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Columns: Real Estate Adviser
Steve McLinden   Expert: Steve McLinden
Real Estate Adviser
Is it better to buy a condo or a co-op in this market?
Real Estate Adviser

Co-op versus condo

Dear Steve,
Please list the advantages of buying a co-op versus buying a condo. Also, is there a better strategy in buying one versus the other in the present market?
-- Sharon

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Dear Sharon,
Both co-ops and condos are considered common-interest developments. In a co-op, short for "cooperative housing project," you technically don't own your apartment, as you do with a condominium. Instead, you own shares of the co-op corporation that owns your building. The larger the living unit, the more shares you own in that corporation.

Typically, co-ops are less expensive per square foot than condos, and their maintenance fees -- which cover building expenses like hot water, heating, air-conditioning, grounds maintenance, staff salaries, real estate taxes and insurance -- are tax-deductible.

There are some co-op caveats. All prospects have to be approved by the co-op's board of directors, and the vetting process is quite thorough. There are lots of demands for personal-background and personal-finance information, comprehensive employment history and background checks.

It's also harder to sublease your co-op, and in many cases that is not allowed at all. Moreover, co-ops require larger down payments than condos, and those all-encompassing maintenance fees are higher than in condos, although they are tax-deductible. Selling a co-op is also a little harder than selling a condo. Some boards assess a "flip tax" if you resell within a set period, such as one year to three years.

Buying a condo, by contrast, is more like buying a house because buyers own their deeds and pay their own taxes. While condos are more expensive than co-ops, percentage down-payment requirements are smaller, though today's more stringent lending standards have tweaked that equation a little. Typically you can sublet condos more readily than co-ops.

Condo boards also wield less power than co-op boards, and entry requirements aren't as tough, plus maintenance fees aren't as high. The trade-off: Condo maintenance fees aren't tax-deductible. Condo and co-op boards typically secure a contract for grounds maintenance, sewer, water, cable TV and the like.

Generally, there is less speculation in co-ops than condos. If the real estate market continues to deteriorate, condos are likely to fall in value at a faster clip than co-ops, according to some of the industry experts. In areas where co-ops are less common, lending programs are harder to find because co-op purchases aren't secured by a deed of trust.

In New York City, about 70 percent of all individual apartment units for sale are co-ops, a number that has dropped from about 85 percent a decade or so ago, as more condos come online to replace older co-op buildings.

Bankrate.com's corrections policy -- Posted: Dec. 14, 2008
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