Housing co-operatives and condominiums seem similar, but
there are reasons for weighing a co op vs condos. You can rent them or use
them as single-family homes. As a result, co-ops and condos are most popular
in older, larger cities. Here are some important differences between the
two.
Co op vs Condos: Ownership
So what’s a condominium? Well, a condo is a specific unit in a multi-unit
structure. A buyer typically owns such a unit as a private residence. A
condo owner also has undivided ownership rights to common elements.
A co-op unit also typically occupies a multi-unit building. However, the
co-op owner doesn’t actually own the unit that is occupied. Instead, all the
residents own shares in a corporation that holds title to the entire
property, including the individual units. The corporation grants leases or
contracts to occupy the units to shareholders, who also get to use the
common areas.
Co-ops and condos have more in common with each other than they do with
other housing options. For instance, they are both usually part of
multi-unit buildings. However, they feature divergent costs of ownership,
management, and tax benefits. Most importantly, they differ in ownership.
From those basic differences spin a number of other distinctions.
Co op vs Condos: Governance
There’s a vast divide between condo and co-op management. Co-ops are
governed by their members, who are democratically elected to boards of
directors. They also receive input from various committees.
These boards and committees decide all policy matters. For example, the
decide when to perform major repairs and which service providers to contract
with. Their power also includes controls on individual co-op members. Most
notably, they can dictate who a co-op owner can sell to.
Owners of condos similarly elect a board of directors. The condo board has a
lot of say in business matters such as contracts with service providers like
landscaping companies and when to perform major repairs such as roof
replacements. However, condo boards are generally less intrusive in
resident’s affairs than co-op boards.
Co op vs Condo: Costs
Co-ops tend to be less costly to purchase per square foot than similar condo
units. Closing costs may be lower as well.
Condos are likely to be somewhat more costly per square foot. Plus, at
closing a condo buyer will pay for title insurance and other closing costs
that a co-op buyer does not.
Both types generally require a monthly fee. A co-op member’s fee includes
their share of the building’s mortgage and taxes as well as operating costs
such as utilities, security, maintenance and amenities.
With a condo, the monthly fees are often lower than for a comparable co-op.
Owners typically make mortgage payments to a lender rather than the
association. Condo real estate taxes may be paid into an escrow account or
directly to the tax collecting authority.
Co op vs Condo: Control
Joining a co-op is similar to joining a club. The co-op can control who
lives there. Buyers will likely face personal interviews before being
approved to join the co-op.
Once in, a co-op buyer can’t just sell to anyone. Buyers have to be approved
by the co-op. Many co-ops also restrict renting of units. Condos on the
other hand, can generally be sold to anyone without approval of the board.
Co op vs Condo: Financing and Taxes
The co op vs condo discussion may come down to how you’ll pay for it. For
instance, co-ops may require that buyers have a loan-to-value ratio of 75%
or less – or even require paying cash. Condos are less finicky. If you can
qualify for the required loan, you can probably buy a condo. Condos
generally allow sublets as well.
Tax benefits are different depending on whether you’re getting a condo or
co-op. The condo buyer can deduct mortgage interest and real estate taxes on
his or her personal tax return, just like a single-family home buyer. Co-op
residents, however, can only deduct a share of the mortgage interest and
real estate taxes paid by the co-op.
The Bottom Line
Although co-ops and condos have distinct differences, it’s tough to say that
one is better than the other. Co-ops tend to cost less while allowing
residents more control over who moves into the building. However, they give
up some control themselves. Condos allow more individual freedom, but can be
more costly than co-ops.
Housing Tips
If the co op vs condos debate proves too much for you, a financial advisor
may help you figure out which is right for you. Finding the right financial
advisor that fits your needs doesn’t have to be hard. SmartAsset’s free tool
matches you with financial advisors in your area in 5 minutes. If you’re
ready to be matched with local advisors that will help you achieve your
financial goals, get started now.
It’s worth noting that co-op values can be more resistant to financial
downturns including the last major housing market collapse. That’s likely
because they tend to place more stringent financial requirements on members.