Co-op vs condo: What’s the difference?

There are many ways to become a homeowner other than the traditional single-family home on a suburban street. If you’re considering a multi-unit building, you may have learned that there are multiple options available, with two of the most popular being co-ops and condos. But what is the difference between a condo and a co-op? Let’s learn more about these two types of homes and help you figure out which is the right fit for you when it comes to co-op vs. condo.

What is co-op housing?

Co-ops are a type of housing where residents own shares of a non-profit corporation that owns the building, rather than having individual ownership of a specific unit. Owners pay a monthly maintenance fee that goes toward upkeep of the building.

The co-op is managed by an elected board of directors, which makes decisions for the co-op based on its established bylaws and policies. However, shareholders get to vote on all rules and restrictions. A co-op board may choose to hire a management company to take care of the day-to-day issues that arise, such as building maintenance.

Pros and cons of co-ops

Like all types of homeownership, buying into a co-op has its pros and its cons to consider.

Pros of co-ops

• Lower price: When you buy into a co-op, especially in a major city, it will likely be cheaper than many other types of housing. Specifically, there are generally fewer closing costs.
• Tax benefits: Depending on where you live, you may be eligible for certain tax benefits as part of a co-op. These may include being able to deduct the interest on your loan if you used financing to buy in, your share of the interest on the mortgage for the building and possibly even some maintenance fees. A qualified tax professional could tell you more.
• Less upkeep: When you buy into a co-op, you aren’t responsible for general upkeep in the building or in any outside areas. Your monthly maintenance fees will typically go toward either a management company or maintenance employees to take care of any day-to-day issues.
• Community-oriented: Because a co-op is shared ownership, you may find it creates a sense of community between you and your neighbors. You’ll also have a general idea of what your neighbors are like, as they typically must pass an interview before their offer to buy into the co-op is accepted.

Cons of co-ops

• Higher fees: While you may find yourself grateful that shoveling the sidewalk and raking leaves from the lawn isn’t your responsibility, you’ll pay for those services through monthly fees. These fees cover building utilities and property taxes as well, which means co-ops may have higher monthly fees than other types of housing.
• Rigorous application process: In addition to securing a specific type of financing, you’ll generally have to pass an interview with the board of directors to successfully buy into a co-op. The board will likely also require character references, and the application process can be quite intense.
• Harder to sell: If you decide to sell your co-op shares, you have to find a buyer who’s been approved by the board, as opposed to just finding the person who offers you the best price. Depending on your co-op's requirements for people buying in, this could potentially be a limiting practice.
• Special financing: You can’t use a typical mortgage loan to purchase shares in a co-op. You’ll generally need a share loan, which makes financing a co-op purchase a little more difficult than other forms of homebuying.

What is a condo?

A condo, short for condominium, is a privately owned unit within a building of other units that are either also privately owned or owned in common with exclusive rights of occupation by individual owners. Condo owners typically own the interior of their unit and the structural components of exterior walls. Owners in the building jointly own the shared spaces, such as elevators, the lobby and parking structures, and any amenities like the pool or gym.

Owners pay a homeowners' association fee or a condominium association fee, which goes toward managing the common areas and enforcing any rules and restrictions that may apply to the units.

Pros and cons of condos

While a condo and co-op may not sound so different at first blush, the pros and cons of condos do differ.

Pros of condos

• Ownership: With condos, you own an actual unit, as well as an interest in common areas. This means you can rent or sell your unit without pushback.
• Simpler financing: You’ll likely find that condos are fairly standard when it comes to financing. You typically won’t need to seek any special type of mortgage.
• More amenities: While not necessarily a guarantee, condos often tend to be newer builds. This may mean generally less wear and tear on the building and may also translate to better amenities available for owners.

Cons of condos

• Higher cost: Condos tend to have higher closing costs and taxes. Limited supply in some markets can also drive the prices of units up.
• Potential turnover: If you’re seeking out a condo for the community aspect of a multi-unit building, keep in mind that there may still be a high rate of neighborly turnover if people are renting out their condos.
• Fewer safety nets: Anyone who can afford it can buy a condo in your building. Because there is no application process or vetting of owners, this may make it harder to predict what you can expect from your neighbors.

What is a condop?

If you’re a New York City-dweller, you may have heard of the “condop.” That’s right — the condop. Specific to New York City, the condop is a combination of a co-op and a condo. These buildings gained popularity in the 1980s as a response to a tax rule in place at the time.

A condop is a building that offers both condo and co-op units. Often these buildings are mixed use, with residential apartments that are co-ops and retail spaces that are sold as condos.

Co-op vs condo: The key differences

While there is certainly some overlap between condos and co-ops, it’s important to understand the things that make them different before committing to one or the other.

• Ownership: In condos you own an actual unit within a larger building. You’ll receive a deed to your unit just like you would if you were buying a single-family home. With a co-op, you own shares in the organization that owns the building and you do not own a specific unit. If you own more shares, you may be entitled to a larger unit.
• Renting and selling: If you own a condo, you can typically rent and sell it at your own discretion. If you belong to a co-op, renting a unit out may be limited or restricted by the co-op, and selling it often requires finding a buyer to meet specific qualifications.
• Cost: Both types of housing require monthly fees. Condo fees typically go to maintenance and upkeep of common areas and a reserve fund for bigger expenditures. Co-op fees cover the same expenses, but also include property taxes, building utilities and insurance. If you own a condo, you’ll have to pay your own insurance and taxes separately.
• Availability: While exact availability will differ by location, condos are typically more prevalent and can be found in both urban and suburban areas. Co-ops are generally more common in larger cities.
• Freedom: Because you own your condo outright, you’re free to make changes to it. You can switch out the flooring, paint the walls, add shelving units — you’re generally able to freely make it your own. With co-ops, you’re essentially renting your space from the organization, so any changes you may want to make must be approved by the co-op's board.

In summary

When it comes to co-op vs. condo, there isn’t a winner or loser. One option isn’t inherently better than the other. Ultimately, finding the best option for you means ensuring you understand what’s most important to you in a home and making your decision based on whatever meets those criteria.

If you’ve always dreamed of putting in bright floral wallpaper in the dining room and painting your bedroom black, maybe a condo unit is better for you since you’ll have outright ownership. If you’re seeking a strong community feel, where you and your neighbors know one another and share a common interest, you may prefer a co-op instead. Ultimately, the choice between a condo vs. a co-op (or any other type of home) is a personal decision that only you can make.

Co-op vs. Condo FAQs

1. Can you rent a condo?

Yes, you can typically rent a condo. Condo owners are generally allowed to rent out their condos to whatever tenants they approve of.

2. Are condo fees tax deductible?

If you purchase your condo as a primary residence, then no, you cannot deduct condo fees. Consult with a tax professional to learn more about potential tax deductions and liabilities specific to your circumstances.

3. Can you renovate a co-op?

Yes you can, but you’ll need permission. Since co-ops are collectively owned, if you’re looking to make changes to the unit you’re living in within a co-op, you’ll have to receive approval from the board first.

4. What is a proprietary lease for a co-op?

A proprietary lease, sometimes referred to as an occupancy agreement, is the agreement between a co-op board and you, the tenant and a shareholder, granting you the right to live in a particular apartment.