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Condo vs. Co-Op - What's The Best For You?

Not every buyer is looking for a single-family home, which is why condominiums and cooperatives remain sought-after throughout the U.S. Many people use the terms interchangeably, but they are significantly different. But how? Read on to find out what makes a condo different from a co-op and how to choose the best one for you.

For the purpose of this article the usage of the term condominium refers to "an apartment house, office building, or other multiple-unit complex."

 

WHAT IS A CONDO/CO-OP?

A condominium and a cooperative (condo and co-op for short) can be difficult to discern on the outside, since they can generally look similar. The main difference comes with the ownership of both. For a condo, residents own their own units and share an ownership in common areas within the building. When purchasing a condo, you purchase a piece of property in the building and own the rights to that unit.

For a co-op, the building is run by a non-profit corporation that is owned and managed by the residents. The title of the co-op is held by the corporation, and residents purchase proprietary leases from the corporation, which gives them a share of the property as a whole. The leases grant the residents rights to the common areas, as well as access to an individual unit. Residents do not own their units - what they own is a share in the corporation that gives them use of their specific unit. A co-op will also have a system of bylaws and regulations that the residents abide by. While both are multi-unit structures, a condo is a private residence in the structure with the benefit of ownership of commonly used areas and property, while a co-op is a share in the entire building with a contract or lease of an individual unit.

 

HOW WILL YOU FINANCE?

Whether a co-op or condo is the one for you will likely be determined on the method of financing for the property. Traditionally, co-ops are stricter when it comes to how much financing a buyer requires for purchase. Historically, many co-ops require a low loan-to-value ratio, which is the amount of money borrowed divided by the total cost of the property.

It's common (but not the rule) for a co-op to require a loan-to-value ratio of 75% or less, but note, this will be different throughout the country. For a condo, financing the majority of the property through a mortgage loan is likely a non-issue. If you plan on a down payment of only 3 - 10%, it may be difficult depending on your city or area, but it's not impossible to find a co-op that will accept that amount.

 

WHICH ONE IS BEST FOR YOU?

Some of the main differences between a condo and co-op can dictate which one best suits your needs and wants.

 

What to expect in a condo:

- Ownership of the real estate, including an interest in common areas

- Monthly or quarterly maintenance fees

- Generally, costs more to buy than a co-op, and it's generally easier to sell or sublet (if allowed in your city)

- Property taxes are for the individual unit in the building

- Can deduct the full amount of mortgage interest and property tax payments as tax deductions


What you get in a co-op:

- Buy a share that entitles you to a portion of the building

- Monthly fees, but may include things like utilities, and can generally be higher than those of a condo

- Cost is usually less than a condo, but it's harder to sub-lease and can be difficult to sell

- Property taxes are assessed on the building as a whole, meaning property taxes are typically lower than a condo

- Can only deduct the share of property taxes and interest on the underlying mortgage of the entire property (only able to deduct your share of everything)

 

Choosing whether a condo or a co-op is best for you really depends on what you're looking for and what you want out of it. If you want to own your own unit that you own, a condo is the better option. If you want a say in the building as a whole and are looking for more of an overall community feel, a co-op might be a better option.

Whether you're searching for a condo, co-op, single-family home, townhouse, or land, it's always a best bet to get additional information from a trusted and experienced source.

The Watsons are active in local communities and have lived in the Northwest Suburbs for over 40 years. Their knowledge and experience will get you the results you want! ~ Jayne Smith, Palatine, IL