What is a Co-op and How Does it Differ from a Condo? with Guest Jeff Morelli

It’s Spring 2023, the market is heating back up, and Buyers are coming out of the woodwork to explore their options for homeownership in the DC, MD, and VA. Oftentimes as first time buyers enter the market and begin their search, they come across co-op listings but don’t truly understand what they are or how they work. In this episode, Alison is joined by Jeff Morelli, a Lender with Caliber Home Loans who has over 25 years of experience providing every type of home loan available, and together they break down what a cooperative is and how to buy into one, how it differs from a condominium, perceived pros and cons of owning one, and how one finances a co-op transaction.

Subscribe to our show and feel free to reach out to us on The RARE website or directly to Alison with comments and questions: www.theRAREdc.com | alison@theraredc.com IG: @theraredc and Jeff Morelli jeff.morelli@caliberhomeloans.com

hello everybody Welcome Back Jeff thanks for being a guest on the show today good0:14morning Allison thanks for having me yeah um it S Spring day maybe people can't see that0:21well they probably will I'm gonna have to probably move my camera at some point because the sun's gonna hit me but point is it's a spring and in my experience0:27people tend to come out of the woodwork now to start thinking about buying a home I'm interested to see if I get a0:33bunch of calls today actually because it's absolutely gorgeous out um and uh you know I tend to see that0:39first-time buyers come out kind of a lot at this time of year and I wanted to have you on to talk about co-ops today0:45because every single time I start working with a new buyer um I will inevitably get them sending me0:51a listing which looks like a really good price um and they sent it to me and it might0:56be a great unit and the price might actually be good we'll get to kind of pricing in a few minutes but um but it's1:02a co-op and I have to explain to them well you know this is a co-op do you1:07know what that means and sometimes they have an idea and sometimes they have no1:13idea whatsoever so so you know in light of the fact that we have people who might be actually1:18getting into the market and fairly uneducated about this I wanted to bring you on to talk about what co-ops are how1:25they work how the financing works and and go from there so um so thanks for coming on again sure1:33um and and just so people know you've been doing Co-Op loans on and off for for a couple decades now1:40um and so you definitely understand the process and um and so you know you're an excellent resource about uh about this1:47stuff great um yeah all right so this is a brief history just so people know because I found this1:53interesting so as I was researching um and a lot of this information is from Edmund J Flynn1:59um which and anybody's involved in a co-op will probably end up hearing their name end up working with them because they're the co-op Specialists um in this2:06area and they are composed of attorneys who specialize in Co-op transactions can answer any of the legal questions that2:12might come up can just generally guide you through the process and will actually be the ones typically who do the closing for you as well2:19um but so anyway I found out that in 1920 several rental buildings in DC they converted to co-op ownership2:26um and since then you know we've obviously had more uh converted and the thing I found most interesting is that2:31DC is second only to uh to New York City and the concentration of co-ops in the2:37in the country uh that's correct yeah DC is a very big Co-op Market I don't know2:43the exact numbers I would guess New York is probably five to ten times more buildings but it's obviously a huge2:48metropolitan area so uh DC for big cities is actually still relatively small2:54um but do have a lot of co-ops and have had for years there's a few in Maryland there's a couple in Virginia uh and3:02Washington state for whatever reason there's some out there but DC is definitely one of the the bigger Co-op3:07markets or the second biggest Co-op Market um one thing I wanted to comment on you you kind of gave it away that you're in3:14the real estate business when you said it's a beautiful spring day when we're in early February I feel like that spring market for real3:20estate in DC has always started uh with Martin Luther King weekend and almost every year it's like your phone just3:27blows up starting that weekend for the spring and this year was even though the Market's down a little bit it seemed3:32like really picked up a couple weeks ago so yeah I I tell all of my clients they say3:38like when are things going to pick up and I say the first really warm day we have in winter is typically when people3:43start I mean sometimes the crocuses start coming up people start thinking about spring and any kind of marketing that's happening in the world that will3:51like really let go into the spring stuff right and so part of that is just buying home3:56um anyway okay so obviously I think what we need to start with is explaining what a co-op is to people and I will just4:04very quickly say that a lot of this does come down to like legalese and kind of4:09legal entities and and in part how the contracts are written so clearly neither4:15of you or neither of us are attorneys and we can kind of speak in you know the generalities that that frankly a buyer4:21really needs to know right correct so maybe you can kind of kick us off and tell us what a co-op is so the way I4:27always explain the difference between a condo and a co-op or a single family and a co-op uh condos and single families4:32ownership is more or less the same people have an individual title to that4:37property they own that property it shows up on public records that they're the owner and co-ops are different co-ops4:45when you're buying a cup you're basically buying into a corporation is why I always explain it you're buying4:50stock into a company just like you would buy in the Microsoft or company whatever not to plug Microsoft anyway the the in4:58some co-ops actually even give out stock certificates not all of them do but some do and they give you your certain amount5:03of shares and for your shares you get to use your your Co-op unit as your residence so that that's really the main5:11difference it's again you're right there's a lot of legal parts to it but as far as the consumer is concerned5:17that's what their their biggest thing is going to be is they don't have an individual title and a property they're buying into a business and that business5:25owns the building and even when you look up the tax bill for a co-op it's in the name of the co-op property and you know5:32it might be for a half a million dollars or something like that because they've been taxed the whole building is one versus individual units like you would5:38for a condo mm-hmm yep exactly um so I mean obviously from a user5:44standpoint you have the ability to live in and use the space within your let's just say four walls or more walls you5:51know that so from a practical living standpoint it's the same correct it's the same exactly the same um so yeah so5:59I mean again and it depends on the specific condo but you know co-ops almost always6:06cover just when we're going to get to the fees but they cover a broader6:12um number of amenities and things that they cover in my experience but again that does that does differ depending on6:18the building the bylaws and all that kind of stuff I can't recall ever seeing a co-op that didn't include Utilities in6:24the the monthly fee I definitely have seen condos over the years where you utilities are not included generally6:29those have a lot smaller fees um but co-ops I'm not aware of any I think partly because again it's a6:35corporation the company goes and they get the electric bill they get the water bill so it's it's generally in there and6:41and if you're buying a co-op when you get your your resale documents that show all the legal information about the6:47condo or Co-op uh they'll give you a budget and you can see exactly what they're paying every month or every year6:53for water electricity all that stuff right so I mean to go through some other kind of differences or similarities6:59between them I can kind of speak to this and feel free to interject when you want so there there is a board that exists7:04for both right um so and you can try to be on the board of a condo or a co-op Association and7:11they're going to have their own rules about how you would get on and how long you would serve and all of that7:17um the main another like main difference like we were talking about is is how7:22everything is um financing wise with the co-op is done as one Corporation as one building if7:28you will if you want to think of it in that way and a main difference is that a co-op can take out another loan7:36um so they can take what's called a blanket loan so if you had a huge building a huge Co-op building let's say7:42had to do roof replacement you have three options you can use your reserves which you know you get access to the7:49financials obviously when you're when you're getting involved in a co-op you can you can do a special assessment7:56which means you know you might pay one lump sum you might pay x amount per month over the course of you know 12 248:02months whatever and that might not be an insignificant insignificant number could hundreds of dollars potentially per8:09month I think you were telling me off line that your sister had 800 a month special assessment in a condo she did um8:16and she had to do it for they had to do repairs or replace a bunch of balconies she didn't even have a balcony in her8:22condo but she still had to pay and it was like 850 a month for 18 months or something like that8:28um right but a condo it's a much more difficult process for a condo to take a loan8:33um where a co-op because again it's a business they can get uh an underlying8:38mortgage or a corporate mortgage or whatever you want to call it uh alone that the the building can take everybody8:45pays their share of it but because they can spread it over a longer time A lot of times it's a lot cheaper than a special assessment for uh you know8:52similar work right right and so um and again a lot of this ends up being cyclical will kind of8:58bring things back in but like you have access to understanding the underlying initial mortgage amount versus if they9:03took out another loaned along the way but yeah so that was the third thing I was saying if you do9:08um you could do a special assessment you can do using money from your reserves or you can take out that loan and you can9:13take out the loan fairly easily um which again you did kind of say that that condos can potentially take out9:20loans but it's just a much more complicated I've only seen it a few times over the years since we see a9:26budget every now and then you see a loan payment but it's usually a much lower amount I don't think they're going out and getting a million dollar mortgage uh9:33to do you know if you had to do really big stuff like you know to redo the facade redo the the roof whatever9:41um condos generally if you have some big job like that as you said you could pull from reserves but that's not they can't9:47just pull from reserves and then not replenish those reserves so generally there's going to be some form of assessment to replenish them money is9:53money I mean the money if the money is going out the money's got to go back in exactly so9:59that's how it works so yeah so we're kind of starting to get into pros and cons of co-ops and Edmund J Flynn does a10:06I think a really good job of ironing out and explaining what those things are and how a lot of the cons are kind of10:11perceived um it really I think it comes down to your understanding of co-ops you know if10:17you don't understand them you tend to think that there's more negatives um than than positives10:23um but so you know one of the things you mentioned when we were talking Offline that is a huge benefit are the the10:29closing costs um and the low I mean there's a lower buying price right we just talked about somebody who sends me a 300 000 condo10:35and or sorry Co-op and then you know the fees might be a thousand dollars a month10:41um you know the fees are obviously higher per month but the buying but buying price is lower and then the10:46closing prices are are lower do you want to kind of speak to that a little bit sure and one of the things that right now I feel like our uh people have been10:54inquiring about co-ops much more in the last year than we have previously part10:59of that is as you were saying of the prices are lower with interest rates being higher people have a lot less buying power everybody got a little11:05spoiled through covid with the two and three percent interest rates that you know were great for everybody could get11:11them at the time but that's obviously not the case now uh rates are into the fives and sixes they even got into the11:16sevens for a little while back in the fall but thankfully thankfully they've dropped back down but anyway having the11:21buying power is very different than it was so uh if you can buy a lesser price Builder unit you know with the rates11:29being the same between a condo and Co-op uh I'll get into the differences with that in a bit but with them if ranked11:35being the same again you might be able to get a cheaper payment with Co-op even though the fees may be higher uh again11:41with the other part with co-ops the co-op fee generally includes property11:47taxes and a blanket insurance policy for the building condos that's not the case condos because you own your title11:54individually the units taxed individually you pay those taxes yourself every month with your payment11:59versus the co-op where it's included in that fee so sometimes the fees seem a lot higher and that's definitely one of12:05the perceived negatives that you talked about but it's not always reality because there is sometimes more to it12:11right um so another Pro that I would say is you really have minimal responsibility12:17and from that like when you own a property outright you're fully responsible for the maintenance and12:22repairs and you can take more of a back seat with co-ops now I mean with Co-op still with what's in your12:28a lot of some of what's within your four walls um if not a lot is still your responsibility to maintain and take care12:34of um but generally speaking it is a more hands-off kind of uh kind of living12:41situation um you know like there I tend to see more regular maintenance that's12:47scheduled on your behalf things like that so whether or not the cost is kind of how the cost works out like you have12:52these things typically all ironed out from you um I find this to be a huge benefit in12:58DC because generally speaking we have a really big working population people are13:03very busy um you know and it's like that in a lot of cities but you know so a lot of13:09people aren't interested in home renovations home care you know they don't have the time for it or they don't13:15feel like it speaks to their strengths um so you know you can have somebody who or an entity or you know a board or13:22whatever excuse me who kind of helps you maintain that stuff right um one of the other things with with13:29perceived negatives since you were talking about that a couple minutes ago is the board approval that's one of the13:34and I know I'm kind of getting ahead of myself with differentiating between the two but I figured that's definitely one13:39of the negatives that's the thing I hear people kind of you know grown about the most uh is that they have to go through13:45this board approval process they're really different amongst all the co-ops some are13:52essentially like a rubber stamp you apply you give them the paperwork they say okay great most have some form of an13:58interview process some there's a couple that when I say they do a mini mortgage14:03application they ask us to give prop copies of their credit report the appraisal bank statements pay stubs14:10basically everything that we look at so which is an interesting scenario because you have people living your building14:16that literally know everything about your finances which is not how condos work for sure or any other situation so14:22those board approvals some of them are a little bit more intrusive than others over the years I've had a few issues I14:30think I mentioned this to you and we spoke earlier I've had a few times where customers were rejected for various14:36reasons um which one was I think I told you this story was a masseuse and she wanted to14:43run her business out of the the building and they rejected her because they didn't want strangers coming in and out14:48of the building not only unreasonable but you know not something that she thought about I had other people uh back14:54out themselves because of you know they had a dog that wasn't acceptable or things like that so there there are a14:59lot of things that Co-op boards look at and ask about some co-op boards have their own financing requirements they're15:05different than ours um some are really strict with qualifying ratios again not to boggy15:11down on boring mortgage stuff but qualifying ratio is basically a ratio of your mortgage payment and your debts15:17relative to your income uh and sometimes the buildings like there's one building that has a 33 ratio we can go up to 4515:25sometimes even 50 percent of someone's income they say 33 much much more conservative so that's somewhat of a15:33negative that can make it a little bit more difficult and the same token one of the positives about co-ops more so than15:40condos I think because they do have the second level of review they have another group of people looking at their their15:47qualifications that Co-op deficient or delinquencies are extremely low15:52especially in the DC area we almost never see buildings that have high delinquencies where condos so every now15:59and then you're running the one that's that's 30 40 delinquent on their fees uh it makes it really hard to get a16:04mortgage long term it's bad for the health of the condo because of their finances so even though it's a kind of16:10perceived negative that these things exist and the boards look at all this stuff the net positive is the default16:16rate is much much lower on co-ops um and the bars I've noticed just anecdotally tend to be very well16:23qualified usually have really good credit and money to work with as well so yeah I mean obviously it does depend on16:29the building and offline you and I talked about how one of the I've been very lucky in that the co-ops I've worked with on the deals have been very16:36successful we haven't had many issues but I did do one in the Watergate where they scrutinized literally every single16:44thing that my buyers went through right um so and the thing is I'm I'm really16:49uninvolved the Realtors and uninvolved in a lot of that it is between the board and the buyers16:55um but of course I hear about what's happening and right one might say it's a little bit aggressive but you know at17:01the end of the day like you end up knowing your neighbors maybe too much about your neighbors but you know17:07um you're kind of all on the same you're on the same kind of playing field if you will like you have access to that17:14um yeah I mean you're definitely it's more at least when you're applying I I think it's a again this is not based on17:19anything factual but it it's probably a little bit more of a community in the sense that you know before you even17:24start you're you're going to meet a handful of people and talk to them and are going to ask you a bunch of questions I'd have no idea what they ask17:30in those those um board interviews but I'm assuming some personal some Financial17:36um but nonetheless you get to know some people and you get to know the you know the the players in the building as well so yeah no it's totally true you can17:43move in and not know anybody if you live there 10 years absolutely I mean when we moved into our17:48condo the one I've been in for five years now we actually had a part or like a get-together for our neighbors when we17:54moved in because we wanted to make sure that we had a relationship with them and I think one I'm pretty sure one of them18:00said oh you know like no one's ever done this before and I was like how do you that's crazy right we share walls like18:05how do you not want to at least initially like have a a nice meeting not like hey welcome to the building you18:12know uh the roof's falling off you know like you you'd prefer to have some kind of uh relationship we definitely get a18:18lot of referrals from people that uh are that yeah I'm trying not as much now18:25because people aren't refinancing but for the last couple of years those people were refinancing we got a lot of referrals from somebody that said hey I18:31live in the building with you know so-and-so you did a loan for and they asked me to get in touch with you to talk to you about a refinance again I18:37don't feel like we get that as much in condos but I feel like it happens a lot in co-ops again I just think18:42the board is much more active I think the community the homeowner association is much more active uh where they do18:48stuff together and you again you just get to meet people and and a little bit more involved yeah yeah agreed18:55um okay so a couple more of like kind of the pros and cons depending on how you believe it so the high monthly fees you19:02know are they really are they really that much higher you know I would say it ends up being a wash a lot of times and19:08you're going to give us an example at the end which I think is really awesome for people to hear so we'll kind of save that19:14um so the the two cons I hear the most aside from the high fees which we can19:20kind of knock off pretty easily is that as the restrictions and part of that does kind of go into19:26the interview processes and like you could have people be you know they might19:32not make it through the interview process or that's a restriction it can be a restriction19:37um and also you know there are going to be in my experience there are sometimes19:43more um stringent rules on renting um on uh pets and things like that19:50um you know it's it's harder again in my experience with what I've seen to change those bylaws19:57um and and you know and and get those those things changed or addressed so20:03restrictions are really important to pay attention to frankly for any any purchase I would say anything in a20:09living place for sure if a condo or Co-op you know they all have rules with with that thick condos generally this is20:16something that comes up a lot if we're doing a VA loan which you can't do on co-ops but for condos if you're doing a VA loan one of the things we have to20:22look for is rent restrictions so I've read through hundreds of bylaws over the years and almost none of them have rent20:29restrictions co-ops different story a lot of the buildings do limit the the financing side on for us a call up can't20:37have more than 50 percent renters which again is a perceived negative uh if you20:43plan on buying it I mean if you're buying a co-op and you want to keep it as a long-term investment property that's probably not the right property20:50to buy because uh the co-ops are different a lot of them even though they may let you rent sometimes they say you20:57can only rent for two out of three years so um you can you can't keep it like you21:03know forever as a rental uh which is much different than a condo but at the same time even though that's negative21:10that there's a reason that those rules exist and there's a reason that Fannie Mae and Freddie Mac the people that21:15write all the rules for mortgages care about that is that if buildings get too heavy with investors they tend to have21:22more delinquencies and more problems and less be or just less financially healthy21:27so long term it's it's better for you that they have those rules exist you may21:33not think it at the time but the reality is is that that's why they exist is it does keep the building much more21:39financially stable because yeah you know people pay their mortgages more often on primary residences than they do on21:45investors yeah um okay so before we kind of get into the the buying process which is21:51obviously one of the most important things I'm going to talk about it's people think that there's less liquidity with condos that they're harder to sell21:57that you know you're not going to make as much money and I mean at the end of the day because the purchase and sales22:02price is a little bit lower yeah you're not going to uh the values are not going to go up to the same um at the same22:08degree as say a condo or a single family house would but we've talked about the pros so that might just offset that for22:14you from a you know personal standpoint um one note on that with with co-ops the22:19closing costs are a lot less expensive which makes buying and set well more buying than selling but buying less22:27expensive up front with money that frankly you just don't get back there's no owners or lenders title insurance22:33which is thousands of dollars difference on a similar price condo uh that you22:39don't have to there's no tax proration where you have to credit back the seller for taxes they've already paid Depending on time of year it could be hundreds it22:45could be you know lower thousands for that in and then they also don't have title search fees because there's not22:51really a title for the property so that's a big difference in Maryland there's actually no transfer taxes which22:56is very different that's not the case in DC but Maryland there's no transfer taxes so the closing costs if you buy23:01one of the few co-ops in in Maryland it's it's significantly less expensive thousands and thousands but again that23:08could make it a lot easier of a starter home for somebody uh and if you turn around and sell it in two or three years23:14you don't have as much time to have to recoup the that you know the Lost costs23:19with the closing costs right um right I don't know if I can really speak to with any Authority on on how23:25the prices change you probably would know that better than me again anecdotally I've heard that they they move slower up and down but23:32um but you again you'd know better than I would on that yeah and I mean one some people say that23:37it you have a less a smaller buyer pool but I think a lot of that does come down to education and people understanding23:43what they are and what it means and the pros and the cons and et cetera et cetera so that goes for agents too by23:48the way uh you know with not just buyers I I quite often have agents that call me because our name's on the one of the23:55approval lender lists at the co-op and they've never dealt with a co-op before and don't have a lot of familiarity with24:00:00it and and you know from an agency how do you educate people on it if you don't understand how do you sell it if you don't understand it correct like how you24:07:00know yeah if you're looking at places apartments for people or looking at condos uh and and a co-op pops up and24:13:00you've never sold one before and you don't really understand it you may not even show it to them right because it it24:18:00may not be something you're familiar with or whatever so it is good to educate everybody on it because it you24:24:00know it can be a really great way to get your foot in the market especially if you're a younger you know first time24:29:00home buyer doesn't have a whole lot of money most buildings we can do five percent down uh where there are some24:35:00co-ops that require 10 and 20 but the majority of them five percent you can do and since the closing costs are less24:42:00it's you know it is more manageable yeah all right well I think we can kind of get the just kind of end with uh24:49:00explaining how the financing differs um from co-ops to to condos obviously24:56:00this is kind of your this is your wheelhouse so um you can explain well before you25:01:00explain it I I want to say that something I've experienced from The Lending perspective is that not all25:06:00lenders actually do loans for co-ops and so the first thing I say when I meet25:12:00with people is I understand what they want what their timeline is and then I ask them if they have a lender um and I I encourage them to develop a25:21:00relationship with a lender so that when they're ready to jump because this Market's crazy and you might have to jump quickly that they already have25:26:00everything kind of ready but the fact is if you if you're considering co-ops you25:31:00might have to switch if your lender is not somebody who who works with them and I will say a lot of lenders in this area25:37:00don't that's correct uh it's they're a handful of companies a couple bigger25:42:00Banks and then a couple of smaller companies caliber is kind of big and small at the same time we're one of the25:48:00largest lenders in the company but we do everything locally I do everything my office all our Underwriters are here so25:53:00I live in the area work in the area for 25 years so um so we're big and small at the same26:00:00time but anyway uh with co-ops the we do quite often have people that come to us26:05:00and have already been pre-approved we're looking at condos that Co-op they were interested in came up and they have to26:11:00switch lenders and restart the whole process have a new credit report run give another stranger your financial26:16:00information your pay stubs your bank statements W-2s all that kind of stuff um so it does happen quite often good26:22:00news is again I'll plug myself a little bit if you come to me in the beginning we can do condos co-ops or single family26:29:00uh so and we go Maryland Virginia DC so you can cross over and not have to like26:34:00reapply if if you end up buying a co-op um so that is definitely one of the things is there's not quite as many26:40:00lenders that do it um and and it's good to if you if at all thinking about co-ops to be provide26:47:00somebody that can do both um as far as the differences of the financing I touched on the down payment requirements that the co-ops have26:53:00assuming the co-ops don't have uh any different financing requirements it defaults to five percent down there are27:00:00some scenarios where we can do condos with three percent down so uh as an extra two percent minimum that you'd27:06:00have to put down on a co-op versus a condo but outside of that the financing is very very similar there's not a whole27:13:00lot of differences we qualify all the same way we the loan process is more or27:18:00less the same we ask for the same documentation um credit standards all that stuff is identical uh only a real difference is27:25:00with interest rates if you're putting less than 25 percent down on a condominium Fannie Mae and Freddie Mac27:31:00charge a premium that makes the interest rate anywhere from a quarter to a half percent higher with co-ops they don't27:38:00charge that I I've never gotten a complete clear answer on why that is but I'm assuming it's because condos have a27:45:00higher default rate than co-ops do we kind of touched on that earlier that yeah there are more you know the co-op27:50:00has their own standards and because of that their default rates a lot lower so that premium doesn't get charged on condo so if you are doing a lower down27:57:00payment 20 less than 25 percent um there there are you know the condo definitely can have a higher rate than a28:03:00co-op you know all things being equal otherwise though the financing process everything28:09:00everything is more or less the same timing wise we it usually does take a little bit longer for two reasons three28:15:00reasons really uh as you said there's only a couple there's only a few title companies that do them uh EJ Flint's the28:22:00big one Monarch Title as well um because they're the only ones they're busy all the time uh and yeah title may28:29:00take a little bit longer to come back with them just because of the volume um secondly the appraisers take a little28:35:00bit longer because they have to get a lot more information than we they normally would for a condominium right uh and then they're obviously the board28:42:00approval process some of the boards meet every couple weeks some only meet once a month so that has to be done prior to28:48:00closing because they have to get that board approval the title company requires that we require seeing a copy28:54:00of it and the board requires it before you can close so that can push the time out a little and then the last thing the28:59:00one thing that really does separate the two that is significant is that Co-op building approvals that we do we look at29:07:00every building Condominiums if you're putting 10 or more down in most cases it's a pretty streamlined29:13:00process uh if you put less than 10 we have to get budget and a few different things with co-ops on every Co-op we29:21:00have to get two years of their financials uh that have been audited we have to get a budget we have to get a29:26:00questionnaire we get a pretty healthy stack of paperwork that has to be reviewed a lot of the buildings we have29:32:00approved already so we're just updating and not doing a full approval every time but it is a fair amount of paperwork29:38:00that we have to get together and sometimes it's pretty involved again the net is that we're looking at the29:44:00health of the building and the financial well-being of the building and really looking out obviously for ourselves but we're looking out for the customer who29:50:00you know my guess is most people when they get condo and Co-op resale packages29:55:00glance at it and don't really dig too deep um yeah we do have people that call and30:00:00ask really specific questions but most people just you know they probably look at it and figure it's fine and whatever but with co-ops we get pretty far into30:07:00that so that definitely that's the biggest differentiator between the two uh it is much more involved of a process30:14:00yeah and really quick because we're going a little long on this episode but um right in the beginning yeah actually30:20:00I think it was me this time but um you in the beginning kind of gave me an example30:26:00um of the difference in payment for somebody so I mean I guess a good way to conclude this episode is telling people that you know we talked about how the30:32:00high I'm putting in quotes monthly fees um make it seem like maybe you're going to be paying a lot more for a co-op but30:39:00really in the example you gave me if you want to quickly tell people I mean sure I have some notes it came out about the30:45:00same if I'm looking away I want to make sure I'm giving them right numbers so I had a person just this past weekend call me about the Capitol Hill Towers Co-op30:53:00um it's a newer building I want to say it was built in 2006 or something like that most co-ops are 100 plus year old31:00:00buildings this one is newer um they have a pretty significant underlying Mortgage in this case for his31:06:00unit the sales price is 375 and the um the underlying mortgage allocated for31:13:00his units 95 000 which again sounds like a lot and you'd think oh well that's not necessarily great but where it helps is31:19:00that underlying mortgage they have like a two and three quarter percent interest rate on it so ninety five thousand31:27:00dollars that the borrower was essentially borrowing for that underlying mortgage for their unit is at31:32:00a much lower rate than where rates are today so that helps with the payment a bit um the way that that works is the31:39:00underlying mortgage stays with the unit So when you buy or sell a co-op whatever31:45:00the it gets paid just like any other mortgages principal interest every month and the balance goes down every month as31:50:00you pay it down as part of that Co-op fee that balance when you go to closing31:55:00the title company will verify EJ Flynn or Monarch or whoever will verify a32:00:00couple days before settlement the exact amount of the underlying mortgage at closing and that basically goes on the32:07:00seller side and the buyer's side of the settlement statement and it basically transfers from the seller to the buyer32:12:00again in this case they're transferring a 2.75 rate so in this case the sales32:17:00price was 375 the bar was putting a hundred thousand dollars down he was lucky he had a lot of money to work with so I ran the numbers with that32:23:00underlying mortgage the fee there is 9.55 which for a 375 thousand dollar unit you'd say oh that's really high but32:31:00his total mortgage payment became was two thousand seventy five dollars I've ran the numbers for a condo he was32:37:00looking at Virginia the taxes for that were 351 bucks a month and the fee was32:42:00469 a month so when I ran the numbers and he did there was no underlying mortgage on that because it's a condo so32:48:00he had to finance that extra 95 000 with the higher rate the payment on that one ended up being 2 540 so it was almost32:57:00500 cheaper for the co-op even though that fee is really high um so that's real numbers it doesn't33:03:00always work that way but that was a real example from somebody I talked to just a couple days ago and now he's mulling33:09:00over which you know does he want to move to the verbs or does he want to buy this place in DC that I can't help with but33:14:00the the numbers I get so right well I mean and I think that to bring us completely full circle as p as the33:20:00market is heating up and and rates are still higher than they were a year ago you know we'll have people say you know33:25:00they're historically still not that high blah blah but as you're trying to compare what to get right now might not33:31:00be a bad time for you to consider the co-op because of the underlying mortgage that may have an insanely low rate right33:36:00and not all buildings have underlying mortgages there's a lot in DC that don't yeah but um yeah this particular one has33:41:00a larger one um but yeah that again it's something I think more the confusion that they don't people don't understand it33:48:00um one last thing I want to touch on that I'm sorry to difference in the financing uh is the way we calculate the33:54:00the mortgage amount when you're buying Co-op when you are getting a condo if34:00:00like make the math easy if it was a 400 000 sales price and you're putting a hundred thousand down you're borrowing 300 000. if you have a34:07:00co-op that has a hundred thousand underlying mortgage and a four hundred thousand dollar price34:12:00we take the 400 000 we subtract the underlying mortgage and then we figure out your down payment from that and in34:19:00that case you'd only borrow 200 000. so where that really matters is if you're looking at a to do a minimum down you're34:24:00trying to do five percent down five percent is usually cheaper if there's an underlying mortgage for Co-Op than it34:30:00would be for a similar price condo because of that factoring in that that underlying mortgage yeah well Jeff thank34:37:00you you are a wealth of knowledge when it comes to this and I will be linking your information in the show notes I34:42:00mean if people are interested in just even talking about this with you um and I will say just real quickly I haven't34:48:00worked with you before but you were recommended from a colleague um A lender who's been on the show many34:53:00times before so you know if people have started working with somebody else and they you know they're interested in a34:59:00co-op but you know it doesn't mean you're you don't have options right definitely so keep that in mind well35:05:00thank you so much and uh we will talk to you soon thanks Allison thanks for having me okay no problem