Co-what? Understanding the differences between a Condo and a Coop

Editor's Note: As originally printed in The Washington Blade

As you set out to buy property in DC, one of the first considerations to think about is what type of property appeals to you. Do you want to own a stand-alone home or purchase in a building with shared expenses? When deciding on a unit within a building, your choices come down to a condo or a coop. A co-what? Is there a difference? And, the answer is, yes.

Depending on your situation or personal preference, one may be the better choice for you. Or in the end, it may come down to the unit you like best based on design, size, and location. In either case, it is important to understand the differences.

Just as with condos, cooperatives are located throughout the city and include many buildings of historical and architectural significance. They range in size from as small as four units to buildings numbering in the hundreds. Many coops were once apartment buildings where the neighbors banded together to purchase their property and thus a cooperative was formed.

There are four major differences in condos vs coops: ownership, finances, fees, and board approval. Why don’t we discus them all.

Let’s start with ownership.

Getting down to basics, condos are real property and cooperatives are personal property. When you purchase a condo unit, you are purchasing your unit and the right to use the common spaces. You become a member of the condo association. When you purchase a coop unit, you are purchasing stock in a privately held corporation. As a stockholder you are leasing the apartment from the corporation in which you are a part owner. The corporation owns the building and the land.

What about finances?

With a condo, the loan taken out to purchase the unit is called a mortgage. When purchasing a coop, the shareholder takes out a personal loan. What’s the difference? Often times the structure of the loans are different. Today, there are many mortgage products for condos that offer a low down payment, while loans for coop purchases typically require a 20% down payment. In both cases, interest on the loan is typically tax deductible.

Most coop buildings also have a mortgage on the entire building. This is called the underlying mortgage. Shareholders pay toward the mortgage each month as part of their monthly fees and can typically take a tax deduction on their share of the interest of that underlying mortgage.

Taxes are also a little different. In a condo, the owner of a unit is responsible for the real property taxes for their unit. In a coop, the corporation pays the real property taxes for the building, which means each shareholder is not responsible for individual real property taxes.

Let’s talk more about those monthly fees.

The condo monthly fees are paid to the association to cover the expenses of maintaining the common areas, such as lights in the common areas, water, garbage disposal, maintenance of the grounds and roof, and other operating expenses.

The cooperative monthly fees are paid to the corporation to cover the monthly payments on the building’s underlying mortgage, the building’s real property taxes, in addition to monies to cover repairs, utilities, staff, and other operating expenses. If you compare the monthly fees of a similarly sized condo and coop, the difference in fees is often the addition of the taxes and the underlying mortgage to that monthly fee payment. Many times, coops know that this higher fee can be a deterrent to purchasing so they adjust their sales price to accommodate for a higher monthly fee. So, if you are considering a condo and coop of similar size, upgrades, and location you might find that the coop has a lower sales price, but a higher monthly fee.

Please say you like me.

One last difference with a coop, is most require that a potential buyer be approved by the corporation’s board. The only two legal grounds for rejection are financial and expressed unwillingness to abide by the coop rules and regulations. Fair housing does apply to coops and it is illegal to consider race, age, sex, sexual orientation, religion or any other protected classification. Because of this need to prequalify a buyer financially, cooperatives tend to be more financially sound then some condominiums.

What’s right for you? As always, discuss the differences with your tax advisor and real estate agent.