Condos Versus Co-Ops

In the D.C. metro market there is no shortage of multi-family, mid-rise and high-rise buildings providing homes to dozens (if not hundreds) of residents. Row-houses throughout the city continue to be converted to condos by developers.

What does it mean to own a condo? A condominium is a large property divided into individual units and sold. Typically, ownership of a condo unit also includes a non-exclusive interest in “common property” controlled by the condominium’s management. Similarly, the walls, floor and ceiling of the unit actually belong to the common ownership of the property; effectively, to own a condo means to own the air within the unit. Condominiums come with a declaration of covenants, conditions and restrictions by which an owner must abide, including acceptable use of the unit. Condos are a popular option in urban and high-price locations, and there are a variety of reasons purchasing one could be a good investment.

A less well-known option is the housing cooperative (co-op). A co-op is formed when people join on a democratic basis to own or control the housing and/or related community facilities in which they live (the first co-ops were organized in New York City in the late 1800s); typically, the residents form a not-for-profit cooperative corporation. Each resident pays a monthly fee to cover their share of operating expenses. Some benefits of owning a co-op include personal income tax deductions, lower turnover rates and controlled maintenance costs.

How is a co-op different than a condo? The primary distinction is in a co-op residents do not directly own real estate. Rather, buyers own shares or membership in a cooperative housing corporation, and the corporation owns or leases all real estate. As part of the membership a buyer (shareholder) has exclusive right to live in a specific unit, per an occupancy agreement or proprietary lease, for as long as the shareholder desires provided they adhere to the co-ops rules and regulations. Membership also grants a vote in the corporation’s affairs.

A co-op could be a good fit for anyone in the condo market as the sales prices are typically lower to accommodate the higher fees; effectively, the cost of ownership is similar when a mortgage and monthly fees are totaled. Whether buying a condo or a co-op buyers should do their due diligence and ensure they are comfortable not only with what ownership entails, but also with the specific building’s conditions and restrictions.

 

Header image sourced from The New York Times.