Co-ops and condos have become popular especially in New York. Most home buyers and home owners get confused between co-ops and condos because they look the same on the outside. However, there are big differences between these two that home buyers should be aware of before deciding which housing type to purchase.
Most people are familiar with condos, so we’ll start with 6 things to know about co-op housing.
- Instead of owning a coop unit (which is the case for condos), you own a share of the whole housing complex. Meaning, all people who live in your housing complex have equal shares, membership, and/or occupancy rights to the housing. In a co-op housing, the board of directors manage the non-profit corporation and each member is a shareholder who owns shares of the co-op.
- Types of co-ops. There are three main types of co-ops, namely market-rate, limited equity and zero equity or group equity. In market-rate co-ops, shareholders can sell their shares for as much profit as they can. Limited equity, on the other hand, puts a cap on the amount of profit you can make in the aim of making housing more affordable. For zero or group equity, shareholders do not build up equity but pays below market rental fees instead.
- Housing type. A co-op can be made up of a small number of units or large number of units like New York’s Co-op City, the largest co-op in the nation, with over 50,000 residents and more than 15,000 units. Co-ops vary in type and sizes. Co-ops can be made of single-family homes, townhouses, mid- and high-rise apartment complexes, garden apartments, senior housing, student housing, special-needs housing or mobile home parks.
- When you apply for mortgage to buy a co-op unit, it is considered a loan to purchase shares in the co-op. Another distinguishing factor of co-ops is how they handle maintenance. Shareholders are required to pay a monthly fee to cover the maintenance of the co-op like repairs and taxes.
- What would make home owners choose a co-op instead of a condo? One of the advantages of co-ops is affordability. You also don’t have to worry about home ownership responsibilities because a paid crew handles all repairs, maintenance, and security. In the case of smaller co-ops, they are usually self-managed and have to do everything by themselves so the maintenance cost is lower.
- Because co-ops are cheaper, it is more difficult to get into it compared to other housing options. The application has to be approved by the board first, which entails interviews, background checks and documentation. Getting out is also hard. The board puts restrictions as to whom you can sell your shares to or rent your place to. All renovations has to be approved by the board as well.
If you are contemplating buying a co-op, make sure to canvass several co-ops before deciding to buy your shares.
You can also read here the difference between condos and co-ops.