Co-Ops, Condos and You

Tired of paying money to some landlord, with little to show for it except a pile of canceled rent checks? Not yet ready, or willing, to sink a fortune into buying your own house? It sounds as if you might be a prospect for a cooperative or a condominium. And it's easy enough to see why. With prices for ordinary houses now averaging more than $50,000 almost anywhere in the country, and with apartment rents in many cities ranging from $100 to $250 per room per month, things are rapidly getting out of hand. Cooperatives and condominiums are becoming increasingly attractive alternatives.

What's The Difference?

In the case of a co-op, the would-be purchaser is just buying shares in the tenant-owned corporation that operates the building, plus the exclusive right to live in a specific apartment. The mortgage is taken out in the name of the corporation. In addition to his purchase price, which he negotiates with and pays to the outgoing tenant-shareholder, the buyer must pay to the corporation a monthly maintenance charge, to cover his prorated share of the mortgage payments, plus his prorated share of the entire building's property taxes, fuel bills, staff salaries and other operating expenses.

In the case of a condominium, you are buying your own apartment---just as you would buy any piece of real estate---and you'll have to arrange your own mortgage. You also pay your own property taxes, and these may vary from unit to unit in the same building or development. Here, too, there is a maintenance, charge, usually paid to a tenants' association.

Making Your Choice

Suppose you had to decide between a co-op and a condo; which would you be better off buying? For all their differences, legal and otherwise, the advantages of co-ops and condos are equally practical and appealing. Fundamentally, they are both ways for a person to own his own home, become his own landlord, have some say in how his living space is managed, without the often insurmountable cost of buying a private house. Instead of a landlord, there is a tenant-owned corporation or a volunteer tenants' association responsive to the needs of all the owners.

The owner of either gets to deduct the interest charges for his mortgage and the payments for his property taxes from his Federal income tax---regardless of whether they are paid directly, as with a condo, or indirectly through a tenant-owned corporation, as with a co-op.

But for many, the big attraction of condos and co-ops is in their investment value. The way things are booming, annual appreciations of from ten to fifteen percent are just about standard these days, and growth rates are even higher in some parts of the country.

The Drawbacks

So much for what co-ops and condos have going for them. What about their shortcomings? The biggest hangup with a co-op is the fact that you have to pay cash to buy one. New York permits co-op-apartment financing, but other states seem reluctant to follow the example. You'll need money up front and the entire amount will be locked into your co-op until you decide to sell it and move on.

Then there is what can reasonably be called "the snob factor." Co-op owners tend to be very particular about the kinds of people they permit to buy into their buildings and, since they are shareholders in closed corporations, they have every legal right to be so. They also are very touchy about subletting. All well and good, if you qualify, but if you happen to be an actor, a divorcee, a free-lance writer, a musician or anyone else deemed "undesirable," then you might find yourself looking else-where for what you want.

Condominiums may be much more flexible. Since the prospective buyer of a condo is buying real property, he is protected by antidiscrimination laws. His lifestyle is strictly his own business; he has only his mortgage company to please'. Not that condos are without their caveats. The biggest of these has to do with major building repairs. Attorney Charles A. Goldstein, a partner in the Park Avenue law firm of Baer & McGoldrick and an authority in the field, considers "living in an older high-rise condominium like living inside a time bomb. I would never move into one unless the building were in excellent condition and certain to remain so for as long as I were planning to live in it."

The reason, Goldstein explains, relates to the different ways that co-ops and condos are organized and run. "If the roof starts leaking in a co-op, or if the central air conditioning breaks down, the apartment owners can refinance the building mortgage to pay for it." A condo, he emphasizes, is but a confederation of individual mortgage holders: The only way to pay for a big repair bill is to assess all the owners for the cost.

Co-op or condo? The answer, obviously, has more to do with your needs and expectations than with what either of them has to offer.