You’ve heard the term, but what is a housing cooperative? Both condominiums and co-ops are multi-unit properties where residents live in private homes but share community spaces and amenities, like pools, courtyards or gyms. Despite this, the difference between a condo or co-op can be important to consider when choosing the home that’s right for your family.
Here, we’ll discuss the condo and co-op housing pros and cons to help you navigate home ownership and ensure your investment is properly protected.
What is a Condo?
Like an apartment, a condo is private housing located in a multi-unit property where residents are expected to share community spaces. In a condo, you are generally not responsible for handling maintenance or repairs needed outside of your home, like mowing the lawn, cleaning a carpet spot in a hallway or lobby, painting the exterior of the building or maintaining the roof. Instead, you’ll pay a homeowner’s association (HOA) or condo board monthly to cover your share of maintenance costs. The HOA uses that money to hire professionals to take care of all the exterior and common area work so that the community stays in good shape.
It may seem overwhelming but navigating what you’re responsible for and what insurance coverage you’ll need doesn’t have to be complicated. If you’re thinking about buying a condo, find an independent insurance agent who can help you figure out what coverage and plan is right for you.
What is a Co-op Apartment?
While co-ops are set up much like any other multi-home residence, the biggest difference between condo and co-op purchases is that cooperative housing is not considered real estate. What does that mean? When you decide to live in a co-op, rather than purchase your individual unit, you buy shares of a corporation that grants you residence in the building.
Each month, you’ll pay fees to the co-op board to cover things like property taxes, maintenance and utilities. It is important to ensure you have the right personal property and liability insurance coverage to protect your investment.
Condo vs Co-op
Understanding the differences between a condo or co-op is an important part of deciding which path to home ownership is right for you, and which insurance coverage you’ll need to protect the things that matter most.
It’s always a good idea to ask to see the master insurance policy for your condo association, homeowners’ association or co-op board to know what is already covered under their plan and what is your responsibility. Having your own individual insurance means you’ll have liability insurance to protect your things in case anything unexpected happens in your building.
Cost & Down Payment
When it comes to cost, the cooperative vs condominium debate often comes down to upfront cost. While co-ops generally have a much higher down payment, they have a lower overall purchase price. On the other hand, condos require less money down but have a higher purchase price – meaning a higher mortgage and longer repayment terms.
When planning your home budget, it’s important to consider both how much your fees are and what’s covered. In a condo, your monthly HOA or board payment covers general maintenance and property repairs, along with things like social events for residents. As a condo owner, you will still be responsible for insurance costs, utilities and repairs to any damages that happen inside your home as well as in any additions or alterations you make to your unit.
Co-ops have higher monthly fees, but those fees often cover things like insurance for the building, utilities and even property taxes. If you’re considering moving into a co-op, ask the board about all expenses covered by your monthly fees.
So, you’ve decided between a condo or co-op, and now it’s time to buy — what can you expect at closing?
With a condo, you’ll walk away from closing with the deed to your new home. As for closing costs, you can expect to pay a large sum covering things like title insurance, fees (including any HOA dues) and state tax. The actual amount of your closing costs will vary by state and by home price.
Because co-op shares are considered personal property rather than real estate, you can expect to pay much lower closing costs. However, rather than leaving with a deed, you’ll be given a proprietary lease.
Rules and Governance
When looking at cooperative housing pros and cons, it’s important to consider community rules. While both have rules regarding building appearance or community guidelines, co-op boards often have more strict rules than traditional condos. And you’ll need approval from the board before you can purchase shares.
In condos, while you will still be held to HOA governance, there tend to be fewer rules overall. And, as long as you qualify for a mortgage and your offer is approved, you can buy any condo you choose without HOA oversight.
Renting, Subletting and Selling
Because you don’t technically own the property, and board approval is needed for any tenancy decisions, it can be more difficult to sublet or rent a cooperative apartment. In some cases, renting may not be allowed at all. If you decide to sell your co-op shares, any potential buyers will also have to receive approval from the board.
In a condo, your community may have some restrictions on how many units can be rentals at any given time. There are usually coverage restrictions in your insurance policy that are impacted if you decide to rent out your unit. However, it is generally easier to rent or sublet your property. If you do decide to rent it out, your insurance agent can help determine if you’re covered and make sure you’re not paying for too many or too few coverages. And, because buyers don’t need to go through an interview process, condos are often easier to sell if you do decide to move.
Finally, when choosing between a condo or co-op, it’s important to consider how taxes are assessed on the property.
Because condos are considered individually-owned real estate, you will be charged for any state-mandated real estate and property taxes. Co-ops, however, are generally charged a single property tax assessment, which is then split between each shareholder. Because of this, co-op taxes tend to be lower and are included in your monthly board fees.
Condo vs. co-op. Whichever you choose, be sure to find an independent insurance agent who can help you find the best coverage for your unique situation.
by Chris Cox, Regional President, Main Street America Insurance