For all you potential home buyers and investors out there, you may wonder what are the distinctions and benefits of buying a cooperative (co-op) vs a condominium (condo) apartment. Here at RealtyHop, we’ve compared between buying a co-op vs a condo and also provided a supplementary infographic to summarise all the information you need to know before making the decision.
First, let’s start off by defining condo and co-op apartments.
In terms of ownership, condo apartments are owned by individuals in the form of a private ownership whereas residents who own co-op apartments are also shareholders of a corporation that owns the entire building.
With the definition in mind, let’s examine the different aspects of purchasing a co-op vs a condo apartment.
The Price Tag
Co-op apartments are usually sold at lower prices as compared to condos, but monthly maintenance fees are higher than condos. However, buying a condo apartment may sometimes also involve additional costs such as getting a title insurance and a mortgage recording tax.
Property taxes are usually lower in co-op apartments as they are split among board members whereas condo owners are taxed separately. However, condo owners can deduct the full amount of mortgage interest and property tax payments while co-op owners can only deduct their property taxes and interest on an underlying mortgage.
Monthly common charges are present in both co-op and condo apartments but they are usually higher for co-op than condo apartments and they sometimes include utilities too. The charges are lower in condo apartments due to a lack of underlying mortgage in condo buildings.
We see co-op apartments seems more favorable in terms of prices and the amount of property taxes levied. Co-op apartments are usually sold at lower prices and the property taxes are also lower as compared to condos. Does that mean that you should go ahead and invest in co-op apartments? Before you make a conclusion, let’s learn a little bit more about what purchasing a co-op apartment actually means for you.
Approximately 75% of the apartments in Manhattan are co-ops and these co-ops impose the strictest rules including sublet policies. They typically offer less flexibility for owners to rent, sell and make major renovations to the apartments. On the other hand, condos usually offer buyers more flexibility without being subjected to an arduous board approval process.
Here’s the reason why:
As everyone in the building owns shares of the building, the community is more concerned about who is allowed in the building. They can also dictate how the building is to be managed.
In addition, there will usually be an interview with the co-op board for them to ask about the information that you have provided. Besides, they have strict financial requirements whereby buyers are to put a down payment of at least 20 percent of the purchase price.
Are Condos or Co-ops Better for Investments?
To conclude, condos are usually better options for investments due to various reasons. The board approval process is usually more straightforward. In some cases, you can even finance up to 90 percent of the purchase price. In comparison to co-ops, down payments are also lower and there is a higher mortgage loan to value ratios. Due to the absence of a strict sublet rule, condos are much easier to rent out. However, do also keep in mind that co-ops are usually less risky because of higher down payment, its strict board approval process and the presence of more owner-occupied units than sublets.