Condo vs. co-op: A complete guide

When you’re shopping for a home, one of the first steps is choosing between a single-family or multifamily home. If you’ve decided on buying a unit in a multifamily property, you can compare multiple home types, including condos and co-ops.

While condos and co-ops are both separate housing units in multifamily buildings, they have some important differences, most notably their ownership structure. Before choosing one over the other, keep reading to learn how each property works, the pros and cons, and which may be right for you.

Key differences between condos and co-ops

A condo (short for condominium) is a privately owned unit within a larger building. A condo is similar to an apartment, but instead of each resident renting their unit, each one owns their unit outright.

A co-op, on the other hand, is a residential building with many individual units. Each resident owns shares in the corporation that owns the building rather than owning the unit itself. Their ownership in the co-op gives them the right to occupy a unit in the building.

Condos and co-ops have some similarities, especially from the inside looking in, but their differences are critical.

Ownership structure

Both condos and co-ops give residents some ownership, but in different ways. Condo owners own a private residence within a shared building. When you buy it, you’ll receive a deed to the new home like you would if you bought a single-family home.

They have full control over the interior of their unit, but little control over the rest of the building. The common areas of the building, such as the lobby, pool, gym, and outside space, are owned jointly by all unit owners and managed by the condo association.

A co-op owner doesn’t own their individual unit. Instead, they own a portion of the entire building, including its exterior and common spaces, and their ownership in the corporation that owns the building gives them a proprietary lease, giving them the right to live in the property until they sell or transfer their shares. If you own more shares and, therefore, a larger percentage of the corporation, you may be entitled to a larger living space.

Each part of the building, including its exterior and common spaces, are owned by the corporation. Each shareholder of the corporation splits maintenance fees, taxes, repair costs, and property management fees.

Governance and rules

Condos are typically run by condo associations, which function similarly to homeowners associations (HOAs). These associations handle maintenance issues and create bylaws for the community to follow concerning details such as quiet hours, use of common areas, and what types of pets are allowed. Check the rules of the condo association before moving in.

Co-ops operate in a more businesslike manner, where every shareholder gets to vote on issues that affect tenants. Co-ops usually elect a board of members to collect fees, manage and enforce rules, and maintain common spaces. The co-op might also vote to hire a property management company to handle the day-to-day affairs.

Affordability

Both condos and co-ops require both up-front and monthly fees. In both cases, you’ll have the up-front costs to buy your unit or your shares in the corporation. You’ll also pay ongoing costs (usually monthly) to cover things like maintenance and other expenses.

Generally speaking, condos are more expensive to purchase up front and have higher closing costs. However, once you’ve purchased the unit, your ongoing costs are lower, and are generally limited to your condo association fees. You’ll also pay other normal homeownership costs, like property taxes and insurance, but you’ll pay them on your own rather than to the condo association.

Co-ops have lower upfront costs, but you’ll pay more into them moving forward. Because the co-op is jointly owned, expenses like property taxes and insurance are jointly paid. Each owner will pay into the corporation, which will pay those bills. You’ll also be responsible for your share of maintenance, upkeep, and other expenses.

Market value

Determining the fair market value of a condo is similar to determining the fair market value of a single-family home. A sales comparison approach is usually used to compare condos to recently sold homes with similar features, square footage, and condition.

Determining the market value of a co-op is a bit more complicated. There are two main types of valuations that may be used:

• Market rate: Like with a condo, 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.
• Limited equity: You’re limited in how much you can gain from your share due to the co-op’s rules on how much you can sell your shares for. Such co-op rules are usually put in place to provide affordable housing below market rates. Before selling a co-op, make sure you and other shareholders understand these rules.

Financing

Condos are typically easier to finance than co-ops because the owner will have physical property as collateral. While not exactly the same, condo loans are similar to loans for single-family homes, and you can even choose between a conventional or government-backed mortgage.

In contrast, a co-op owner is buying shares of the corporation that owns the property. Unlike with a traditional mortgage, your loan isn’t secured by the real estate itself. Instead, it’s secured by your shares in the co-op and your rights under the proprietary lease agreement.

Co-op loans may be more difficult to qualify for, as lenders may require higher down payments, higher credit scores, and other strict requirements to get preapproved. Additionally, it’s not just the lender that must approve your purchase. You also need the co-op board to approve your application before you can get financing.

Renting and selling

Condos and co-ops work very differently when it comes to renting and selling them. In most cases, condo owners can rent out their units as they please, though some condo associations may place some limitations. It’s up to you to vet your tenants. You can also sell your condo at any time and to anyone you choose – the rest of the condo owners don’t get any input.

Because co-ops are co-owned, they have much stricter rules around renting and selling. Many co-ops forbid owners from renting out their units, and if you’re allowed to rent yours out, tenants may be subject to board approval.

Similarly, selling a co-op is more challenging. The co-op board has to sign off on the new buyer, meaning you may have a harder time finding the right person to sell your unit to.

Amenities

Amenities are a big draw for both condos and co-ops. These can include gyms, green space, laundry facilities, and pools, all managed by the building owners.

In the case of a condo, the condo association manages the amenities, paid for by condo association fees. In the case of a co-op, the condo board is responsible for management and upkeep, including any amenities.

Not only do co-op shareholders have access to these common areas, but they’re also partial owners of those spaces, so they have more incentive to maintain and improve the quality of life within the building and the quality of the amenities.

Application process

Condo sales are private transactions that are typically done without the need for approval of the condo association. When you make an offer on a condo, it’s up to the individual seller, along with your mortgage lender, to determine whether you can actually buy it.

Buying a co-op is a very different story. It typically involves a formal application process. You’ll usually need to provide financial information and references to the board and go through a formal interview process. Even if both the seller and the mortgage lender approve you, the board could deny the purchase.

Availability

Where you live heavily impacts whether you’ll have access to a condo, co-op, or both. Condos are commonly located in urban or suburban areas. They aren’t unique to very large cities or certain parts of the country – you can find them in many different places.

Housing co-ops, on the other hand, are less common. They’re most common in New York City, and actually make up a large portion of owned residential buildings there. They’re also common in some other large cities around the country, but are significantly less common than condos.

If you’re specifically looking for a certain type of housing, it’s important to keep that in mind when you’re deciding where to live.

Condo vs. co-op: Pros and cons

While condos and co-ops may seem similar at face value, they have some important differences that can impact your experience living there. Below, we’ll break down some pros and cons of both housing options to help you decide which is right for you.

Condos

Condos are readily available and generally easy to purchase, as long as you qualify for the mortgage. However, they have downsides that include higher closing costs and taxes, condo association fees, and limited control over the building and your neighbors.

Co-ops

Co-ops are unique housing structures that aren’t available in most areas. They have generally lower purchase prices and likely a stronger sense of community since all tenants have shared ownership over the space.

However, they’re difficult to qualify for, and the shared ownership structure may be unappealing to some buyers. Additionally, as a co-owner of the entire building, there could be high maintenance and upkeep costs.

Should you buy a condo or a co-op?

Both condos and co-ops are great options for someone who wants to live in a large, residential building with amenities and neighbors close by, and who is okay paying monthly fees to contribute to the community.

Condos are likely a better option for anyone who wants an easier financing arrangement and who wants complete control over their unit to make changes, rent it out, and easily sell it when the time comes. If you truly want to feel like you own your home, a condo may be the right fit.

Co-ops, on the other hand, may be a good option for someone who is looking for their forever home in a city like New York and who wants a community they can really buy into. Because of the shared ownership, you can expect to get to know the people around you better in a co-op than you would in a condo and have more control over the direction of the building.

For more guidance in deciding which is right for you, the comparison chart below can help.

Condo vs. co-op FAQ

Are you trying to decide whether a condo or co-op is better for you? These frequently asked questions may be able to help.

Is a condo or a co-op a better investment property?

If you’re a real estate investor comparing a condo and a co-op, you’ll likely find that a condo makes a better investment property. You have more control over the space you own and will have an easier time renting out or selling the space. You also have more control over increasing the value of your condo.

A co-op may be a more stable long-term investment if you want something that will hold its value and grow consistently over time, but there’s little opportunity for passive income or a quick profit.

Are condo or co-op fees tax deductible?

Condo fees aren’t tax-deductible, at least on a primary residence (though they may be on a rental property). In the case of a co-op, you can deduct the share of your fees that goes toward your real estate taxes, but only if you have documentation to prove those expenses and you itemize your deductions.

Can you renovate your condo or co-op?

As a condo owner, you have complete control over the interior of your unit, meaning you can renovate it or change it as you wish, subject to the condo agreement. However, if you’re a co-op owner, any changes or renovations require approval from the co-op board. Unlike with a condo, you don’t individually own the unit you live in.

The bottom line: Both condos and co-ops come with pros and cons

Condos and co-ops are two different types of multifamily properties that offer individual units with shared community amenities. They have some similarities, especially from the outside, but differ significantly in terms of the ownership structure and how much individual ownership you have. Make sure to consider your budget, housing preference, location, and other key factors when deciding between these two types of properties.

If you’re considering buying a condo or another type of home, Rocket Mortgage can help. Apply for a mortgage today to find out what you qualify for.

Rocket Mortgage is a trademark of Rocket Mortgage, LLC or its affiliates.