Should You Buy a Co-op Apartment in Your 20s in NYC?

Buying a co-op in NYC in your 20s can make a great deal of sense under certain circumstances. However, there are many financial and lifestyle factors to consider before you pull the trigger on a New York City co-op. We discuss everything you need to know about buying a NYC co-op in your 20s in this article.

Does it make sense to buy an apartment in NYC?

Buying a co-op apartment in NYC is a great way to start building equity over time and stop wasting your money on rent. However, the devil is in the details. Not all apartments in NYC are good investments, and many young buyers in their 20s don’t factor in closing costs when debating buying vs. continuing to rent.

The truth is that buying in NYC is a very bad investment if you don’t hold onto the property for long enough. This is because combined buyer and seller closing costs for a co-op can add up to anywhere from 10% to 12%.

For starters, co-op buyer closing costs are close to 2%. When it comes time to sell, you’ll be on the hook for at least 8%.

This includes city & state transfer taxes as well as the traditional 6% broker commission. Moreover, if your co-op has a flip-tax, this could add 1% to 3% to your closing costs.

By definition, this means that the co-op apartment you purchase must appreciate by at least ~10% before you break even. So if you buy an apartment and decide to upsize or move out of NYC after just two or three years, chances are that you’ll actually lose money when selling after factoring in closing costs, meaning it would have been a better idea to rent all along.

Many young buyers don’t consider that they may need to upgrade to a larger apartment sooner than anticipated. In addition, buyers in their 20s are typically in the very early stages of their careers. As a result, they often underestimate the possibility that a job change, promotion or relocation may take them away from NYC for several years or forever.

Co-ops are intended for use as a primary residence, and most buildings have strict limitations on the amount of subletting.

This means that you cannot hold onto your co-op apartment indefinitely as an investment property if you relocate out of NYC for the long-term, as would be possible with a true condo.

As a result, many co-op owners are forced to sell prematurely because the co-op building won’t allow any more subletting.

Beyond closing costs, another factor for you to consider is opportunity cost. Tying up $100k to $200k of your savings in a down payment prevents you from investing in other asset classes such as the stock market, and stocks have handily outperformed real estate over the past few years. Moreover, most other asset classes are far more liquid than real estate. It’s much harder for you to extract equity from your co-op if you ever need to free up some cash.

Finally, it’s important to consider that not all co-ops in NYC are good investments. As the old adage goes, money is made when you buy, and not when you sell. Outright overpaying for an apartment or buying an undesirable or generic co-op unit can come back to bite you when it comes time to sell, particularly if market conditions deteriorate as they did during and after the COVID-19 Pandemic.

That being said, many co-ops in NYC are sound investments which almost always appreciate over time. An experienced buyer’s agent can help you navigate the purchase process and discern good investments from riskier ones.

Most buyers in their 20s gravitate towards co-ops because they’re much cheaper than condos. Co-ops are anywhere from 10% to 40% less expensive than condos on average. Moreover, co-ops have lower buyer closing costs of ~2% compared to ~4% or more for condos.

However, co-ops have several financial hurdles which are particularly relevant for someone in their 20s. These include:

  • A minimum down payment requirement of 20%, and in some cases, significantly more

  • A debt-to-income ratio requirement of ~25% or less for most buildings

  • A post-closing liquidity requirement of 1 to 2 years on average

Co-op financial requirements are particularly challenging to meet for buyers in their 20s. This is because a young buyer may have just started her or his career and probably has a fairly low salary and a relatively small amount of money saved for a down payment. While a lender will typically underwrite up to a 43% debt-to-income ratio, most co-ops won’t allow anything higher than 25%.

Therefore, it may be difficult for a young buyer to quality for a co-op, meaning that a condo is the only option. However, since condos in NYC are usually 10% to 40% more expensive than co-ops, a young buyer may have to stretch her or his budget to buy a condo, and this means having more cash available for a down payment.

Even if a buyer in her or his 20s can meet the DTI requirement, most co-ops require at least 20% down plus at least 1 to 2 years of mortgage and maintenance in post-closing liquidity.

For a typical $600k co-op apartment in Park Slope or Murray Hill, this means having $120k in savings for the down payment plus another ~$75k in liquid assets, for a total cash requirement of around $200,000.

Buying a co-op in NYC in your 20s might be a good idea. However, there are many financial and lifestyle factors to consider before you buy a co-op apartment.

This works out around 33% of the purchase price of the apartment, which is much higher than you might be planning for.

If you’re short on assets, keep in mind that some co-ops may allow you to receive a gift to fortify your finances. Some co-op buildings may also permit co-purchasing, guarantors or parents buying for children.

In addition to the steep financial requirements, co-ops in NYC have a rigorous board approval process which is particularly challenging for young buyers. This is because co-op buildings often hesitate to approve buyers who look young due to the stereotypical perception that young people are immature and like to party, make noise, cause damage, etc.

While age discrimination is obviously illegal in New York, co-op board aren’t required to disclose the reason for a board rejection. As a result, young and financially qualified buyers routinely get rejected all the time by co-op boards in NYC for baseless and discriminatory reasons.

In one egregious instance, a Greenwich Village co-op rejected the purchase application for the co-purchase of a $1m apartment by a young 20s female and her mother who had a combined net worth of $20,000,000.

The daughter even went so far as to wear a wig to cover her dyed hair during the co-op board interview, but it was all for naught.

The co-op board rejected the applicants and failed to disclose any reason.

From what we hear, this building’s proximity to NYU had created problems over the years with lots of partying and other unruly activity happening in apartments which parents had bought for children (or bought as a pied-a-terres) with the children/students living in the units.

In another egregious example (also in Greenwich Village), a co-op demanded that a gainfully employed 27 year old purchaser come up with 4 years of post-closing liquidity and arrange for a guarantor in order to be approved for the purchase, despite the fact that the building generally required just 2 years of post-closing liquidity for applicants.

While this buyer was ultimately approved after complying with the demands of the co-op board, being treated differently solely due to his age was a highly traumatic experience for the purchaser.

The co-op board interview is also more challenging for a buyer in her or his 20s. This is because board members who are concerned by an applicant’s young age often ask inappropriate questions. We’ve heard of the following questions being asked of young purchasers during co-op board interviews in NYC:

  • Do you like to entertain in your apartment?

  • How do you like to socialize?

  • Do you have a girlfriend?

  • How often do you cook?

Moreover, it’s not uncommon for co-op board members to review the social media posts of a young buyer as part of a witch hunt to find evidence of excessive partying, socialising, etc.

While both condo and co-op buildings in NYC can have fairly strict house rules, co-ops are more likely to have the strictest rules and to engage in the most aggressive enforcement of such rules.

For example, one West Village co-op prohibits owners from having overnight guests unless the owner is also residing in the apartment.

This is just one of many examples of overbearing and neurotic co-op boards attempting to meddle with and regulate every aspect of life in the building.

The perception of you being a young homeowner may also result in neighbors or building management singling you out and treating you much more harshly compared to other owners when it comes to enforcing rules.

In one example we’re familiar with (which was in fact for a small condo building), the board initiated legal action against a 27 year old purchaser for installing an air conditioner, despite the fact that every other unit in the building already had a similar HVAC / air conditioning setup.

You’re also much more likely to be specifically accused of noise complaints as a young homeowner in NYC.

Referencing the previous example above, whenever this 27 year old homeowner made any sort of noise, such as watching TV or playing any music whatsoever, the owner downstairs (who also happened to be the board president) would file baseless noise complaints with building management and notify the board. This went on for over a year until the young owner took legal action against the Board President to stop the harassment.

The entire process of buying a co-op in NYC from start to finish takes around three months from the time you’re in contract on an apartment. Check out this article for an in-depth review of the co-op closing timeline in NYC.

The search phase itself can take anywhere from a few weeks to a year or more. How long it takes to find a suitable apartment depends on how broad or narrow your search criteria is. The process of submitting an offer and negotiating typically takes around a week or two.

Once your offer is accepted, the contract review and buyer due diligence process (both of which are handled by your real estate attorney) takes around 7 to 10 business days.

It’s customary to make a 10% earnest money deposit at the time of signing a contract.

This is held in the escrow account maintained by the seller’s attorney.

Buyers often confuse the terms ‘contract deposit’ and ‘down payment.’ If you’re putting down 20% and the contract deposit is 10%, you’d pay the remaining 10% of the down payment at the time of closing.

From the time you’re in contract, it takes around two months to close for an all cash purchase and roughly three months to close if you’re financing.

In the case of a financed purchase, the first step after signing the contract is to apply for your mortgage. The process of obtaining a commitment letter takes around 4 weeks. During this waiting period, you’ll begin to prepare the co-op board application.

The board application typically requires a copy of the commitment letter. Best practice is to substantially complete the board package such that you can quickly slot-in the commitment letter and submit the board application the moment your lender issues the loan commitment.

Once the board application is submitted, it usually takes around a week for the building’s managing agent to review the application and submit it to the co-op board.

The ‘transfer agent’ at the managing agent will reject the application if any required items are omitted.

This can delay the process by a week or more, as all errors / omissions need to be cured before re-submitting the application. When the application is resubmitted, the managing agent will re-review the entire application before transmitting it to the board.

The board typically responds to applications within 4 to 6 weeks. This timeline can vary greatly depending on the time of year and how many other applications the board needs to review.

If the board is leaning towards approving the applicant, they will typically invite the application for a board interview. The co-op will typically release its decision (approval or rejection) within a few days of the interview.

If you’re approved, the next step is to coordinate the closing between buyer and seller attorneys, the lender (if applicable) and building management. This usually takes one or two weeks. Upon closing and receiving the keys to the apartment, the next step is to schedule a move-in date with building management.

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