Condo vs Co-op: What Is The Difference?

Condo vs Co-op: What is the difference? Clients often ask me just that question since it is indeed confusing! Let me attempt to provide a little clarity on this topic.

Ownership: A condo owner actually owns the condo, as any homeowner would. In a co-op situation you don’t actually own any specific real estate, instead you own shares in a corporation and as a shareholder, you have the right to lease space in the building. The co-op owns the building and the common areas and you own a share of that. Upon your death, a condo is considered real property and passed on in the family. A co-op is considered intangible personal property. Your attorney can go into details about how that is passed on.

Condo vs Co-op: What about taxes? A condo owner is taxed individually since they own the condo as real estate. Co-op property is owned by a corporation and the corporation is taxed. It then passes the cost on to the shareholders. 

Can I get financing for a co-op? Since you do not own any real property when you own shares in a co-op, financing can be difficult to obtain. Many co-ops have a relationship with a few specific lenders that will finance units in the building but more often you see co-op purchases happening as cash deals. It is much more difficult, if not just about impossible, to get a home equity line of credit on a co-op since you don’t own any actual real estate, you own shares in a corporation. The downpayment on loans is also higher and normally the interest rates are higher as well.

When considering purchasing a co-op, it pays to discuss the situation with an attorney so you are clear about what you are doing. That will provide peace of mind for you and your family. Many purchase into a co-op without doing their homework and are later surprised by the fact that they are not property owners but shareholders. There is indeed a difference in ownership when owning a condo vs a co-op.