What Is the Difference Between a Condo and a Co-Op?

Evaluating a condo or co-op might be difficult. Learn about the differences and what could work best for you here.

What you will discover:

What is the difference between a condominium and a cooperative?
What to think about while deciding between a condo and a co-op
How will I pay for my apartment or co-op?
What is the structure of co-op or condo boards and associations?

People are increasingly opting for alternatives to buying a typical single-family house. Condominiums and housing cooperatives are two popular possibilities. Depending on a person’s circumstances, these options may provide many of the same benefits as house ownership, but without the difficulties and at a lesser cost. Continue reading to find out more about how condominiums and co-ops function and when they can be a viable investment for you.

What is the difference between a condominium and a cooperative?

In both a condo and a co-op, you normally reside in one unit of a larger building or complex, which might be an apartment or a home. The main distinction between the two is what you truly possess as a homeowner.
Ownership of a condominium

The terms condo or condominium may refer to either the complete complex of residences or a single apartment inside that complex. In most cases, buying a condo entails owning both of these:

A residence inside a condominium development.
A portion of the common space of the complex.

Assume you own a condo apartment in a building with a lobby, pool, workout facility, and designated parking garage. You and the other unit owners share ownership of the shared spaces.

You and the other owners are members of a condo association, which functions similarly to a HOA. It is usually in charge of looking after the common spaces, managing security, and dealing with various issues that impact everyone in the building.

Your unit is all yours. Generally, you may do anything you want with it as long as you follow the condo association’s guidelines. If you do not reside there, you may typically rent it to someone else via a Condominium Lease. If you are unable to attend a condo association meeting, you may be able to have someone else attend and vote on your behalf by using a HOA Proxy.
Cooperative ownership

You own a portion of the whole property in a co-op, including all housing units and common amenities. The co-op is a company that owns the real estate, and you hold stock in it. Typically, the shareholders must follow an agreement for sharing the use of the property, similar to a Tenants in Common Agreement.

As a co-op shareholder, you have the right to live in one of the units. You essentially have a lease with the corporation. You will very certainly be required to obey a few conditions, such as restrictions on subleasing the property. The co-op board, which is made up of shareholders, typically has the authority to determine who may or may not acquire shares in the co-op.

What to think about while deciding between a condo and a co-op

When comparing condos and co-ops, consider the total cost of purchasing a unit, the upfront cost, the ongoing costs of ownership, how you intend to use the property, and the type of relationship you want to have with your neighbors. You may need to spend some time researching the regulations and procedures of a certain condo or co-op. An Intent to Purchase Real Estate letter can buy you some time to think about a property before deciding whether or not to purchase it. A Home Evaluation Worksheet can assist you in comparing and contrasting various properties.
Total and upfront costs

Shares in a co-op typically cost less than a comparable condo unit in terms of total cost. To purchase shares in a co-op, you may have to pay more up front. You may often get a mortgage loan to purchase a condo with as little as 3% down for a conventional loan. A co-op may require a down payment of up to 20% of the purchase price.
Property taxes and other recurring costs

Most condo owners pay their property taxes directly to their local taxation body or as escrow monies to their lender. Their property tax is calculated based on the assessed value of their condo unit.

Co-op shareholders pay a portion of the property tax on the whole. For example, if you own 5% of a co-op, you may be required to pay 5% of the overall property tax payment.

Other recurring fees apply to both condominiums and co-ops. Condo owners must pay recurring fees to the condo association to take care of common facilities, maintenance, security, and other necessities. Co-ops have the same need for finances, and they may also bundle monthly expenditures like utilities bills in a single payment for each shareholder. Generally, each shareholder pays a partial percentage of the overall cost for the building’s utilities.
The property’s use and selling

Condo owners are typically allowed to rent their units out to others and to sell them as they see appropriate. Shareholders in co-ops, on the other hand, may be prohibited from subletting their units. Co-op boards often have the authority to accept or reject new share transactions. They may be permitted to refuse a transaction for almost any reason that does not directly violate the law.
Condominium and cooperative boards

Co-ops are more social than condominiums. Residents often manage all aspects of a co-op, although very large co-ops might outsource the job to a management firm. Every resident of a smaller co-op is often required to contribute in some manner to the property’s operation. Condo associations, like many HOAs, typically are not nearly as hands-on as co-op boards.

How will I pay for my apartment or co-op?

Most condo purchases are eligible for conventional mortgage financing. A lender may place a lien on a condo unit to obtain a loan since it is a separate piece of real estate.

Purchasing shares in a co-op, on the other hand, is not the same as purchasing a condo. When it comes to co-ops, you often do not acquire direct ownership of real land. You are just buying stock in the co-op company. As a result, mortgage lenders may be reluctant to lend money for something they cannot foreclose on if you fail to pay. Other funding options, such as a co-op loan, may be available.

What is the structure of co-op or condo boards and associations?

Condo associations and co-op boards both manage and maintain the property for the benefit of the owners. Both may generally define and enforce regulations about the appearance of the property as well as the activities of inhabitants in common spaces.

Because co-op boards must normally approve all transactions of shares, they are more interested in who may be an owner. The Fair Housing Act prohibits co-op boards from treating prospective owners unfairly based on factors such as race. At the same time, they are allowed to restrict ownership based on financial reasons and other characteristics. Some co-op boards rigorously examine new shareholders to make sure they will respect the community’s regulations.