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By David deForrest
General Manager
Please explain the difference to me between a Condo vs. a Co-Op. What will this mean to me as an owner?
Both Co-ops and condos are forms of multiple ownership of a single piece of property. In a condominium, a unit owner buys a deed giving him/her ownership of a specific "unit" in the property and, additionally, a percentage interest in the common elements (that is, the parts of the condominium that are not allocated to any particular unit).
In a co-op, an owner purchases shares of stock in a corporation set up to own and operate the entire property. With ownership of the shares, the shareholder is granted a proprietary lease on a particular unit in the building or project.
It would appear that the two forms of ownership are not all that different. However, as a practical matter certain differences exist. For starters, one or another form of organization usually predominates in a given area. In the Miami area and Florida in general, most multi-family properties with multiple ownership are organized as condos. In New York City, for example, the opposite is true although that trend appears to be changing.
Anyway, as a consequence, it is quite simple to obtain mortgage financing to purchase a condo property in this market. A unit owner has a deed and can generally borrow against that deed just as with any other piece of real property. By contrast, co-op financing is considerably harder to obtain (although not impossible), not because of any particular reason why co-op shares could not be used as collateral for a loan, but because the major lenders in this marketplace are not geared up to lend on them and no secondary market exists for such loans.
One consequence of this relative lack of financing for individual units in co-ops is that they are often great bargains if you are a cash buyer. If the majority of potential purchasers for a given apartment require mortgage financing to fund a purchase, then obviously only a narrower group of buyers exists to bid for a co-op unit. Moreover, many wealthy owners prefer to purchase co-ops on the premise that they will be living with other residents who had to put up the entire purchase price in cash and are, presumably, socially more compatible.
On the other hand, the co-op itself (that is to say the corporation formed to operate the property, can mortgage the entire property and often will in order to fund major renovations etc.) Although a condo can do this too, it is very rarely done. Often when co-ops are being developed, the developer will leave a large mortgage in place on the entire property to be discharged over time through the monthly maintenance payments of the unit owners. Thus you need a good picture of the financial structure of a given co-op to evaluate it as an investment.
Lastly, and perhaps most important to A potential buyer, the typical co-op unit is, as I said above, usually undervalued compared to a similar condominium unit. A process exists for a co-op project to convert to condominium ownership. Substantial increase in market value for the units is the usual outcome of such a reconfiguration. A buyer who can afford to purchase now in a project that is likely to convert, may see a terrific price increase when and if the conversion is accomplished.
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