Sugar Blossom

Choosing Between a Single-Family Home, Condo, or Co-op

For many people, there is no choice to make. They simply want a single-family house and nothing else will do. Others demand a condo or co-op and will not consider an alternative.

Most people, however, at least consider their options. If homes are expensive, will a condo/co-op be cheaper? Will prices appreciate (or drop) faster in a condo/co-op than a single-family house? Are there any real differences?

What Is a Condo?

A condominium, as most buyers know, involves shared ownership. You end up with a deed to the property (called a “fee simple”) and separately own the inside of the unit while sharing with the other owners the grounds, walkways, and recreational facilities-in short, everything outside.

Another way to look at it is as if you were renting an apartment and then decided to buy your rental unit. (Indeed, some condos are converted apartment houses.)

It’s sometimes useful to know that there are actually two sepa­rate kinds of condominium ownership. The ?rst is the one with which most people are familiar-you could be on the ?fth ?oor of a building and you own only that airspace that your unit occu­pies.

The second is called a townhouse (technically known as a PUD, or planned unit development). Here units are not arranged on top of one another. Rather, you own the ground underneath your unit and the airspace above.

Trap-Townhouses Are Different, But Not That Different!

Don’t make the mistake of thinking a townhouse is legally different from a condo. In terms of ownership, it’s not. Rather, the difference is in the layout. In a conventional condo, you only own an airspace. In a townhouse, you own the ground underneath and the air above.

What Is a Co-op?

A co-op is a cooperatively owned property. This is different from condominium ownership. In a co-op, as an individual you don’t actually own any separate airspace or ground. Rather, you own a share of stock in a company, which owns the entire property. While you have the exclusive right to use a particular unit, you don’t actu­ally own it in the sense of being able to sell it directly. To sell your unit, you must sell your share in the company.

What Are the Pros and Cons of Condo versus Co-op Living?

It’s important to understand the ownership difference between a condo and a co-op. With a condo you get title to the property; you actually own airspace (or in the case of a townhouse, the ground beneath and air above as well). You get a fee simple or absolute title.

With a co-op you do not get title to any real estate. Indeed, you do not own the real estate; the corporation does. With a co-op you get stock in the corporation that owns the real estate, and that stock enti­tles you to a proprietary lease on a speci?ed apartment from the cor­poration. You’re a stockholder and a tenant, not a property owner.

While up until very recently, condo owners were the last to take advantage of real estate boom periods; not so with many co-op own­ers. Most of the big gains occurred when an apartment building located in an urban area (such as Manhattan) was converted to co-op status. The ?rst to buy (often the former tenants) saw huge increases when they resold, in large part because of the shortage of available rentals. They bought an apartment in a city where just ?nd­ing any place to live could be a problem.

Another factor has been timing. Most of the co-ops were estab­lished a good many years ago before the big price hikes in real estate that occurred in the late 1970s, the late 1980s, and once again in the late 1990s and early 2000s. If you bought prior to any of these mar­ket bumps, you would stand to see a big increase in value, regardless of the type of real estate. For those who bought co-ops in urban areas where there were already housing shortages (as noted above), the increases were even more dramatic.

On the other hand, there are some problems with co-op owner­ship not found with condos. First of all, there are the ?nances. By its very nature a co-op tends to be less ?nancially stable than a condo. Remember, when you buy into a condo, you own your unit. If you can’t make the payments on your mortgage, you lose, not the other owners. (They only lose the fees that you would otherwise pay toward the upkeep of the common areas.)

With a co-op, however, an underlying mortgage is typically held by the corporation on the overall structure. That means that if you can’t make your monthly payments to cover your portion of the mortgage debt, the other owners must make up what you can’t pay in order to meet the monthly mortgage payment. The same holds true for property taxes and insurance. If too many owners can’t pay, then the remainder might not be able to make up the differ­ence and the entire project could conceivably go into foreclosure.

In short, with a co-op it is very much like an extended family with brothers, sisters, aunts, and uncles all living in close approximation and all contributing to the living expenses. When one (or more) loses a job or gets sick and can’t contribute their share, the others must make it up. If they can’t make it up, they could lose their home.

The inherent ?nancial instability is the reason that good co-ops are very careful about whom they will allow to buy stock. They want to be sure that any new owners are ?nancially strong.

Go into the next page

Pages: 1 2