Monday, August 27, 2012

Condos: Myths vs facts. And some of the facts may surprise you.


MYTH:  You can always rent your condo.

FACT:  It’s not that simple.  Yes, most of the time you can.  But believe it or not, some condos (Towers on the Park, at the northwest corner of Central Park, for one) do not allow rentals at all.  

Many condos discourage rentals by charging high move-in/move-out fees.  The problem is, banks don’t like to finance purchases in condo buildings that have too high a proportion of renters.  So if you're planning to finance, be sure to have a reliable mortgage broker qualify the building before you sign a contract.  (Whether you're financing or not, you may not want to live in a building with a high proportion of rental tenants.) 

Also, many if not most condos do not allow rentals of less than a year.  This saves wear and tear on the building, as well as on the board of managers, which brings us to….

MYTH:  There’s no board approval involved in buying or renting a condo.

There are condos and condos. 
Some fairly scream restraint and refinement.
FACT:  The board of managers must sign a waiver of right of first refusal, which the buyer or renter must apply for. 

While this does not usually involve an interview,  an application is involved, and it may ask for as much information as a co-op application, complete with business and personal references, a letter from the applicant’s employer, a financial statement plus substantiation in the form of bank statements,  statements from financial institutions (UBS, Merrill Lynch, wherever you keep your money), a reference from the applicant’s last landlord or managing agent, and perhaps more.

Of course, if the board doesn’t like something about the application, its only recourse is to buy or rent the apartment at the contract or lease price.  This happens approximately never.  

But, while I have no evidence to back this up, I would not be surprised to learn that boards in extremely sought-after, expensive condo buildings might actually exercise this option if they were truly horrified by the idea of having a particular applicant as a neighbor. 

Some just scream.
In any case, the application is necessary, and the board must review and sign a waiver of its right to first refusal.  This can take a while, depending on the managing agent, the board and the time of year (the wheels grind very slowly in August).


MYTH:  You can do anything you want to in your condo.

FACT:  You are governed by zoning laws.  If your condo is zoned residential, you cannot legally operate a commercial business in it.   

Of course you can work at home. 

For years, before my late husband got an office, our apartment was his business address.  Instead of Apartment #, he used Suite #.  Made it sound more office-like.

MYTH:  Condos don’t have rules.

FACT:  Condos have rules just like co-ops.  Several do not allow dogs.  One allows only pets of 20 pounds or less.  Your tuna-stuffed 25-pound domestic shorthair will not be welcome unless he goes on a diet.

I know of at least one condo where smoking is not permitted anywhere in the building, including inside the apartments.

This brings me to the “cond-op.”  Developers advertise “cond-ops” as “co-ops with condo rules.” 

And which condo’s rules would that be? 

The fact is, a  “cond-op” is a co-op with few rules.  If it’s newly constructed, it’s a land-lease co-op; otherwise it would be a condo.  For more on this subject, see http://www.withconfidence.blogspot.com/2011/05/what-exactly-is-cond-op-and-what-are.html

NOT QUITE A MYTH, BUT NOT A FACT, EITHER:   A condominium must own the ground the building sits on.

FACT:  This is true in nearly all cases.  But the condominiums in Battery Park City rest on ground owned by the city.

NOW FOR THE GOOD NEWS:  Absentee ownership, investment ownership, unlimited renting, pets, parents buying for children, corporate purchases, pieds a terre and other things co-ops frown on are USUALLY or at least often permitted. 

The down payment on a condo can be as little as 10%.  Banks like condos (at least those that meet certain requirements; don't forget the mortgage broker qualification mentioned above) because in the event of a default, the bank is first in line to collect. 

A condominium can’t default on its underlying mortgage because condos cannot have underlying mortgages, as most co-ops do.  This also means that there’s no hidden debt in the purchase of a condo. 

FULL DISCLOSURE:  I live in and own a condo.  This happened completely by accident.
101 Warren Street, built in 2006, and
perhaps the most sought-after building
in the Tribeca area.It turned a rather 
uninteresting neighborhood into a
destination. 
We (then it was we, now it's I) bought our apartment 26 years ago. We fell in love with the view. We were babes in the woods about real estate at the time; both of us were in advertising. We had no idea of the differences between a condo and a co-op.For us, the apartment itself was far more important than the form of ownership. 

But your needs may be different.  If you don’t have a lot of cash for a down payment, or if it’s possible you’ll want to spend a couple of years away some time soon and will need to sell or rent your property, the condo form of ownership may be essential.  

If you’re planning to make the residence your permanent and primary home for, say, eight or ten years or more, you may well be better off in a co-op. 

Bottom line, if you choose a condo, don't automatically assume that there are no rules.  Every building, co-op or condo, has rules.  Read them carefully before you sign the contract. 



5 comments:

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Torontocondo said...

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Marian Smith said...
This comment has been removed by the author.
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