Co-ops and condos: The pros and cons of each

More than 74 million Americans call community associations home, with about 358,000 associations nationwide. Among the most popular types are condominium associations (condos) and housing cooperatives (co-ops). These share common areas but differ in ownership structures. In this guide, we’ll explore the key distinctions between condos and co-ops to help you make an informed decision.

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1. Ownership Structure:

• Condo: You own the unit and a share of common areas.
• Co-op: You purchase a share of the entire property, granting you the right to occupy a specific unit. Think of it like investing in shares in the stock market.

2. Price:

• Condo: Generally higher upfront costs, but lower down payment requirements (as low as 3%).
• Co-op: Lower purchase price, but higher down payment needed (usually 10-20%, and sometimes more). In some cases, as high as 50%.

3. Fees:

• Condo: Homeowners Association (HOA) fees cover shared amenities. Owners pay individual utilities and taxes.
• Co-op: Higher monthly fees (“maintenance”) covering various expenses like gas, water, and property tax, rolled into one bill.

4. Governance:

• Both have associations or boards to maintain shared spaces and enforce rules.
• Co-op: More stringent vetting process for new residents, including background checks and referrals.

5. Renting or Selling:

• Condo: Generally easier to sell or rent out units. Some restrictions on the percentage of units that can be rented at once.
• Co-op: Board approval required for buyers. Boards may turn down a buyer for various reasons, potentially impacting the shareholder.

6. Amenities:

• Condo: Typically offers more amenities, which may be reflected in higher HOA fees.
• Co-op: Can also provide shared amenities, though availability may vary.

7. Availability:

• Condos are widely available in both major cities and smaller towns.
• Co-ops are more common in large metropolitan areas like NYC, Philadelphia, Chicago, and Seattle.

Affordability Compared:

• Condos and co-ops tend to be more affordable upfront compared to single-family homes.
• Owning a home builds equity over time, while renters do not accrue equity.

Considerations:

• Long-term Residency: Co-ops may be more cost-effective for long-term residents due to lower upfront costs.
• Investment Diversification: Owning a condo could offer opportunities to diversify your investment portfolio.
• Association Rules: Understand and consider the rules set by the association or board.

Conclusion:

Deciding between a condo and a co-op depends on your financial situation, lifestyle, and long-term plans. While condos may offer more flexibility, co-ops can provide a more closely-knit community with potentially lower upfront costs. Understanding the nuances of each option will help you make an informed choice that suits your needs and preferences.