- Condo or Coop, Which is the Safer Financial Choice?
- Coops vs. condos
- Costs of coop living
- Coop taxes
- Tips on buying a coop
- Condo Vs Coop: Learn the Difference Before Buying One (2021)
- What is a condo?
- Difference in costs
- What are co-ops?
- Final Thoughts: Which One Should You Consider
- Condo or co-op: Decide what’s best for you
- What can you afford?
- How long do you want to live there?
- What type of property do you need?
- How quickly do you need to buy it?
- How much are you willing to disclose?
- Is the co-op the right type for you?
- What Is a Co-op? | Guide to Buying a Co-op
- What is a co-op home?
- How does a housing co-op work?
- Getting a loan for a co-op
- Facing the co-op board
- Co-ops vs. condos: Which is better?
- Pros of buying a condo:
- Pros of buying a co-op:
Condo or Coop, Which is the Safer Financial Choice?
The downward spiral of mortgage interest rates is opening up new opportunities for potential home buyers: stock cooperative apartments, better known as coops (pronounced KO – ahps).
In the big cities of the East Coast — particularly New York, where they represent 75 percent of the market — coops can be an affordable alternative to a condominium.
The choice of condo or coop involves a lot more than the cost of financing, however.
You’ll need to examine the differences between the two in terms of pricing, your purpose for buying, your lifestyle, your needs for amenities, and your patience with rules, restrictions, and administration by the cooperative’s board of directors.
These, and other factors, have to be considered in comparing condominium and cooperatives.
- Coops vs. condos
- Costs of coop living
- Coop taxes
- Tips on buying a coop
Coops vs. condos
A coop is essentially an apartment building that’s owned by a corporation made up of the residents.
When you buy a coop apartment you buy shares in the corporation.
Rather than a deed, you get a corporation stock certificate, which gives you the right to live in a particular unit within the building.
Non-stock coop corporations instead have a “proprietary lease.”
This lease spells out the rights and responsibilities of the owner, as well as the obligations and duties of the cooperative association.
Coops are self-governed and often self-maintained.
Decisions on the management, lifestyle and financial details are made by the cooperative unit members themselves, either through their vote at regularly scheduled meetings, or by delegation to an elected board of directors, which runs the day-to-day operations of the cooperative.
A condominium is governed by the applicable law in the jurisdiction where the property is located.
The relevant documents include the declaration, bylaws, rules and regulations and plats and plans.
In coops, however, there are few substantive statutes that govern or regulate the associations.
The operating documents are the articles of incorporation, bylaws, house rules and proprietary or ownership materials.
If you own a condominium, you actually own your entire apartment, as well as a percentage of the common areas.
Condos are usually newer, larger buildings and come with access to communal amenities and facilities such as gyms, pools, game or movie rooms.
Both coops and condos require board approval of buyers, hold regular board meetings, and dictate an ever-changing set of rules for living.
Coops, however, tend to have a far more complicated approval process.
A coop board is ly to require far more detail about your finances and personal life.
There will be a face-to-face interview and applications can be denied for any reason.
They will often refuse pets of any kind, deny alterations to upgrade the basic comforts, and ban sub-letting, or the renting units.
Costs of coop living
Coops tend to be priced cheaper than similar condos. Among the reasons — they’re generally in buildings built before the 1980s.
These older buildings require more maintenance, special assessments and have fewer amenities.
They often lack laundry facilities within units and there’s no means to add them.
There are few or no recreation rooms, gyms, etc.
These negatives are added to the annoying need to comply with comprehensive cooperative board rules.
And, if financing a coop, you’ll have no choice but to put up 20 percent or more for a down payment and pay a higher interest rate than for a condo.
Coop residents generally get the same tax treatment as other homeowners.
If they have a loan and if that loan is secured by their ownership documents (the stock certificate or the proprietary lease), they can deduct the yearly interest paid on that loan.
Additionally, if the cooperative association has a mortgage on the entire building — called a blanket or underlying mortgage — shareholders can deduct their proportionate share of the interest on that mortgage.
And under most circumstances, they can also deduct their proportionate share of the real estate taxes, which the cooperative pays.
One way cooperative living differs from condo living — there is a larger percentage of owner occupancy.
In fact, many coops specifically prohibit renting of apartments. For this reason, there is usually more active participation in the management of the cooperative by the coop members.
Many say cooperatives are not as good an investment as condominiums, and indeed some cooperative associations have changed to condominium over the years.
In the wake of the housing market meltdown, many condos are financially unsound and are just not good investments.
A lot depends on the individual condominium and its board:
- How is it managed?
- Is the board actively involved and does the board have the expertise to run such a project?
- What is the financial state of the association?
- Are there adequate reserves? Does the board allow delinquencies or do they insist on collections?
Tips on buying a coop
If you’re thinking of purchasing a coop, do your homework, review carefully the legal documents and the financial statements, and investigate reserves, needed repairs, and the potential for special assessments, before you sign a contract.
It is also a good idea to meet with an association board member to get a feel for life in the association.
Even more than buyers of homes or condos, coop buyers need to have their credit in order and present a good financial history.
You’re qualifying for the coop board as well as your lender.
Since mortgage rates are still low, it’s a great time to consider buying. Be sure to check out rates in your local area.
The choice of condo or coop means careful consideration of the differences in terms of pricing, your purpose for buying, your lifestyle, your needs for amenities, and your patience with rules, restrictions and administration by the cooperatives board of directors.
Jeff is a licensed real estate agent in California and he specializes in home buying, mortgages, and debt, among other money topics. His work has appeared in Business Insider and Trulia.
Condo Vs Coop: Learn the Difference Before Buying One (2021)
This isn’t a world where you can buy a house with white fences all around and vast plantation and still be in the heart of the city. There are new and different types of housing options that are coming up to help the residents enhance their standard of living.
In this age, most of the residents have two main options when it comes to housing solutions. One of them is a condo or condominium, and co-ops are another option. Not every person who is looking for a new home knows the difference between condos and co-ops. Here is everything that you need to know about the two leading housing solutions before you start your search.
What is a condo?
One of the most preferred options for housing in Toronto is condominiums. These are basically within a significant society, or a building and the owner will own their unit instead of the entire land.
Owners can access the common property, but they do not have any right over the ownership of the common areas. There are different spaces such as parking space, storage unit, etc. that you can purchase.
Owners of condos will have to pay a monthly maintenance fee that will be used for maintaining the common areas and amenities and facilities that are provided. The costs will also include the charges for security. In some cases, one might think that the cost for maintenance is high since not everyone will be using the common area or other facilities.
However, since the community of a condo has a lot of people, the maintenance fee is rightly divided so that residents get all the amenities at very affordable prices.
Living in a condo comes with several limitations as well. Residents might not be able to own a pet or rent out their unit to another party. In most of the condo societies, residents cannot make any changes to their units. Residents will have to abide by the by-laws of the condo corporation as well as the financial status.
Difference in costs
The rates of a condo on the basis of per square feet are usually higher when compared to co-ops. Across Canada, the cost of a condo rose 3.8 per cent year-over-year to $452,451 (1). However, condos are easier to finance, as there is no underlying mortgage for a condo. Also, the condo fees are usually lower. Whereas, the property tax for condos is often higher when compared to co-ops.
Condos usually provide the residents with a society where there are a lot of people, which can be an advantage as well as a disadvantage. One can have some company almost at every point during the day.
Condos are usually a better investment as they are easier to sell and buyers don’t have the same restrictions as they would with buying a co-op – Susanne Hudson, Huffington Post
However, with several people around, one might have to compromise on some aspects. But, seeing the current trend in Toronto, condos are in high demand, and a lot of people prefer condos over any other housing option.
What are co-ops?
There are some significant differences when it comes to owning a co-operative when compared to condo ownership. When you want to purchase a co-op, you will have to buy shares in the cooperation that has the rights of the building. condominiums, co-ops also have a board of directors which is responsible for making most of the changes.
Final Thoughts: Which One Should You Consider
There are different advantages and disadvantages to owning a condo or a co-operative. However, if you fix on buying a co-op, you will have to comply with the significant decisions made by the board of directors. It depends on the resident on what their requirements are. If one wants to be close to the major attractions and have several amenities available, condos are the best option.
When in doubt, it’s always best to work closely with a registered real estate salesperson so that you will be guided accordingly. (2)
Visit Precondo for pre-construction condos and exclusive VIP deals.
1 – “Hamilton Condo Costs up 9.4% This Year: Housing Survey | CBC News.” CBCnews, CBC/Radio Canada, 10 July 2019, https://www.cbc.ca/news/canada/hamilton/condo-costs-second-quarter-hamilton-1.5206385.
2 – Richer, Joe. “The Difference between a Condo and a Co-Op: Ask Joe.” Thestar.com, 21 Apr. 2018, https://www.thestar.com/life/homes/advice/2018/04/21/the-difference-between-a-condo-and-a-co-op-ask-joe.
Condo or co-op: Decide what’s best for you
If you’re on the hunt to buy an apartment, one thing is crucial before beginning your search: decide if a condo and cooperative is right for you.
“Working with a client, it’s important to immediately define the difference,” says Brian Lewis, an agent with Halstead’s New York office.
Because the ownership structures of condos and co-ops are vastly different, all the financial and legal matters of buying one will dramatically differ, too.
Condos are pretty straightforward. In a condominium, your apartment and a percentage of the building’s common areas (known as the “common elements”) belong to you.
Though a board is in place to run the building’s condo association and manage the property, the board is fairly hands off when it comes to what you do with your property—renting it out, for instance, or putting it on the market and selling to whomever you’d .
In a cooperative (aka co-op), the owners collectively own shares (or stock) in a corporation that owns the building. A proprietary lease enables an owner to occupy a particular apartment unit within the building.
The co-op owner, also referred to as a shareholder, doesn’t own their particular unit. The co-op’s bylaws and the proprietary lease responsibilities of the owner, as well as obligations and duties of the association.
Co-op boards hold a lot of power, from approving who can buy into the building to restricting shareholder’s abilities to rent out their apartments. All management and financial decisions are made by the board, either through voting or by an elected board of directors that handles day-to-day operations.
Curbed spoke with expert agents in both condo and co-op sales on how to determine which is best for you.
What can you afford?
This, of course, is the question that kicks off every homebuying process. Still, it’s especially important one when considering co-ops vs. condos.
You may have your heart set on low maintenance condo ownership, but working with a tight budget could change your mind.
“You’ll find there’s a big difference in price [between co-ops and condos],” says Corcoran agent Tara King-Brown, who notes that in New York, there’s as much as a 30-percent premium for condos.
Co-op apartment are more plentiful in New York and typically in less demand than condos. Find a broker who’s familiar with the local apartment market, be honest about your budget, then figure out where you’ll get the most bang for your buck. “Sometimes [agents] can talk people off the condo ledge,” as Lewis puts it.
Both co-op and condo associations will charge monthly fees on top of your mortgage, which vary widely from building to building.
Un a condo building, the co-op fee typically includes an underlying mortgage and property taxes, in addition to any amenity, maintenance and utility costs.
With condos, you pay monthly common charges that cover the upkeep of the “common” aspects of the condo. The more building amenities, the higher the fee.
How long do you want to live there?
In fast-paced urban housing markets, it’s common for homeowners to buy and sell more frequently, rather than fulfill a 30-year mortgage. But buying into a coop isn’t ideal for short-term ownership. “For people who only think they need a place for a few years, condos just offer an easier process to sell quickly or sublet your apartment,” says Nick Gavin, an agent with Compass.
Co-op ownership is more suited for long-term ownership; consider it an investment in the building and the community of shareholders. “It’s more intimate and there’s less turnover,” says King-Brown. “Co-ops are great for buyers who want to plant roots.”
What type of property do you need?
If you’re looking for an investment property, pied-à-terre, or just an apartment you can occasionally rent out while you’re away—consider cooperatives mostly off limits. Many co-op boards won’t approve shareholders that are only looking for a part-time apartment.
And if you’re accepted as a shareholder, you’ll ly be prohibited from renting it out when you’re not there. Some boards might work with owners on rental agreements, but ultimately, you’ll need their approval before anybody else lives in the apartment.
Buying a condo does not come with those ownership restrictions.
How quickly do you need to buy it?
Condos often offer a quicker sales and quicker selling process. “For co-ops, you really need a timeline in place,” says Gavin. Buying a co-op requires a lengthy application process, and selling your co-op will require the approval of your board for any new buyer.
How much are you willing to disclose?
“When you buy a co-op, [the board] is gonna see everything,” Lewis says.
“They’re gonna put you under a bright, white light and it’ll feel a mole check at a dermatologist standing there naked, praying for good news.
” On top of the financial disclosures and references—which a condo board will also require—the co-op process is much more invasive. This is because as a shareholder, your finances affect the whole building.
A few financial question the boards will want to know include your ability to fulfill a required down payment, how much money you’ll have after you close the sale, and your debt to income ratio. On top of financial disclosures, expect at least one in-person interview where you’ll have to talk about your family, your pets, other homes you own, planned renovations, and more.
Legally, there are only two legal grounds for a co-op board to reject a hopeful would-be shareholder: financial criteria and an unwillingness to abide by the terms of the association’s rules and regulations.
But expect the process to be unpredictable and disappointing at times. “They’re gatekeepers of the building,” says King-Brown. “Co-op boards can go any which way in making these decisions.
” On the other hand, “once you’re in contract for a condo, most condo deals will close,” she says.
Is the co-op the right type for you?
You must also consider the type and size of the co-operative. A self-managed co-op will ly require all shareholders to be more hands-on with the building maintenance (you might even be asked to shovel snow or take out the trash). Co-ops can also vary in size from just a few units to hundreds of apartments.
The smaller the co-op, the more ly it is that you’ll have to be actively involved in the building’s management. In a small co-op, you’re also more vulnerable to unexpected costs and you are tied more closely to other shareholders’ finances.
For example, financing an elevator replacement in six-story co-op will cost individual shareholders double in a 10-unit building than in a 20-unit building because the costs are only divided 10 ways instead of 20.
wise, if a shareholder falls into arrears on his maintenance or mortgage in a small co-op, it may make it impossible for any other units to be sold until the issue is resolved because banks will not lend to prospective buyers with more than 20% of the building in arrears
What Is a Co-op? | Guide to Buying a Co-op
A co-op is a home you don't exactly buy. Instead, you're buying shares in a corporation that allow you to live in that home.
This can make financing a co-op difficult, since it's not actually a real estate transaction. But if you live in an area where co-ops are common, New York City or Washington, D.C., a co-op could be a more affordable housing option.
Here's what you should know if you're thinking about buying a co-op.
» MORE: See other alternatives to single-family homes
What is a co-op home?
A co-op is a housing unit within a building or development that is jointly owned by all the people who live in its different units. These joint owners form a housing cooperative (hence, co-op) that is a type of nonprofit corporation.
Each owner is a shareholder, with shares allocated the market value of their unit. any corporation, a housing cooperative has a board of directors. But, as shareholders, everyone who lives there has a say in how the co-op is run.
A co-op is not the same as a condo, which is a type of real property that’s independently owned.
» MORE: What to know about buying a condo
How does a housing co-op work?
When you buy a co-op, you don't buy the unit itself. You purchase shares that grant you the right to live in the unit. Not only are the common areas and exterior owned by the corporation — the interior of the co-op is, too. This means if you want to do a major renovation, a kitchen remodel, you may need the co-op board's approval.
You'll pay a monthly fee that covers your portion of the co-op's expenses, which can include paying part of the underlying mortgage for the entire property.
The housing cooperative's other expenses, property taxes, shared maintenance and utilities, are also generally split among all residents, with the amount you pay determined by your unit's value. Dividing expenses in this way can sometimes work to the shareholders’ advantage.
While condos can appear to have a lower monthly payment, co-ops are often the better deal if you consider everything the fee covers, notes Karl Beuckelaere, a Detroit-area real estate agent with Century 21 Curran and Oberski. “The fees are typically more expensive in the co-op because every month you have baked in a portion of your electricity, gas, tax, as well as maintenance,” Beuckelaere says.
Buying a co-op may place limits on how much home equity you can accumulate or if you can accumulate equity at all. While market-rate co-ops accumulate equity much single-family homes, limited- and zero-equity co-ops restrict your ability to profit if and when you sell your shares.
» MORE: Budget basics for new homeowners
Getting a loan for a co-op
It can be hard to get a mortgage for a co-op since you don't actually own your unit. It's a grim way to think about it, but lenders won't underwrite a mortgage for a property on which they can't foreclose. Instead, you'll need a loan to purchase shares in the cooperative, sometimes called a co-op loan or share loan.
Nerdy tip: The co-op's board of directors sets the rules for how much you can borrow to buy shares. Co-ops may require a minimum down payment of 20% or more.
Generally, your lender will want to see how the co-op operates and take a look at the underlying mortgage. It will also examine how the board is run, checking for any major planned expenses and ensuring there are sufficient financial reserves to handle the unexpected.
Larger co-ops in areas where co-op housing is relatively common may have relationships with certain lenders, which can simplify the financing process.
» MORE: Ways to save for a down payment
Facing the co-op board
Before you can buy into a co-op, you'll have to be approved by its board of directors. This governing body functions similarly to a homeowner association, determining not only how the property is run but also who can live there.
While the law requires co-op boards to follow Fair Housing Act regulations, within those bounds they're free to create their own standards for potential residents. These most often mean financial standards, but they can also turn down applicants their perceived ability to abide by the co-op's rules.
Meeting the co-op board can be especially stressful, according to Evan Metalios, a real estate broker with Re/Max Team in Queens, New York. A good broker will try to understand what the board is looking for, to give their buyer as much of a leg up as possible, Metalios says.
Co-ops vs. condos: Which is better?
Co-ops and condominiums are common options for those hoping to become homeowners in cities where space is at a premium. Though they might look identical, each has its own benefits. Here are a few of the pluses of each home type.
Pros of buying a condo:
Condos are real property, so you've got the title or deed and can take advantage of accumulated home equity.
Because you own your condominium, you’ll have more latitude for renovating or subletting.
Condos may be easier to finance and simpler to sell since buyers don’t have to be approved by a board.
Pros of buying a co-op:
You'll know your neighbors since the extensive approval process can mean less turnover and co-ops seldom allow sublets.
Co-ops may have lower closing costs than condos. For example, since a deed doesn't change hands when you buy into a co-op, you won't pay a transfer tax.
As a shareholder, you'll get a say in how the building or complex is run, even if you're not on the board.