01 Jul I may buy a condo or co-op. What are the differences?

Q. Could you tell me if you think co-ops and condos are good investments in terms of being able to take advantage of appreciation? What things should a first time buyer consider for these two housing options? I am single and middle-aged with a moderate income.
— Buyer, maybe

A. Buying real estate is an exciting — and sometimes scary — proposition.

We’re glad that you’re trying to educate yourself before you dive in.

Let’s start with the differences between a co-op and a condo.

The first difference is that both real estate investments involve the sharing of expenses by all owners or shareholders in the association, said Steven Gallo, a certified public accountant and personal financial specialist with U.S. Financial Services in Fairfield.

“When you purchase a condo you receive a deed for the specific unit you are purchasing, you are responsible for the payment of local and county real estate taxes for your specific space based on the assessed value on the city or town’s tax records,” he said. “When you purchase in a co-op you are buying shares in the overall complex, the number of shares is based on the square footage of the unit you will occupy. Therefore, you will not receive an actual deed for your unit instead, simply a certificate of share ownership.”

Then there are differences in the common expenses, often called maintenance payments, for the two types of homes.

In a condo, you are normally going to share in the upkeep of the common areas such as lawn maintenance, snow removal, exterior painting and repair, Gallo said.

“Most insurance costs are included in the maintenance payments with the condo owner only being responsible to insure the contents of his or her unit,” he said.

Some condo complexes may include utility payments as part of the maintenance fees, he said.

“Most new condos have separated all the utilities so each unit will be responsible for their own usage, however older complexes that might have been rental units originally and have since been converted to condos often have shared utilities,” Gallo said.

In a co-op, all these same expenses will be included in your maintenance payment, but you will have two other major items to account for.

The first is the underlying mortgage held by the co-op association in which you are buying shares, as well as the real estate taxes levied on the complex, Gallo said. As a shareholder you will be responsible for your proportionate share of these two items based on the number of shares you own. Therefore, you will find the maintenance expenses for a co-op are normally much higher than in a condo, he said.

Gallo said in his experience, co-ops have never really taken off in New Jersey, with a few exceptions, like Hackensack.

“I have never been a fan of co-ops for several reasons but the biggest is your lack of control,” Gallo said. “A co-op will be run by a board who not only will be responsible for making decisions on everyday operations but also will vote on who can and cannot buy into the co-op.”

“Bottom line you will need to be approved when you buy in but more importantly when you want to sell your shares, you will not only need to find a buyer, but this buyer must be approved by the Board, therefore adding an additional layer to the sale process,” he said. “I do not believe, and this is simply my opinion, that co-ops are as good an investment as a condo would be although both should allow the owner to share in future appreciation.”

You should be sure to look carefully at the budget and operating statements for either the co-op or condo, Gallo said.

If money has not been reserved in the budget for future maintenance needs such as a new roof or heating system, you may well be looking at future capital assessments when these items need to be replaced, he said.

“In the case of the co-op you also need to be aware of the underlying mortgage for the complex and its terms,” he said. “If it is a balloon mortgage that will be coming due in the next few years you may also be looking at a jump in maintenance if the interest rate increases on the new loan.”

Also keep in mind that not all banks in the state will give you a mortgage on a co-op unit, which can be a real issue unless you’re planning to pay cash, he said.

As always in real estate, it is always about “location, location, location.”

“Make sure that whichever unit you choose, it meets your needs since a purchase made now will be at the height of the market and if you find that you are not happy and wish to sell in a few years you may find yourself in a down cycle and unable to recover your costs,” Gallo said. “Make sure you are comfortable with your housing budget and build in a cushion for future maintenance increases since in both cases you will have little control over those expenses.”

Good luck.

Email your questions to .

This story was originally published on July 1, 2021.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.