Condominium

Buying a condominium means buying an individual unit in a property with common areas…

Condo or apartment: which one to buy?

Buying a condominium means buying a single unit in a property with common areas owned and managed by a homeowners association. Buying an apartment usually means buying a share of ownership in a cooperative association that owns the property and grants ownership leases allowing shareholders to live in specific units. Condos can be more expensive to buy, but easier to finance. Apartments in co-op buildings tend to cost less, but are harder to finance.

A financial advisor could help you create a financial plan for your home buying needs and goals.

Condo and Apartment Basics

Condos and cooperative apartments are generally single-family residences that are part of multi-unit buildings. Both generally share walls with other units and are overseen by resident-elected councils. These are common interest properties, which means that common areas such as hallways, lobbies, and grounds are jointly owned by all owners.

However, condos and apartments are not the same. Here are specific definitions for each:

In a condominium, individuals own each specific unit. The owners may be the residents or they may not live there and instead rent the units to others as living quarters. In addition to unit ownership, which is defined by a legal description of the airspace occupied by the unit, owners have a joint interest in common areas and amenities, including swimming pools, gymnasiums and parking areas. A condominium association oversees the maintenance of common areas and the exterior of the building, collecting fees from owners to pay for the work.

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Apartments that are not condos but are owned by residents are usually incorporated as co-ops. Co-op apartment owners don’t technically own their units. Instead, they own shares in the co-op, and the co-op owns the property, including each individual unit. Co-ops are governed by boards of directors that grant leases of ownership to resident shareholders. The boards also oversee maintenance and improvements paid for by fees charged to shareholders.

Advantages and disadvantages of joint ownership

Condos are different enough from apartments that each has significant advantages and disadvantages over the other. Here are three benefits of owning a condo:

  • Easier financing. Lenders are often more willing to finance the purchase of a condo than the purchase of a co-op apartment. Indeed, in case of default, the lender can seize the unit which serves as collateral.

  • Fewer ownership restrictions. The co-owners decide freely to whom they sell or rent their apartments, without needing the approval of the association.

  • Reduced monthly fees. Association fees can be significant costs for condo or apartment owners, but condo associations often have lower fees.

Condos don’t have all the perks. Here are two downsides to owning a condo:

  • More expensive. Condominium units tend to sell for more per square foot than similar co-op apartments.

  • Higher closing costs. Condo buyers pay more at closing. An important add-0n is a title insurance policy premium.

Advantages and disadvantages of the apartment

Condo or apartment: which one to buy?

The particular characteristics of cooperative apartments give them advantages and disadvantages compared to condos. Here are three benefits:

  • Cheaper. Assuming other factors such as location are equal, a co-op apartment will often sell for less than a comparable condo.

  • Reduced closing costs. Co-operative apartment buyers generally do not pay for title insurance when closing a purchase and may also have fewer other closing costs.

  • Cooperative apartment owners can control who their neighbors are. Purchases must generally be approved by the association.

See also

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In addition, cooperative apartments generally have these three disadvantages:

  • Financing more difficult. Lenders cannot repossess a co-op apartment if a borrower fails to make payments, because the borrower owns shares in the co-op rather than an individual unit. Therefore, many lenders are reluctant to finance the purchase of cooperative apartments.

  • Harder to sell. Co-op boards often have to approve buyers, which means owners can’t sell to just anyone. For example, co-op rules may prevent buyers from financing more than 75% of the purchase price.

  • More difficult to rent. Co-op rules are more likely to prohibit landlords from renting units.

Conclusion

Condo or apartment: which one to buy?

When buying a home, you have many choices. Condos and apartments are similar in many ways, but quite different in others. Condominium buyers often pay more for their properties and have higher closing costs. However, they also have more control over their units and can more easily sell or rent them to others. The non-condominium apartments available for sale are generally cooperatives. Co-op apartments may cost less and have lower closing costs, but they are generally harder to finance and subject to tighter restrictions on renting or selling.

Advice on buying a house

  • A financial advisor can help you identify the type of real estate purchase that best suits your financial goals. Finding a qualified financial advisor doesn’t have to be difficult. SmartAsset’s free tool connects you with up to three financial advisors who serve your area, and you can interview your matching advisors for free to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, start now.

  • Some condominium units are separate buildings rather than sharing walls with other residents. These are still subject to the same rules of the owners’ association and the associations also pay for the maintenance of the exterior and common areas. Townhouses are another type of property similar to apartments, except they are more likely to be multi-level and not have any units above or below them. Townhouses are usually condominiums.

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