Condos vs. co-ops: Which one is right for you?

Condominiums and cooperatives are easy to mix up. Both offer comparable standards of living in similar types of buildings—inside and out. But from a legal and financial point of view, major differences abound. Before we tally the pros and cons of these living arrangements, let’s start with a clear definition of each.

What is a condo?
A condo is a type of ownership—not a specific type of building. With a condo, you own your unit and pay association fees for shared ownership of swimming pools, tennis courts and other communal areas. You own real property and have an actual deed for your unit. On the flip side, you do not own the property surrounding your living space. Condos come in all shapes and sizes, from 2-3 story townhouses to massive high rises. Individual condo units can be one floor or two, with or without a basement.

What is a co-op?
A co-op is a type of building—a multi-unit apartment where each resident has a vested interest in the entire building’s welfare. With a co-op, you are a shareholder, not a property owner. Your proprietary lease gives you the right to occupy a unit as a tenant. The co-op association owns the entire building and each co-op tenant has a stake in the association, akin to owning shares in a corporation.

As a co-op resident, your number of shares depend on square footage, outdoor space, number of rooms and the floor location—a higher floor can translate into more shares. Management and financial decisions are made by co-op residents, either by vote at regularly-scheduled meetings or by an elected board of directors.

Which one is your best bet?
Co-ops have traditionally comprised a higher percentage of the housing supply in New York, but condos are (literally) on the rise. The vast majority of new developments are sold as condos, while many co-ops were built before World War II. These pre-war structures are popular due to their central locations, lavish colors and grand architecture.

It all depends on the neighborhood—certain areas are home to dozens of gleaming new condo projects, while others feature scores of longstanding co-ops. Whether you’re a first-time homebuyer or a seasoned investor, take advantage of these pros and cons to determine whether a condo or a co-op best fits your needs.

Compared to co-ops, condo advantages can include:*

  • Lower down payment requirements—can be 5-10% or less
  • Lower monthly maintenance fee—property taxes are paid separately by residents
  • Flexible subletting policies—great for investors and owners looking to keep their options open
  • Easier approval process—rejections are rare
  • Higher loan-to-value ceiling
  • More flexibility to upgrade your unit via renovations or improvements
  • Easier to sell—straightforward board approval process
  • Lower seller closing costs—roughly 1-2% less than co-ops due to no flip tax requirement

Condos can be an amazing option for all types of homebuyers, from Millennials to retirees. While they offer a wealth of advantages over a co-op living arrangement, they come with a few drawbacks.

Condo disadvantages can include:*

  • Higher buyer closing costs—roughly 2% more due to Title Insurance and Mortgage Recording Tax
  • Can be 10-40% more expensive up front than comparable NYC co-ops
  • Less financial scrutiny can mean more financially risky residents
  • Lower rate of owner occupancy results in a higher percentage of short-term renters

Featuring a double dose of financial scrutiny and a tight-knit community feel, co-ops can be a terrific option for long-term buyers and investors.

Co-op advantages can include:*

  • More affordable up front than comparable NYC condos—often 10-40% cheaper
  • Higher rate of owner occupancy—strict rules on subletting
  • Stronger sense of community—more invested long-term residents
  • Lower buyer closing costs—co-op residents aren’t technically property owners and can sidestep Mortgage Recording Tax (only applies to real property financing)

Most co-op associations require you to be approved by a committee of current unit residents. This process can be a double-edged sword. On one hand, extra financial scrutiny can help separate the wheat from the chaff, ensuring financially sound buyers with a low risk of default. On the other hand, approval is much more difficult to secure and rejections are commonplace.

Co-op disadvantages can include:*

  • Higher down payment requirements—often at least 20-25% of purchase price
  • Rigorous application process involving full disclosure and stricter financial requirements
  • Harder to sell—co-ops often charge sellers a flip tax (1-2% of sale price)
  • Stricter policies on renting, subletting and resident behavior
  • Higher monthly shareholder maintenance fee—includes collective property tax

Keep in mind that every condo and co-op is different and offers a unique experience. Looking for flexibility and a maintenance-free lifestyle with real property ownership? Consider buying a condo. Ready to put down roots in a historic building with character and plug yourself into a supportive community? The co-op life is calling your name! The trick is finding a friendly board of directors. Co-ops with flexible rules and policies exist in bunches—you just have to know where to look. This handy closing cost calculator breaks down the different fees that come with condos, co-ops and houses in the New York market. 


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