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Condos vs. Co-ops: What You Should Know

Find your next Apartment
May 19, 2021
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If you’re thinking of buying or investing in property for the first time, you might have considered getting either a condo or a co-op. Both offer the benefit of having a long-term residence with access to communal spaces without the hassle of being a homeowner. In fact, people tend to use the term interchangeably.

However, while there are some similarities, there are also some significant differences between the two.

Here is a breakdown of the distinctions between a condo and a co-op, so that you can choose which one is better for you.

What is a Condo?

A condominium, or “condo” for short, is what most people refer to when they think about getting a unit in a building. When you buy a condo, you’re paying for the actual property -- the four walls of the apartment as well as a share in the communal building amenities.

The authoritative body in a condo setup is called the homeowners association (HOA) or the condo board. The members are elected from the condo owners and they are in charge of enforcing the rules as well as collecting dues.

After you complete your payment, the ownership of the unit will be transferred to your name. You will then have more authority over what you want to do with the apartment, whether you want to live in it, sell it for a profit, or sublet it.

Subletting a Condo

If you decide to sublet your condo, you will need to submit this intent in writing to the landlord or property manager. After you submit your request, the landlord has 10 days to request more information, and the following 30 days to approve or deny your request. If you do not hear back from your landlord within that time period, you can consider your request as approved. However, if they deny your request, they must provide a substantial reason to do so.

Unless it is specifically written in your lease that you are not allowed to sublease your condo, you shouldn’t have any trouble with your request.

What is a Co-op?

Short for housing cooperative, a co-op is a setup wherein you purchase shares in a building instead of the actual property. While co-ops are considered to be real property for tax purposes, you don’t own any real estate that is transferred to your name. Being part of a co-op entitles you to live in a unit in the building.

Think of getting a co-op as similar to buying stock in a company: you don’t own the company, but you are entitled to a share of the profits, and you are given a voice in how the company is run. This is the same as buying in a co-op. You can live in the building, access the communal areas, and have a say in building management.

For large co-ops, there is usually a board of directors that is elected from among the residents. This board will be responsible for the day-to-day management of the building, such as collecting fees and enforcing rules. In smaller co-ops, all the residents may be part of the board and are given equal responsibilities and decision-making rights.

Subletting a Co-op

If you’re thinking of subletting your co-op, there may be some regulations you need to consider. In NYC, for example, many co-ops require that you live in the unit for a minimum number of years before you are allowed to sublet. Even then, there is a limit for the subletting period. In California, co-op boards are allowed to set their own rules and penalties when it comes to subletting units.

In general, it is much harder to sublet a co-op compared to a condo. Thus, it is generally better to use a co-op as a personal residence rather than for additional income.

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What are the Similarities?

Fees

The biggest similarity between condos and co-ops is the fees. In both setups, residents are required to pay monthly fees (or “dues”) to cover the cost of running and maintaining the building. These costs can cover things like electrical repairs, plumbing, grounds upkeep, and the salary of building personnel.

Typically, the fees for condo buildings tend to be cheaper compared to co-op fees. If you have a condo, you will pay a fixed amount of dues in addition to your own utility bills. However, in a co-op, you will need to pay a percentage of the total building maintenance fees that is equal to the number of shares you own. If you own 10% of shares, you will need to pay 10% of the total building bills.

Amenities

Whether you’re in a condo or a co-op, you have the benefit of accessing all the communal amenities available in your building such as gym, pool, garden, or rooftop spaces. However, it might be worth noting that newer developments are generally condos rather than co-ops, particularly in NYC. This means that if you’re after luxury amenities such as high-speed elevators, spas, full-service gyms, or concierge services, there will be more condo options available.

Tax Deductions

Whether you own a condo or buy a co-op, you can use these as tax deductions.

What are the Differences?

Governance

In most ways, the governance between condos and co-ops are similar: an elected board of residents enforces rules, collects maintenance fees, and generally decides on how the building is managed and run.

However, the main difference is that in co-ops, the board of directors have a final say when it comes to new residents. Generally, co-ops have a rigorous vetting process and are stringent in who they allow as part of their community. What’s more, the board also has the final say when it comes to residents who want to sell their shares; they can approve or disapprove sale requests at will.

While condos also conduct background checks, the HOA is generally laxer when it comes to people who want to purchase a unit. As long as you can afford it, you’ll probably get approved.

Property Taxes

Since condos are considered to be privately-owned property, owners are taxed separately.

Co-ops, on the other hand, are considered to be a single property. The tax assessment is split among all the shareholders according to the amount of stake that they own.

Buyers

While most condo owners in the U.S. are residents, non-US citizens can buy condos because there is no citizenship requirement for real estate ownership. This means that if you are a foreign worker or even an overseas student in the USA, you can purchase a condo as long as you can afford the payment.

For co-ops, however, it is highly unlikely that a non-US citizen will be allowed to purchase shares. According to Warner M. Lewis, a real estate broker at Halstead Property, “In a co-op, not only do you have to have the money to buy the apartment (or financing to do so), you also have to be approved by the board after submitting an application, which is usually very detailed and time-consuming. Then, with little to no reason, a buyer can be rejected after their interview, or even before, just because of something in their package. Co-ops are all about establishing a stable, in-for-the-long-run group of residents.”

Thus, if you don’t “fit in” with the community that a co-op board is trying to foster, you will unlikely be able to buy shares even if you can afford them.

Important Questions You Need to Ask Before Choosing

Which is More Expensive?

It would depend on your financial situation and your intended payment scheme.

Overall, co-ops are cheaper compared to a similar-sized condo. However, the downpayment for a co-op is usually much higher compared to a condo. According to the NAHC, co-ops typically require a downpayment of 10-20%. What’s more, it can be more expensive in major cities; in Manhattan, co-ops routinely charge 50% as a down payment.

Therefore, if you have plenty of cash on hand, it might be better for you to choose a co-op.

If you need a loan to finance your unit, a condo might be more appealing since condos generally only require 2-3% as a down payment. What’s more, it’s usually easier to apply for a loan to purchase a condo because you can use the real estate as collateral. However, the downside is that closing costs for a condo is more expensive compared to condos since you would need to pay for things like title insurance, recording fees, and New York State mansion tax.

Of course, the location of the unit would also play a factor. Prices would differ depending on the New York neighborhood; a unit in Chelsea would be more expensive than a unit in Bushwick.

How Fast Do I Need Approval?

Typically, it is much easier and faster to get approval for a condo unless you were invited by a resident of a co-op. For a condo, as long as you can afford the down payment and you have a good credit score, you’ll have a good chance of getting approved by the condo association. For a co-op, however, you will need to be approved unanimously by the board. If you have any factors that can affect your application negatively, such as bad credit score, you might have a harder time getting approved for a co-op.

How Involved Do You Want to Be in Governance?

While the residents of both condos and co-ops have some say in how the building is run and maintained, co-op members are generally more hands-on.

Which is Easier to Find?

When it comes to condos vs co-ops in terms of accessibility, condos are the clear winner. You can find condos in every major U.S. city, as well as in smaller towns.

Co-ops are harder to come by, particularly because a majority of co-ops were formed in the mid-1970s. They were generally formed in major metropolitan areas as a way to provide cheaper housing options to blue-collar workers.

If you live in a major city, you have a decent chance of finding a co-op. However, you might struggle to find one in rural areas.

Final Thoughts

Before deciding on either a condo or a co-op, it’s best to conduct due diligence beforehand. Make an appointment with the corresponding board of directors to understand their rules, membership requirements, fees, and tenant responsibilities. You will also get the chance to assess the physical condition of the real estate in terms of cleanliness, maintenance, and available amenities.

Whether you choose a condo or a co-op, the most important thing is that you find a living situation that is affordable, comfortable, and in line with your needs.

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