The difference between a “condo” (condominium) and a “co-op” (co-operative) can be confusing. It can be even more confusing if you are searching on one of the large real estate portals that lump them together as one type of property. If you still have questions after reading this, please do not hesitate to contact me.
Condos
The owner of a condominium home holds a fee simple title to the home and to a percentage of other parts of the structure and land, referred to as common elements. Simply put, a condo owner owns everything within the exterior walls and shares everything else. Common elements include such items as land, walls, public areas, and the roof. Lawns, landscaping, amenities such as a swimming pool, tennis court, or golf course, may also be considered common elements.
A condo could be an apartment in a high-rise or mid-rise apartment building, in a garden-style complex, an attached town house or even a single-family, detached house. Condominium ownership can also be used for commercial property or office buildings.
In our area, condominiums are typically administered by an association of the home owners or a board of managers elected by the home owners. The condominium may manage itself or hire a property manager. In either case, owners pay monthly fees for maintenance expenses. Short term assessments may be added to the monthly fees to cover the expense of improvements or repairs to common elements.
Condo owners are usually free to alter or renovate interior aspects of the home, with proper permits from the local municipality, but without the requirement of approval from the homeowners’ association. There are usually rules against alternations of common elements.
Individual owners receive tax bills from the municipality where the home is located. Generally, property taxes are lower for a condominium home than a similar single-family residence. The owner is free to obtain a mortgage on the home. Home owners are generally allowed to rent their units to others; however the home owners’ association may impose rules that limit the number of units that can be occupied by rental tenants at one time. While a prospective buyer may have to submit an application, approval by the association or board of managers may not be required. In some cases, however, the application may not be approved if to do so would negatively affect residents. These situations occur very infrequently.
Let’s check out some of the pros and con(do)s of buying a condo:
Pros
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Condominiums typically offer desirable amenities such as a gym, swimming pool, tennis courts, exercise room, clubhouse, sauna, sports clubs, etc.
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Home owners are freed from having to keep up maintenance on things like snow removal, landscaping, exterior maintenance, and other things you would have to do in a single family home.
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Monthly common charges may sometimes include some utilities.
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Condo residences could have much lower property taxes than a single-family home with equivalent square footage of living space.
Cons
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Home owners pay for amenities with their monthly “common charges” whether or not they use those amenities. The more amenities there are the higher the common charges are likely to be.
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There are mortgage loan programs that preclude the purchase of a condo, especially if the condominium, as a whole, is not financially sound. This could be due to any number of factors and the buyer should always inform her/his lender of the intention to purchase a condo before signing a contract of sale.
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The home owners’ association may have set rules that are not consistent with a prospective buyer’s lifestyle. For example, there could be rules against having certain types of pets or any pets at all on the premises. Tenants may be prohibited from installing laundry appliances or dishwashers in their apartments. Renting may be limited to only a certain number of residences at any given time.
Co-ops
Co-operative ownership developed as a way for apartment dwellers to own their living space. Co-ops are more frequently found in the greater New York City metropolitan area than in other parts of New York State.
Typically, in a co-operative, title to the land and the building is held by a corporation. Tenants buy shares, in proportion to the size of the unit purchased, in the corporation and receive proprietary leases to their apartments. So, a co-op unit or apartment is the interest of a shareholder in the corporation. Tenants pay monthly fees to cover maintenance costs, property tax, and the mortgage on the co-operative. As stockholders, tenants exercise control over management of the co-operative through a board of elected directors. In most cases, directors will approve or disapprove prospective buyers, with their decisions adhering to nondiscrimination laws.
A co-op apartment may be in a high-rise or mid-rise apartment building or in a garden-style complex. It may have all of the rooms on one level or it may consist of two or three floors. Parking, if available, may be included in the monthly maintenance fee or may require an additional monthly payment. Should the co-operative require capital improvements such as a new roof, a new heating system, etc. or experience a significantly increase in heating costs, the cost will be passed on to the tenants/shareholders in an amount based on the number of shares they hold, over a specified period of time.
Although the stock in a co-operative is considered personal property, owners of co-op apartments are allowed to treat their units as real estate for income tax purposes. The co-operative provides each shareholder with an annual statement of that shareholder’s proportionate share of the property taxes and mortgage interest paid as part of their monthly fees. A tax professional can then determine if those costs can be used as income tax deductions.
Keep in mind that if you require a mortgage to purchase a co-op apartment, the payments for that mortgage loan are in addition to the monthly fees that cover the costs of the overall mortgage on the co-operative.
Let’s go over the pros and cons of buying a co-op:
Pros
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Co-ops are often located close to public transportation, shops and other community amenities.
- The purchase price is generally lower than a condominium or single family residence, making it an affordable first time purchase.
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Monthly maintenance fees generally include heat, hot water, and gas. In some co-operatives additional utilities and/or off-street parking is included.
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Minimal work is required on your part, as things like snow removal, utility maintenance, landscaping, garbage removal are done for you.
Cons
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The co-op may require a minimum down payment if the prospective buyer needs to obtain a mortgage. This is typically 10% to 20%.
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The co-op may require that the prospective buyer have a minimum income, credit and debt to income ratio, usually based on a ratio of income to housing costs.
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There are mortgage loan programs that preclude the purchase of a co-op apartment, especially if the co-operative is not financially sound. This could be due to any number of factors and the buyer’s attorney should always review the co-operative’s financial statements before the buyer signs a contract of sale.
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The co-operative’s board of directors may have set rules that are not consistent with a prospective buyer’s lifestyle. For example, there could be rules against having certain types of pets or any pets on the premises. Tenants may be prohibited from installing laundry appliances or dishwashers in their apartments. Renting may be prohibited or allowed only after the shareholder has been in residence for a specified period of time.