Condo vs. Co-op ownership: What are the Differences?
There are three major types of home ownership. They are:
1) Fee Simple ownership
2) Condominium ownership and
3) Co-op ownership
What are their characteristics, and how do they differ from each other?
1) "Fee Simple" is a term in real estate used to describe ownership where a person owns the building and/or land in its entirety. The owner has complete and final say about how the property is to be used or modified. (There are exceptions to absolute control such as zoning laws and police and fire regulations.) But with such authority comes responsibility. It is your responsibility to pay for all of the repairs, maintenance, and/or improvements.
2) Condo ownership gives you a deed, and a right, to live in a building which is owned by a condo association. You own the air space, and interior partitions within the exterior walls, but not the exterior walls and roof. (You can modify interior non-bearing walls, with permission.) The benefit of such limited ownership is that the association is responsible for the upkeep and repair of the building's exterior and land. As a condominium member you are charged a monthly maintenance fee. This maintenance fee covers the costs of the above repair and maintenance of your unit, as well as such things as garbage and snow removal, road and clubhouse repair, and other operating costs to preserve the condition of the community. Since you are the deed holder to your property, you must pay for its property taxes, the cost of which is not included in the monthly condo fee. But, as deed holder, you are able to borrow money against its equity in the form of a mortgage.
3) The third type of ownership is that of a CO - OP
With co-op ownership you do not receive a deed to your individual unit, as you would with a condo. Instead you essentially buy shares of stock in the overall co-op building (or, in Rossmoor’s case, a Mutual consisting of multiple houses). Your proportion of the total shares reflect the size/value of your unit. Think of it as buying shares in IBM. You don't own any individual identifiable piece of IBM, but rather you're one of many joint owners of ALL its pieces.) As a shareholder, you’ll receive from the co-op association the permanent and exclusive right to occupy your particular unit.
This type of ownership may limit you from modifying the interior of your unit since you do not own, or have responsibility for, any of the structure. The appliances are also owned, and maintained, by the co-op. Your monthly co-op maintenance fee therefore, as well as paying for the same amenities and services as the condo fee, also funds the repair or replacement of these interior items should they require attention, or break down.
Due to the inclusion of these additional benefits and expenses, the monthly maintenance fee for a co-op will always be higher than for an equivalent sized condo. But the co-op's fixed monthly payment offers the peace of mind of knowing that you will not be responsible for any future unexpected major repair expenses.
Since the co-op owner owns shares of stock, while the co-op association owns the actual deed to the property, it is the co-op association that initially pays the property taxes on all the units. The co-op association is also the only entity that is endowed with the ability to borrow against all the units, with a single blanket mortgage, for the purpose of raising money for repairs. The expenses of the property taxes and any mortgage payments are then prorated equitably among all the co-op stockholders, and is charged to them as part of their monthly co-op fees. The portion of the maintenance fee covering property taxes and mortgage interest is a tax deduction to the co-op owner.