What is the Difference Between a Co-op and a Condo?

Cooperatives and condominiums are forms of common ownership in real estate. This means that you and other people have some type of ownership rights in some piece of land. Condos and co-ops are usually confused with one another since they are quite alike. Each gives one right to use some areas such as pools and roads but there are differences between these two.

Owning cooperative or a condominium is an ideal alternative to buying single family home. However, there are some restrictions which means that you will have limited ability to make structural changes to your living space. If you are thinking of buying cooperative or condo, you need to know how they work and what they are. Below are differences between cooperatives and condominiums to help you decide which one is best for you.

Form of ownership is one key disparity between them

An owner of a condominium actually owns that structure in fee simple just like any other homeowner and has undivided privileges in common areas such as parking lots, lobbies, hallways and recreation areas. In cooperative apartment, you do not own any real estate but shares in non for profit corporation. As a shareholder, you have right to lease space in that building. Corporation owns common areas. A condominium is regarded as real chattel while corporative is an intangible personal property.

Property taxes

Since Condos are owned individually, they appear in tax rolls as separate entities and individual owners are taxed separately. In co-op, an entire asset is owned by that corporation therefore is appears on tax roll as one single piece of property. Corporation will therefore be liable to pay duty and then pass along that cost to tenant shareholders usually as part of monthly maintenance fee.

Property tax is lower in cooperatives than in condos. This goes back to types of ownership. When condominiums are resold as separate entity, higher sales price and appraisals are recorded individually. This produces higher assessed values which lead to an increase in taxation. Co-ops are not recorded and only way sales are reflected in tax roll is if a whole piece of land is sold which is quite rare. Increase in value of assets lags in terms of assessed value and corresponding tax bills.

Financing is also anther differentiation between condos and co-ops

When it comes to cooperatives, there are two issued of financing. There is an basic mortgage that funded either original construction or conversion of rental apartments to create ownership. Payment of mortgage is paid by corporation and then passed along in monthly maintenance charge to tenant shareholders. There is also another issue of whether tenant shareholder had enough funds to purchase into the unit or if they had to take a loan for it. Because there is no fee simple ownership of units, it is hard to get financing since security of loan is residents portion in that corporation. Most lenders will not give a loan to coops at all.

There are some co-ops who have relationships with few select approved lenders that will finance sales. This means that those lenders have an actual stake in that unit and they often want to have an opinion as to how that corporation is operated. Most cooperative proprietors are also not able to get home equity loan or even line of credit as each individual is dependent on solvency of an entire project. In case a corporation was to go bankrupt, all shareholders will feel some pain.

Tax deductions in condos happens by each individual being able to take away payments that are made for mortgage interests and levy if they stay in that unit and further deduction on things like maintenance and appreciation if that condo is used as rental property. Cooperative tenant shareholder can only remove their balanced split of dues on primary credit if money was borrowed to finance actual purchase of shareholder rights, deductibility will depend on several factors and it is not effortlessly done.

Maintenance fees for co-ops are paid on either every month or on a quarterly basis and they are high owing that fact that corporation will be collecting mortgage and tax payment from each shareholder in addition to assessment for things such as lawn care, security, insurance and pool maintenance. Cooperatives have an advantage when it comes to costly repairs or improvement projects since they can get loan adding to an amount of blanket advance. Shareholders will then pay off cost of plan in their monthly fees. Condominiums cannot ask for money as a body therefore making owners of units to have a big assessment for parallel projects.

Although most condo associations contend they are empowered to either approve or disapprove transfer of ownership, reality of the issue is that they have almost no power at all. Cooperatives have a right to approve or even decline sale of shares on basis that a buyer is depicted as not being able to make payments. They are also able to block sale to celebrities as they feel they might disrupt peace and quiet of other shareholders. Cooperatives are bound by federal legal stipulations and they cannot segregate against people who want to buy because of race, nationality or sex but they can and they do choose people based on their financial resources and criminal backgrounds. Condos are not able to exercise this type of control which means that you might have to deal with people who do not make good neighbors.

As seen above, those are main differences between Condos and co-ops. It is vital that you know them so that you make a right decision on which one to invest in according to your wants and needs. In case there are things you do not understand, it is vital to seek assistance of a real estate agent as they are well informed in this field. Find out as much as you can about these two types of units. Buying a home is a huge investment therefore one has to be sure that they are not making a mistake.

Photo by Amy Sussman/Getty Images