What Is the Difference Between a Co-op and a Condo?

Key takeaways

• A condo means you own a specific unit and a share of common areas.
• A co-op means you own shares in a corporation that owns the building, granting you a lease for your unit.
• Financing for co-ops can be more complex due to the share-based ownership.
• Condos generally offer more freedom in terms of unit modifications and rental policies.

If you’re exploring homeownership, you’ve likely encountered the terms “condo” and “co-op.” While both offer a way to own a home in a multi-unit building, they come with distinct differences in ownership structure, financing, and lifestyle. 

Understanding these differences is key to making an informed decision about your next home. This Redfin real estate article will help you understand the core distinctions between co-ops and condos to help you decide which fits your needs best. 

What is the difference between a condo and a co-op?

When you buy a condo, you are purchasing a specific piece of real estate: your individual unit within a larger building. This means you have a deed to your unit, much like owning a single-family home. You also own a proportional share of the building’s common areas, such as hallways, fitness centers, and recreational spaces.

A co-op, short for housing cooperative, operates differently. When you “buy” into a co-op, you are not purchasing real estate. Instead, you are buying shares in a corporation that owns the entire building. These shares give you the exclusive right to occupy a specific unit, often through a proprietary lease. The corporation owns the land and the building, and you own a piece of the corporation

The fundamental distinction lies in ownership. With a condo, you own real property. With a co-op, you own personal property in the form of shares.

Maintenance and repairs for co-ops vs. condos

Condominiums

Condo owners are responsible for the maintenance and repairs within their unit. A homeowners association (HOA) manages the common areas and building maintenance, funded by monthly HOA fees paid by all residents. These fees typically cover things like landscaping, exterior repairs, shared utilities, and amenities.

Co-op

Owners in a co-op are responsible for the maintenance and repairs inside their individual units, similar to condo owners. However, the co-op corporation, managed by the co-op board, is responsible for the overall building maintenance, structural repairs, and common areas. Monthly maintenance fees paid by residents cover these expenses, which often include a portion of the building’s underlying mortgage and property taxes.

Financing

Funding a co-op vs condo is a bit different. Learn how and why here. 

Condominium

Financing a condo is straightforward, similar to getting a mortgage for a traditional house. Lenders are generally comfortable with condo loans because you own the physical property.

Co-op

Co-ops are known for their often rigorous approval process for prospective buyers. The co-op board typically interviews applicants and reviews their financial standing and personal history. This ensures that new residents align with the community’s values and financial stability. Co-op loans are often called “share loans” and can involve specific requirements from lenders due to the nature of the collateral.

Pros and cons of buying a co-op

Pros:

• Often lower purchase price: Co-ops can sometimes be more affordable than comparable condos in the same area.
• Stronger community: The rigorous approval process can foster a close-knit and financially stable community.
• Greater control: Residents, through the co-op board, have significant input on building management and community rules.
• Included expenses: Maintenance fees often cover property taxes and the building’s mortgage, simplifying some financial obligations.

Cons:

• Complex approval process: The board approval can be lengthy and feel intrusive.
• Financing challenges: Fewer lenders may offer co-op loans, and terms can be stricter.
• Restrictions on use: Rules regarding subletting, renovations, and even pet ownership can be very strict.
• Less equity building: Since you don’t own real property, the appreciation may be tied to the value of your shares rather than the direct property value.

Pros and cons of buying a condo

Pros:

• Direct ownership: You own real property, which can offer a clearer path to equity building.
• Easier financing: Mortgages are more readily available and straightforward.
• Fewer restrictions: Generally, more flexibility with unit renovations and rental policies.
• Managed by an HOA: Common areas and building maintenance are handled by the HOA.

Cons:

• Potentially higher purchase price: Condos can be more expensive than co-ops in similar locations.
• HOA fees: Monthly fees can increase, and special assessments may be levied for unexpected repairs.
• Less control over neighbors: No direct approval process for new residents.
• Limited say in building decisions: You’re bound by HOA decisions, even if you disagree.

How to decide between a co-op and a condo

Choosing between a co-op vs. condo comes down to your priorities.

Consider a condo if:

• You prefer direct real estate ownership.
• You want a simpler financing process.
• You value flexibility in renovating your unit or renting it out.
• You prefer less involvement in building management.

Consider a co-op if:

• You are comfortable with a more thorough approval process.
• You are looking for a potentially lower entry price.
• You desire a strong sense of community and shared governance.
• You are okay with more restrictions on your unit and lifestyle

Ultimately, both condos and co-ops offer unique advantages. Researching local market conditions and consulting with a real estate agent experienced in both types of properties can provide valuable guidance in your home search.

Frequently asked questions about co-ops vs. condos:

What are the financial implications of a co-op vs. a condo?

For a co-op, your monthly payments include maintenance fees that often cover property taxes and the building’s underlying mortgage, meaning you don’t pay these separately. For a condo, you pay your own property taxes and often have a separate mortgage payment, in addition to HOA fees for common areas.

Can I rent out my unit in a co-op or a condo?

Condos generally have more lenient rules about renting out your unit, though there may be some restrictions or a rental cap. Co-ops often have very strict rules, or outright prohibitions, on subleasing.

What is the role of the board in a co-op versus a condo?

In a co-op, the board has significant power over the building’s finances, operations, and the approval of new residents. In a condo, the condominium board primarily manages common areas and enforces bylaws, with less direct control over individual unit owners or new buyers.

Do co-ops appreciate in value differently from condos?

Since co-ops involve owning shares rather than real property, their appreciation can sometimes be tied to the value of those shares and the overall health of the cooperative, which may differ from the direct real estate appreciation seen with condos.

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