Condo vs. Co-op

Interested in purchasing a co-op (cooperative) or condo (condominium)?

They can be quite different, as these two forms of housing ownership have distinct legal structures and ownership models.

The main differences between purchasing a co-op and a condo revolve around ownership structure, financing, approval processes, monthly costs, flexibility, and taxes. Your choice between the two will depend on your financial situation, lifestyle preferences, and tolerance for board approval processes. It’s crucial to carefully consider these factors and consult with a real estate professional and discuss your financing options with a licensed Mortgage Loan Originator before deciding.

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Ownership Structure

Co-op (Cooperative)

• When you buy a co-op, you are not buying real property (i.e., a physical unit). Instead, you are typically purchasing shares in a corporation that owns the entire building or complex.
• You most likely will receive a proprietary lease, which allows you the right to occupy a specific unit within the building.
• Co-op owners are generally considered shareholders in the cooperative corporation.

Condo (Condominium)

• When you buy a condo, you are purchasing real property, which includes ownership of a specific unit within a larger building or complex.
• Condominium owners usually have a deed that grants them title to their individual units and a proportionate share of common areas.

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Financing and Affordability

Co-op

• Financing can be more challenging for co-ops. Co-op boards may have more stringent financial requirements for buyers, which can include specific minimum down payments, income requirements, and debt-to-income ratios.
• Co-ops are often more affordable than condos in terms of the purchase price because you are essentially buying shares, not real property.

Condo

• Financing for condos is typically more straightforward, as it resembles buying a traditional home or apartment.
• Condos tend to be more expensive than co-ops in terms of the purchase price due to the outright ownership of the unit.

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Approval Process

Co-op

• Co-op boards have significant control over who can purchase shares and live in the building.
• The board conducts a thorough review of the buyer’s financials, background, and references.
• Co-op boards usually can reject a buyer without providing a specific reason.

Condo

• Condominium boards may have the right of first refusal, but it is rarely exercised.
• The approval process for condos is generally less rigorous and more straightforward than for co-ops.

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Monthly Costs

Co-op

• Monthly fees, known as maintenance charges, cover operating expenses, property taxes, and building mortgage payments.
• Part of the maintenance charge may be tax-deductible, as co-op corporations pay property taxes, and you get a share of those expenses.

Condo

• Monthly fees, known as common charges, cover maintenance of common areas, amenities, and services.
• Property taxes are typically paid separately by condo owners to the city.

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Flexibility & Subletting

Co-op

Co-op boards often have strict rules regarding subletting, renovations, and use of the unit.

Subletting may be subject to board approval and limitations.

Condo

Condo owners typically have more flexibility in terms of subletting and making changes to their unit.

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Taxes

Co-op

Co-op owners usually do not receive individual property tax bills. Instead, property taxes are typically paid by the co-op corporation and included in the monthly maintenance charges.

Condo

Condominium owners generally receive individual property tax bills and are often responsible for paying them separately.

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Resale Value

Co-op

Co-ops may have more limited resale value compared to condos due to the stricter ownership structure and board approval process.

Condo

Condos often have higher resale value and may appreciate more quickly than co-ops.

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The Pros and Cons of Ownership

Pros

Co-op

Overall purchase price is often lower than buying a similar sized condo.

Usually there is no mortgage tax or title insurance (you are purchasing shares of a corporation rather than real property)

Maintenance Fees also may be partially tax deductible.

Condo

Likely more flexibility to renovate, rent out and eventually sell your condo to whomever you choose.

Cons

Co-op

Often less flexibility in renovating or making it your own.

Can involve a lengthy interview and sales process

Condo

Likely to pay a higher overall price.