What is the Difference between a Condo and a Coop?
Topics: CONDO VS. CO-OP, SHARES OF CO-OP, BROOKLYN CONDO, RENTING A CONDO
Cooperatives and Condominiums may both be apartments, but there are major differences between the two.
The first is a legal difference: Condos are real property and Coops are personal property. Both, for personal tax purposes, are treated in a similar manner. But what does this really mean?
Cooperatives
When you purchase a Coop, you’re purchasing stock in a privately-held corporation. As a stockholder, you lease an apartment from the company in which you’re a part owner. Simply put, you get a Proprietary Lease for a specific apartment because you own a portion of the Cooperative corporation (evidenced by the stock certificate).
While many people refer to the bank loan as a mortgage, it's actually a loan to purchase personal property. The tax law, however, treats the interest on this type of personal loan as if it were for the purchase of real property. So the interest on the loan is tax deductible. This is different from other types of installment debt such as a loan for buying a car. In the case of a car, your interest is not deductible.
Share allocation is not as simple as saying that if there are ten apartments, each owns 10% of the corporation. Shares are allocated based on the number of apartments, square footage, number of rooms, outdoor space, floor location (first floor vs. fifth floor, e.g.) and frontage, among other things.
Each month, the owner pays a Maintenance fee to the Coop corporation, and since the corporation owns the building and the land, a portion of each month’s Maintenance is allocated to the building’s underlying mortgage and to its real estate taxes. The rest of the Maintenance pays for the building’s operations such as repairs, heat and water, capital improvements, legal and accounting services, etc., and if there is a building staff, salaries and benefits.
Because Maintenance for a Coop includes both the building's general expenses and the underlying mortgage and real estate taxes as well, the amount is often higher than a Condo owner’s monthly Common Charges.
Condominiums
Because Condominium apartments are considered real estate (even though the apartment may be located many floors above street level), the individual owner pays the mortgage on their purchase, the real estate taxes applicable to their apartment plus the monthly Common Charges to the Condominium corporation.
The Common Charges are similar to a Coop’s Maintenance fee: it consists of the Condo apartment owner’s share of expenses which are applicable to maintaining the common areas of the building. In other words, Common Charges pay for a building's elevators, electricity for the lights in the common areas, waste and garbage disposal, common garden areas and so on – plus building staff salaries and benefits, if applicable.
So while Common Charges may appear to be less than Maintenance, the condo owner is still responsible for his own real estate taxes. They’re just not included in the monthly Common Charge bill.
Either way, apartment ownership, whether it is a Coop or Condo, provides many benefits not found in rentals. Both provide purchasers with their own roof over their heads, and both provide tax benefits, such as taking an itemized deduction for real estate taxes and mortgage interest. For the Coop owner, this means their personal loan interest, their pro-rata share of the building’s underlying mortgage interest, and their pro-rata share of the building’s real estate taxes. For the Condo owner, deductions include their personal mortgage interest and their own real estate taxes.
And at the end of the day, whether you own a Condo or Coop, the apartment is yours, and together with the qualitative pride of ownership, there is a lot to be said about building up equity on a monthly basis – if it’s a Condo, in the real estate itself; and if it’s a Coop, in the value of the underlying shares of stock.
