What is a co-op?

I don't live in New York City, but sometimes I pretend to, which means I recently happened upon a darling listing with sweeping views of the Hudson, a small but strategically designed kitchen, and beautiful hardwood floors. And then I read it was a co-op. Which got me thinking—what is a co-op?

While it might look the same as a condominium tower on the outside, a co-op is in fact very different. Understanding the difference between co-ops and condominiums is especially important for people searching in New York City and other major metropolitan areas like Chicago or Washington, D.C.

Here's what I learned:

Co-ops vs. Condos

Co-ops, short for cooperative housing, are similar to condos in that they are a building or complex comprised of individual units. But the ownership structure in a co-op is very different. Essentially, in a condominium, each person fully owns his or her own unit. There's a condo association with rules and regulations, but you can more or less do what you please to your unit. After all, it’s your property. 

Co-ops, on the other hand, are more like owning shares of a corporation on the stock market. When you buy in, you're buying shares that ultimately allow you access to and usage of a unit in the building. The existing co-op board will have to approve your ownership, which can take time. And once you're in, you're not an owner, you're a shareholder: You're a tenant of the building as a whole.

So why would you want a co-op? Well, sometimes, you don't have much of a choice, especially if you live in a major city. In New York City, for example, co-ops are more the norm than apartments. New York City luxury real estate firm Elika reports that between 70 and 80 percent of residential buildings in New York are co-ops (The New York Times reported similar co-op figures awhile back in 2012). It might just be a fact of your local real estate market that co-ops comprise a larger portion of available properties. 

A benefit to a co-op is that the co-op association's acceptance process can be a turn-off for some buyers—meaning those who do see it through could spend anywhere from 10 to 30 percent less on a co-op share than a condo, according to Elika. What's more, that strict vetting often means greater financial security for the building—and little to no likelihood you'll end up with an irresponsible neighbor.

But how do fees, taxes, and deductions stack up compared to condos?

Fees for Condos

You'll usually pay condo fees on a monthly basis, although it may vary depending on your condo association. Depending on your condo's features, monthly fees will take care of aspects like landscaping, maintenance, snow and debris removal, mechanical and electrical services, or pest control.

Fees for Co-ops

The fees in a co-op are often higher than condo fees. That's mainly because unlike condos, it includes an individual shareholder's share of the property tax for the entire building (note: that means a particular portion of the fees will be tax deductible). A co-op fee may also include some additional utilities like heat and water. The rest, though, is quite similar to a condo in terms of maintenance items and a monthly or quarterly fee. 

Property Taxes for Condos

You'll pay taxes on a condo just like you would for a single-family home. That means you'll pay county and possibly city property taxes annually, sometimes split into multiple installments. Check with your local government to find out the property tax schedule. 

Property Taxes for Co-ops

As mentioned above, property taxes for co-ops are part of that included monthly fee. What's more, because of the equal split between all shareholders, you often pay less in property taxes for co-ops overall than you would for a condo.

Deductions for Condos

Again, tax deductions here work the exact same way they would for a single-family home. That means your property taxes, mortgage interest, and select premiums are all eligible deductions. You can find a list of deductions for home and condo owners here

Deductions for Co-ops

While you might save overall and pay property taxes as an included monthly fee, that means you aren't eligible for the same type of tax deductions you would be for a condo or single-family home. Unfortunately, you can't deduct the amount of property taxes paid for the whole building. Just your (fair) share.

Unless you live in a big city, you probably won't come across co-ops too often. But cities can have a siren call (in my case, it's just browsing Big Apple real estate online) that for some might lead to an actual move. If you go for it, you're equipped with the basics you need to proceed with confidence when it comes to finding your home in a concrete jungle.

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