op is short for cooperative. New York City co-op buildings are comprised of individual apartment units. When one purchases a co-op, he or she is actually buying shares of a corporation, and these said shares give the owner rights to the specific unit they are buying. While this may seem incredibly arbitrary and nuanced, it should be noted that 75% of New York City's purchasable housing stock is made up of co-ops, while only 25% is made up of the more modern condo.
Co-ops, similarly to condos, have benefited from the drastic rise in property values across New York City. Co-ops tend to be older buildings, from the 1980s and prior, while all new development and conversions are condos. One of the things that has set co-ops apart is that they have a tendency to be more restrictive in terms of who is purchasing them in addition ability to rent out the units. Let's take a look at these in detail.
Co-op Boards Can be Discerning
Co-ops are run by a board of managers who are elected every year. Co-ops generally have strict guidelines in terms of a potential buyers liquid assets, income and quality of character. The majority of people who buy into co-ops actually want to live in the building and like the concept of exclusivity.
Co-ops Limit Traditional Investors Looking to Collect Rent
Can you rent out your co-op apartment? Absolutely. Co-ops will have strict rules in place as to for how long within a certain timeframe you are able to rent out the apartment. Additionally, there will likely be a clause in place of how long one must have lived in the apartment (usually one or two years) prior to which the apartment can be rented out. What does this mean for investors? Co-ops can't be bought to immediately rent out, which is not good for a real estate investor. Real estate investors gravitate towards condos because of this reason. The fact that condo buyers have to compete on property purchases with investors makes the condo market in NYC hyper competitive.
But How are Co-ops Good Investments Then?
Just because you can't buy a co-op as a pure investment property doesn't mean that co-ops are bad investments. Quite to the contrary. If you are looking to enjoy the benefits of home ownership and also get the benefit of capital appreciation of your most valuable asset, buying a co-op is the way to go. Not only do you get a slight discount as compared to condo prices, but you also get to buy into one of the best real estate markets in the world, New York City.
Read: Should I Buy an Apartment in NYC?
Let's take a look at the metrics below, pulled from a research report prepared by DE.
Year over year, from Q4 2015 to Q4 2016, the average price per square foot of co-ops increased by almost 28%. With double digit annual property value gains like that, it comes to no surprise that coops have made an excellent investment for those that have bought into them and continue to be a great opportunity for those looking to enter the market.
For more Manhattan real estate market insights, read the Elliman Report.
As the New York City property market continues to move upwards, co-ops will be moving right alongside with the general property market. Condo developers can't even keep pace with the demand, which is pushing new buyers straight to coops, thereby saturating the buying pool for housing stock that is not replenishing since new coops are not being built.
Interested in Learning More About NYC's Co-op Market?
Reach out to us for a complimentary co-op consultation to learn more about this asset class in your pursuit of New York City real estate. So is buying an apartment in NYC for you? If this is your first purchase in the city, we recommend reading our First Time Home Buyer Guide.