While Philly is mostly a condo city (condominium), there are a few co-ops (cooperative) in & around town. Buying a co-op or a condo both have their own advantages and considerations, and the choice between them depends on your individual preferences, financial situation, and lifestyle. The primary differences lie in the type of ownership and the legal structure governing the property.
Here are some things to know:
Ownership:
- When you buy a condo, you are purchasing individual ownership of a specific unit within a larger building or complex. You own the interior of the unit, including walls, floors, and ceilings, and have a share of ownership in common areas such as hallways, elevators, roof, exterior walls and amenities.
- When you buy into a co-op, you are not buying real property or a specific unit. Instead, you become a shareholder in a corporation that owns the entire building or property. You receive a proprietary lease or occupancy agreement, granting you the right to live in a particular unit.
Legal Structure:
- Condominiums are structured as individual, separate units. Each unit owner has a deed to their specific unit and pays property taxes on that unit directly. The common areas and amenities are managed and maintained collectively by a condo association, which is typically made up of unit owners. While smaller associations are often self managed, they, and larger buildings, may have a property management company in place. The cost for this is paid out of the association dues.
- A co-op building is owned by a corporation, and each resident becomes a shareholder in that corporation. As a shareholder, you don’t own a specific unit; instead, you have the right to occupy a particular unit within the co-op building. The coop pays the taxes on the entire building. This is paid out of your coop fees.
Governance:
- Condo owners are subject to the rules and regulations set by the condo association. The association is responsible for managing common expenses, maintenance, repairs, and enforcing community rules. Condo owners usually pay monthly fees to cover these shared costs.
- A co-op is governed by a board of directors or board members elected from among the shareholders. The board makes decisions about building management, rules, and maintenance. Prospective buyers must be approved by the co-op board, which can have stringent requirements.
Individual Ownership:
Typically, when you buy a condo, you own the unit, therefore have more control over how your unit is managed and maintained compared to a co-op, where decisions are made collectively by the co-op board. Often, coops will be responsible for maintaining the systems in your unit and, rather than having separate utility bills in your name, they may be included as part of your fees. Keep in mind that there are condo buildings that may maintain some of the systems throughout the building as well.
Financing:
Condo purchases typically involve simpler financing options, such as traditional mortgages, which can be more accessible than the share loans commonly used for co-op purchases. There are lenders that fund both.
Flexibility in Renting:
While not all condo buildings allow condo owners to rent their units, which allows for more flexibility in terms of investment opportunities or using the property as a rental income source, most co-ops do not allow renting spaces at all. If you think you may need to move within a certain time frame or temporarily and want to rent your home while you’re away, condos may be the way to go. Be sure to check the building’s rules & regulations before you make a purchase decision.
Purchase approvals:
Co-ops typically have a more rigorous application and approval process compared to condos. Potential buyers are often vetted by the co-op board to ensure a good fit with existing residents. Condo associations don’t usually have any approval requirements for potential buyers
Costs:
Condos may have higher upfront costs, including higher purchase prices and monthly fees, which cover maintenance and management of common areas and amenities. Co-ops tend to be less expensive upfront than condos are, making them more affordable for some buyers to get into.
The monthly fees for a coop are typically higher because they pay the taxes and often utilities for you. Coops and condos in larger buildings usually have doorpeople, front desk staff, large common areas and elevators, while convenient, increase the costs so fee in both will typically be higher than a self run boutique building.
Property Taxes:
Co-op shareholders don’t pay property taxes directly since they don’t own real property. Instead, property taxes are included in the monthly maintenance fees paid to the co-op. Condo owners are responsible for paying their own taxes, which makes a default on taxes more likely in a condo than a co-op.
While co-ops and condos have a lot in common, be sure to research both and consider all the factors before making a final decision. Don’t assume all condos or all co-ops are the same either. You’ll want to review and understand the different rules and regulations in any building you may be interested in buying in. Do your research and consult with your Realtor before you decide.
Stephanie Slapin