Condos on the beach

Dear Real Estate Adviser,
I am looking to buy a co-op condo in Florida, but I am still not sure if this is the way to go. What do you think?
— Yvette

Dear Yvette,
In this case, I’m pretty sure you’re referring to a co-op (short for cooperative housing project) since there’s really no such thing as a “co-op condo” combo.

While co-ops and condos can be identical in look, size and function, their financial structures are totally different. Unlike condos, which are individually owned by buyers, a co-op is owned by a small corporation. When you buy into a co-op, you’re purchasing shares of that corporation that entitle you to an exclusive leasehold on your unit. Typically, the larger the co-op unit, the more shares you own.

Unlike condo owners, co-op resident shareholders pay monthly maintenance fees (which are tax-deductible) that cover their complex’s upkeep and operating expenses such as real estate taxes, mortgage payments, heating and air conditioning, hot water, insurance and staff wages. When you buy a condo, on the other hand, you own real property and a deed, pay your property-tax bills directly to the city and pay a monthly common charge that’s lower than a co-op maintenance charge. That’s because you’re paying the mortgage directly to your lender. The purchase of a condo is known as a “fee-simple” purchase.

Unlike a condo buy, in which a condo board may lightly weigh in on your desirability as a resident, a co-op board typically will thoroughly vet you with an extensive personal interview, background and employment-history checks and a detailed examination of your personal finances. That’s because co-op buildings are operated more as collectives where everyone owns a piece and gets a say, in effect. Typically, co-op neighbors are more community-minded and neighborly, say their owners, while condo owners tend to be more individualistic and investment-minded.

Co-ops also tie your hands a little more because they’re much harder to exit. Some co-op boards even levy a “flip tax,” should their occupant decide to sell his or her shares in a minimum period of, say, one or two years. Subleasing is usually not allowed at co-ops. The trade-offs to these potentially inconvenient co-op rules are less speculation and price peaks/valleys than the more mercurial condos, plus resident stability — desirable things if you plan to stick around for a while. Co-ops are also a bit cheaper per square foot than condos but offer fewer tax deductions.

But there could be one big sticking point: Some banks, particularly in Florida, are still gun-shy about backing such non-fee-simple purchases after getting burned in the market crash. Unlike New York City, where about three-quarters of for-sale multifamily units are co-ops, only about 10 percent of Florida units are.

As you can see, your personal comfort zone and short- and long-term needs will dictate your choice, though it does sounds like you’re sold on one specific co-op complex. If you can get preapproved for the necessary financing, ideally from a lender who understands co-op financing (ask co-op management for the most accommodating ones), and gain acceptance from that picky co-op board, it may suit your lifestyle objectives better. First, you may want to consult with your accountant or financial planner for advice on whether such a co-op best fits your fiscal profile.

Good luck!

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