Co-op vs. Condo: Which One is Right For You?

Urban buyers who aren’t quite ready or able to spring for a single-family home will often find themselves faced with choosing between a co-op or a condo. Both have their benefits, particularly for first time homebuyers, but it’s important to understand the distinctions between them. Because while they may seem similar, there are very real differences in terms of ownership and responsibilities that buyers need to know before making a purchase. So what are those all-important differences and which one is right for you? Let’s dig in to the co-op vs. condo specifics to help you figure it out.

Co-op vs. condo: The main difference

Co-op and condo buildings and units generally look very similar. Because of that, it can be difficult to discern the differences. But there is one glaring difference, and it’s in terms of ownership.

A co-op, short for a cooperative, is run by a non-profit corporation that is owned and managed by the building’s residents. The title for the property is under the name of the jointly owned corporation, and it is from this corporation that residents purchase proprietary leases (shares in the property as a whole). The purchase of a proprietary lease in a co-op grants residents the rights to the common areas of the building as well as access to their individual units, and all residents must abide by the bylaws and regulations set by the co-op. It’s important to note that a proprietary lease is not the same as ownership. Residents do not own their units—they own a share in the corporation that entitles them to the use of their unit.

In a condo, however, residents do own their units. They also have a share of ownership in common areas. When you purchase a home in a condominium building, you’re purchasing a piece of real property, same as you would if you went out and bought a detached single family home or a townhouse.

So here’s the co-op vs. condo ownership breakdown: If you purchase a home in a co-op, you’re purchasing proprietary rights to the use of your space. If you purchase a home in a condo, you’re purchasing legal ownership of your space. It’s up to you to figure out if this difference matters to you.

Figure out your financing

Part of figuring out if you’re better off going with a co-op or a condo is determining how much of the purchase you will need to finance through a mortgage. Co-ops are generally pickier than condos when it comes to these sorts of things, and many require low loan-to-value (LTV) ratios. An LTV ratio is the amount of money you need to borrow divided by the total cost of the property. The more of your own money you put down, the lower the LTV ratio. It’s common for co-ops to require LTVs of 75% or less, whereas with condos, just like with home purchases, you’re generally good to go provided that between your down payment and your loan the total cost of the property is covered.

When making your decision between whether a co-op or a condo is the right fit for you, you’ll have to figure out very early on just how much of a down payment you can afford versus how much you want to spend total. If you’re planning to only put down 3% to 10%, as many home buyers do, you’re going to have a difficult time getting in to a co-op.

Think about your future plans

How long do you intend to stay in your new home? If your goal is to live there for just a couple of years, you may be better off with a condo. One of the benefits of a co-op is that residents have very stringent control over who lives there. The hoops you will have to jump through to purchase a proprietary lease in a co-op—such as interviews and strict financing requirements—will be required of the next buyer as well. This is good for current residents, but it can greatly limit who qualifies as a prospective buyer, as well as slow down the process. It also gives you significantly less control over who you sell to.

When you go to sell a condo, your biggest obstacle is going to be finding a buyer who wants the property and is able to come up with the financing, regardless of how the LTV breakdown comes out. When you’re ready to move out of your co-op, however, finding the person who you think is the right buyer isn’t going to be enough—they’ll have to make it through the entire co-op purchase checklist.

If your intention is to live in your new place for a short period of time, you may want the sale flexibility that comes with a condo instead of the more difficult road that faces you when you go to sell your co-op share.

How much responsibility do you want?

In many ways, living in a co-op is like being a member of a club or society. Every major decision, from renovations to new tenants to maintenance needs, is made jointly among the residents of the building, with an elected board responsible for carrying out the group’s decision.

In a condo, you can decide how much—or how little—you participate in these sorts of determinations. If you’d rather just go with the flow and let the housing association make decisions about the building for you, you’re entitled to do it.

Of course, even in a condo you can be fully engaged if you choose to be. The difference is that, in a co-op, there’s a higher expectation of resident involvement; you may not be able to hide in the shadows as much as you might prefer.

Don’t forget cost

Ultimately, while ownership rights, financing guidelines, and resident responsibilities are important factors to consider, many home buyers start the process of narrowing down their options by one simple variable: price. And on that front, co-ops tend to be the more affordable option, at least at first.

Take Manhattan, for example, a place renowned for it’s exorbitant real estate prices. A report by appraisal firm Miller Samuel found that, for the second quarter of 2023, Manhattan condo buyers paid an average of $1,989 per square foot of space—50% more than the average $1,319 per square foot that co-op buyers paid.

If you’re looking at cost alone, you’re almost always going to see cheaper purchase prices at co-op buildings. But you have to remember that you’ll most likely be required to come up with a much larger down payment. So although the total price may be considerably lower, you’re still going to need more cash on hand. You’re also probably going to have higher monthly fees in a co-op than you would in a condo, since as a shareholder in the property you’re responsible for all of its maintenance costs, mortgage fees, and taxes, among other things.

With the major differences between them, it should actually be rather easy to settle the co-op vs. condo debate for yourself. There are big benefits to both, but also very clear distinctions that make the decision about as black and white as it can get. Make a decision that’s right for you and your long term goals, which includes your long term financial health. And know that whichever you choose, as long as you find a home that you love, you’ve probably made the right decision.