A red brick condo building next to a bright pink condo building.

Condos Vs. Co-Ops: Understanding The Pros And Cons Of Each

Andrew Dehan15-minute read

January 27, 2023

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If you’re wondering about the differences between condos and co-ops, you’re not alone. These housing types are commonly confused – and to be fair, they can look similar at first glance.

The main difference between a condo and a co-op lies in how ownership of each property works. A condominium, or condo, refers to a private residence located inside a shared building or complex that individual owners can purchase. While a housing cooperative (co-op) is also contained within a larger structure, its residents don’t actually own their living spaces and only have proprietary leases giving them the right to live there.

Below, we’ll take a more in-depth look at the pros and cons of a co-op versus a condo before digging into the main differences within the home buying process to help you decide which is right for you.

Table Of Contents

    What Is A Condo?

    A condominium is a privately owned piece of real estate within a larger building. Purchasing a condo is very similar to purchasing a single-family home in that you’ll work with a real estate agent, put down a deposit, and close on the property.

    So, is a condo an apartment? The short answer is no. An apartment is a unit that is part of a building typically owned by one landlord and rented out to multiple tenants. A condo, on the other hand, is a single unit that is purchased by an individual owner.

    Check out some of the major benefits and drawbacks of condo ownership below:

    Pros of owning a condo

    • You own the real estate, including interest in common areas.
    • Condos are easier to finance than co-ops.
    • Monthly fees cover things like building maintenance and repairs.
    • Condos come with few to zero use restrictions, which means you can rent or sell your property much easier than a co-op.
    • Condos are often newer builds, which means less wear and tear and newer amenities.

    Cons of owning a condo

    • Condos usually have higher closing costs and taxes than co-ops.
    • Limited supply and high demand can make condos expensive in some markets.
    • While the ability to rent or sell freely may be a benefit, it can be a downside if there is high tenant turnover.
    • Anyone can buy a condo in your building and do with it what they choose, as long as it’s within the limits of the law.

    Who Owns My Condo?

    When you purchase a condo, you own your unit outright. The common areas of the building, such as the lobby, pool and gym, are owned jointly by all unit owners and managed by the condominium association.

    Condo associations function like homeowners associations (HOAs). These associations handle maintenance issues and create bylaws for the community to follow. A condo association can put rules in place such as the types of pets condo owners can have, quiet hours and use of common areas. It’s important to know the rules of the condo association before you move in.

    You’ll be responsible for paying monthly association dues, which go toward maintaining the common areas and amenities, as well as paying for any repairs or renovations that need to be made. In some cases, you may also be responsible for property taxes on your unit.

    A condo is a great option if you don’t want to spend time and effort maintaining the property. Condos are popular in major cities and are often less expensive than buying a house or townhouse in the same neighborhood.

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    What Is A Co-Op?

    A cooperative, or co-op, is a type of housing where owners hold shares in a corporation that owns a building rather than owning the real estate itself. If you buy enough shares of the corporation, you’re entitled to living space within the property. Generally, the more shares you own, the larger the living space you’ll be able to get.

    The building is typically managed in the same way a corporation might be managed. There is a board made up of shareholders, a CEO and managers or directors in charge of specific projects and operations the building may require.

    Now, you might be thinking, what type of lease does a cooperative stockholder have?

    Well, it’s not exactly a lease in the typical sense of the term. Instead, a cooperative stockholder has what’s known as a proprietary lease. This type of lease gives the shareholder the right to live in the property until they sell or transfer their shares.

    Pros of owning shares in a co-op

    • Cooperatives generally come with a lower price tag than condos or houses.
    • High owner occupancy means that other tenants are just as invested in the shared spaces as you are.
    • Co-ops are great to live in because they harbor a sense of community and long-term housing security.
    • Co-op shareholders have limited responsibilities when it comes to maintaining common areas.
    • Another perk of high owner occupancy is that the building’s amenities are typically more robust and abundant than a condo. 

    Cons of owning shares in a co-op

    • Co-op fees can become expensive.
    • The application process to purchase a co-op is rigorous.
    • Some co-ops don’t allow financing, and those that do may require high down payments.
    • Co-ops are not generally considered to be investment properties as you can’t rent them out, and they don’t have much upside potential.
    • To sell your co-op, you must find a buyer approved by the board.

    Who Owns My Co-Op’s Corporation?

    So, who owns the housing corporation? Everyone who buys shares in the co-op owns a percentage of the corporation. Like a publicly traded company, every shareholder gets to vote on issues that affect tenants. Co-ops usually elect a board of members to collect fees and maintain things like common spaces.

    Housing cooperatives aren’t run with the intent of making a profit. Everyone who owns shares in the co-op splits maintenance fees, property taxes and any mortgage payments on the co-op building. The co-op might also vote to hire a property management company to handle the day-to-day workings of the building.

    Co-op associations are often very picky about which prospective buyers they allow into their community. Before you join, the co-op board must approve your application. Co-op owners want to know that you’ll obey their community rules and that you can pay for any maintenance or tax expenses. The board approval process can include personal interviews and a review of your financial documentation. This is different from a traditional home or condo sale, in which the homeowner will sell to pretty much anyone who can qualify and pay the bill.

    Condo Vs. Co-Op: What’s The Difference?

    Choosing whether to buy a condo or a co-op is no easy feat. The two types of housing share a lot of similarities, as you read above, but they also have some differences. Here’s a rundown of the key distinctions between condos and co-ops:

    Ven diagram infographic comparing and contrasting condos to co-ops.

    Pricing And Market Value

    Determining the fair market value of a condo is very similar to determining the market value of a home. The condition of your condo and the values of other residences nearby can influence its fair market value. An appraiser can give you an estimate of how much your condo is worth.

    As for co-ops, there are two main types of valuations to consider: market rate and limited equity. The process differs between these types.

    In a market rate co-op, you can determine your co-op’s value in essentially the same way as a condo or home. An appraiser takes current market conditions into account and determines how much your shares of the co-op are worth. You can sell your co-op shares for whatever price the market will bear.

    In a limited equity co-op, there are limits to how much you can gain in equity from your shares. In some instances, you may earn $0 in equity due to co-op rules that limit how much you can sell your shares for. These types of co-op rules are usually put in place to provide affordable housing below market rates. Make sure you and other shareholders understand the equity rules before you try to sell a co-op.

    Financing

    While both property types allow for financing, there are some key differences to note.

    Condos are typically easier to finance because the owner will have physical property as collateral. This also means that potential buyers may have to fork out less on their down payment.

    In contrast, a co-op owner is actually buying shares of the corporation that owns the property. As such, getting approved for a loan to purchase a co-op can be more difficult or outright impossible if the co-op's board forbids financing.

    That said, some lenders will give out loans to buy shares in a co-op. The approval process tends to be harder, and stricter requirements may be in place. For example, you may need a 20% or even 50% down payment on hand.

    If you're thinking about financing either type of property, make sure to speak with a lender beforehand to see what's required.

    Closing Costs And Taxes

    When you purchase any type of property, certain closing costs and taxes come along with it.

    For a condo, these will be slightly different than what you'll encounter when buying a co-op. For example, if you're closing on a condominium, you should expect to pay property taxes, title insurance, appraisal fees and inspection fees, depending on where you're buying the property.

    When you buy a co-op, on the other hand, you won't have to pay for mortgage insurance, and property taxes are rolled into your monthly co-op administration fees. Other fees like realtor commission and transfer taxes, however, will still be your responsibility to pay.

    Ownership

    A condo is considered real estate. When you buy a condo, you receive a deed to the new home like you would if you bought a single-family home. However, you only own the interior of your property. The condo association owns the exterior of your condo, and also handles maintenance and repairs outside your walls.

    Unlike a condo, a co-op property is not considered real estate. When you buy into a co-op, the property belongs to everyone who lives within it. If you own more shares, you own a larger percentage of the corporation. This usually means you’re entitled to a larger living space within the co-op. Every shareholder splits the costs of maintenance, taxes, repairs and property management fees.

    Renting And Selling

    Condos and co-ops rely heavily on rules and regulations of who can occupy a property, though condos are typically much more relaxed.

    If you live in a condo, you will most likely have the option to rent out your property to tenants. You’ll be responsible for conducting background checks and ensuring your renters follow the rules in your community’s bylaws. You can also sell your condo at any time, provided there are no restrictions in your contract or community guidelines.

    Co-op apartments often forbid renting altogether and can be difficult to sell because each sale must be approved by the board of directors. Even once you find a buyer accepted by the co-op, you’ll likely have to pay a transfer fee when you sell your shares.

    Amenities

    Amenities are a big draw for both condos and co-ops. These can include things like gyms, green space, laundry facilities, pools and more.

    Because condos can be rented out, owners may have less incentive to maximize their common areas' potential. It can be more difficult to convince other owners to invest in or update the building's amenities.

    Contrarily, co-ops are usually occupied by their owners. This means that there is a greater interest in maintaining and improving the quality of life within the building. Co-ops also empower boards to make decisions that reflect the wishes of the majority of shareholders, which may help some initiatives get pushed through that may have otherwise resulted in disagreements or discord between owners.

    Rules And Regulations

    Both condos and co-ops have rules, but how strict the rules are, who writes the rules and how easy it is to change the rules may differ significantly between the two property types.

    Condos offer more freedom, in a sense. While there may be a basic outline provided when a building is completed, owners come together and determine what rules to add or take away. In some cases, not everyone will agree on a rule change, and owners will have to rely a little bit more on diplomacy to get things done.

    Co-ops, in contrast, run like a business. Ultimately, the board is responsible for managing and enforcing the rules of the building. Though the board makes decisions based on shareholders’ wishes, there may be a little more bureaucracy involved in pushing changes through the pipeline.

    Recurring Fees

    Condominiums and co-ops both charge monthly fees, but what those fees cover can differ.

    Condo fees generally include the cost of the maintenance and upkeep of common areas. A portion of the fees may also be allocated to a reserve fund, or savings account, for larger expenditures, like the elevator breaking or the parking lot flooding. In the case that the reserve fund fails to cover an incident, owners will have to come together to pay the expense.

    Co-ops fees also cover many of these expenses, though they also include property taxes, utilities and insurance. One of the advantages of living in a co-op, however, is that the corporation is ultimately responsible for any major issues, meaning you'll never have to beg your first-floor neighbor to pitch in when the elevator breaks down.

    The Application Process

    You usually don’t need to participate in any interview before buying a condo. Even if your condo association sets strict rules on how you can use your property, it doesn’t control who moves into any unit in the association.

    Buying a co-op, on the other hand, typically requires an application process. You may have to take part in personal interviews with board members before you’re able to buy shares in the co-op. The co-op board might also ask to take a look at your financial documents just like a mortgage lender would. You can’t buy into a co-op until you get approval from the board.

    Keep in mind that a co-op can’t reject you for any of the reasons forbidden by the Fair Housing Act. This includes race, gender, religion or membership of any other protected class. However, the co-op can reject you for almost anything else, ranging from your attitude toward community rules to the viability of your finances.

    As with any home purchase, getting prequalified is a good first step when buying a condo or a co-op. And going the extra mile to get prequalified with Rocket Mortgage® can help sellers and co-op boards feel confident about your offer.

    Freedom

    Another big difference between a condo and co-op is privacy.

    In a condo, you own your unit outright. That means you can paint the walls, put up shelving and generally make the space your own without having to get approval from anyone else.

    In contrast, living in a co-op means that you’re technically renting your space from the co-op corporation. As a result, you don’t have the same level of privacy as you would in a condo. For example, if you want to make any changes to your unit, you will likely need to get approval from the board first.

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    Condo Vs. Co-Op: Which Is Better?

    Whether you’re buying a condo or a co-op, you’re making a major decision that will have a significant impact on your life. So, which is better? A condo or a co-op?

    Well, that depends on what you’re looking for. If you value privacy and independence, then a condo may be the option for you.

    Conversely, a co-op might be the way to go if you’re looking for a sense of community and a more hands-off approach to decision-making in the building. Ultimately, it’s important to weigh all of your options carefully before making a decision.

    Here is a quick flowchart to help you determine which option might be best for you:

    Infographic flow map to help decide on a condo or a co-op.

    Financing Your Condo Or Co-Op Purchase

    Like a standard home purchase, you can finance your condo using a government-backed or conventional mortgage loan.

    However, individual lenders may put limits on the types of condos they’ll finance. For example, you can’t get financing for a condo through Rocket Mortgage if:

    • You only have the right to use the condo and you don’t own the interior.
    • The condo contains a houseboat or segmented ownerships.
    • The condo project has more than 35% mixed-use or commercial areas.
    • The condo has sale restrictions that limit who you can sell the unit to.
    • The condo board operates the condo as a hotel or short-term living space.

    Your lender might want to look at factors like communal areas, services provided by the association and condo association finances. These affect the value of the property, so your mortgage lender may want to see them before they issue you a loan. You’ll likely have a tough time getting a loan if the lender sees that the condo association cannot sustain itself.

    Financing a co-op can be a little trickier, as some lenders don’t offer co-op loans. Lenders that do offer co-op loans, including Rocket Mortgage, only offer financing to market rate co-ops in specific markets, because this structure allows them to ensure the home buyer gains equity as they make payments, protecting the investment. Some lenders may even require a larger than normal down payment, and they will want to know about the structure of the co-op and the co-op’s board of directors.

    Rocket Mortgage only requires the minimum down payment necessary to complete your transaction based on the type of loan you’re getting and how you plan to occupy the property.

    Your lender will also want to take a peek at the financial workings of the co-op to ensure that the corporation is able to sustain itself. You’ll have a much harder time finding a co-op mortgage loan if there are any limitations on who you can sell your shares to.

    Currently, Rocket Mortgage only offers market-rate co-op loans in the state of New York, and only where co-ops are common.

    Condo Vs. Co-Op FAQs

    Choosing between a condo and a co-op can be a difficult choice. Here are a few FAQs that may help you make a decision:

    Do I own my co-op?

    No. You own shares in a corporation that owns the property. A cooperative shareholder has what is known as a proprietary lease, which gives the shareholder the right to live in the property.

    Can I rent my condo?

    Typically, there are few to no restrictions on whether an owner of a condo can rent it out. Some buildings, however, may have rules that forbid short-term rentals or Airbnb-type rentals.

    Which has higher fees? A condo or a co-op?

    Fees will fluctuate depending on the co-op or condo and what amenities are provided in the respective buildings, and can differ based on the location of the co-op or condo. That said, if a co-op and condo both provide similar amenities and services and are in the same city, a co-op will likely require higher monthly fees, as the fees will include property taxes and other charges unique to co-ops.

    What are the benefits of co-op housing?

    Co-op housing provides an array of different benefits, from amenities to a sense of community. Because co-ops are mostly occupied by owners, every shareholder is equally invested in improving the building.

    Is a condo or co-op a better investment?

    Both co-ops and condos can be good investments, but for different reasons. Co-ops are often seen as safer and more stable investments. This may mean that though they do not provide the same upside or potential to earn passive income, they will likely retain and grow their value over time.

    Is a condo or co-op more affordable?

    Condos may come with a higher initial price tag, but lower monthly fees and better financing options may make them more attractive for buyers who do not have a large monthly budget or a large down payment saved.

    Is it better to buy a condo or co-op?

    Both condos and co-ops are great places to live. If you’re an independent person with a more hands-on approach to building management, you might find that a condo caters better to your needs. Conversely, if you prefer a long-term community full of owners and do not mind a little bureaucracy in the decision-making process, a co-op may be the spot for you!

    The Bottom Line On Co-Ops Vs. Condos

    Condos and co-ops are two types of housing often confused with each other You own the interior of the building only when you buy a condo. The exterior of the building belongs to the condo association. The association manages maintenance efforts for the exterior and common spaces. In exchange for services, you pay a monthly fee to the condo association.

    Buying a co-op means you buy shares in a housing corporation, not a piece of property. The shares you buy entitle you to a living space and the ability to vote on decisions that affect co-op members. You’ll also need to pass an interview and get approval from the co-op board of directors. You may have trouble financing a condo or co-op if there are limitations on who you can sell the property to.

    Individual lenders can set their own standards that co-ops or condos must meet before you can get financing. Lenders want to see that a co-op board or condo association can financially sustain itself before you can get financing for your purchase.

    Now that you know the difference between a condo and a co-op, you can apply for a mortgage online and get one step closer to achieving homeownership.

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    Andrew Dehan

    Andrew Dehan is a professional writer who writes about real estate and homeownership. He is also a published poet, musician and nature-lover. He lives in metro Detroit with his wife, daughter and dogs.