If shoveling snow, mowing the lawn, and general maintenance is not up your alley then purchasing a condo or a cooperative (co-op) might be a better option for you. They may appear to be one in the same, but there are some striking differences that you should make yourself aware of before you make your purchase.
The biggest difference is ownership, explained Jac’qui C. Weekes, founder and CEO of Weekes Realty in Brooklyn, New York. Weekes, along with Senior Loan Officer Emerson Atkins, talked about the differences between condos and co-ops and how each are financed at this week’s homebuyer’s seminar, sponsored by the Bedford Central Community Development Corp.
Cooperative housing is unique from any other real estate investment. With a co-op you are considered a shareholder, or cooperator, because you own stock shares in the non-profit corporation that owns the building you live in. You do not own your apartment. You are given a proprietary lease on your apartment and agree to cooperate with all of the other shareholders in the corporation in living and working to maintain the housing corporation for the benefit of all.
If you buy a condo, you are buying a piece of real estate. You own your unit but the common space and fixtures of the building are jointly owned by the unit owners. You record a deed much like you would if you’d bought a house–you can refinance your mortgage, sell, or develop the property, and make decisions as you see fit.
With both a condo and a co-op, an owners association is formed with legal framework to govern its owners. Board members are elected annually and their purpose is to manage the community and the common elements of the development. However, the board of directors for a co-op has more control over your unit. A co-op board can deny sale to an individual, generally not allow subletting, and there are restrictions when it comes to re-selling your stock shares. Check with your board to find out its particular approval policy. The association of owners in a condo has very little power in stipulating one’s ownership. A condo is an individual piece of property and the association cannot approve or disapprove transfer of ownership.
Property taxes are where a co-op has an advantage over a condo–they are generally lower with a co-op because the entire property is owned by a corporation and is taxed as a single piece of property. The corporation pays the property tax by charging the shareholder as part of the monthly maintenance fee. Since a condo is a separate entity, it is taxed as such and can be more costly.
Although you’ll enjoy some tax relief for both, someone still has to take care of the grass, snow removal, and maintain the amenities, which can include swimming pools, tennis courts, a gymnasium, etc. This is what the maintenance fee goes toward. Maintenance fees vary depending on what costs and amenities need to be covered.
Financing can be problematic for co-op investors, explains Atkins. Many lenders won’t finance co-ops because they are not viewed as investments in real property. The stake is in the whole building rather than just the unit the person is living in. If the building goes bankrupt, it affects all the shareholders. “With co-ops, banks look at economic stability and make sure that the sale threshold is at least more than 50% of the building is occupied,” said Atkins. Banks factor in mortgage, insurance, and maintenance fees, which Emerson says are often three times higher than a condo. Co-ops also don’t accept FHA loans.
Condos also have presale percentages that need to be met, especially for new construction buildings, because of the slow sale cycle. Banks don’t like to be the first to lend, shared Atkins. Banks looks at PITI–the overall cost of your mortgage and common charges.
The main benefit of choosing to live in a condo or co-op is carefree living, but your choice is dependent upon your personal preference.
Other posts in The Homebuyers Toolkit series:
LaToya M. Smith is a staff writer at Black Enterprise