Condos and Co-Ops as Investment Property and What You Should Know About Them

Condos and cooperatives (co-ops) are prevalent in some areas and rare in others, although condos are much more abundant than co-ops. Both types of dwellings can be similar in appearance, but differences exist, as well. Co-ops are most often apartments that are not used as conventional apartments. A corporation is formed to either build or buy an apartment building. Co-op owners are sold stock in the corporation that allows them to live in one of the apartments. The buyers of co-ops do not own real estate; they own stock in a corporation. When a buyer purchases a condo, they own the property interior, but not the exterior or the grounds. These are very different types of ownership than traditional homeowners are accustomed to.

Across the United States, condos are popular investment properties. Many investors buy condos at beaches or ski resorts. Co-ops, generally associated with large cities, usually are not considered to be as glamorous as condos. Of course, there are exceptions to most rules, and some co-op buildings are very prestigious. From an investor's point of view, condos normally are considered the better of the two types of dwellings to put your money into.

What's the difference between a condo and a co-op? Physical differences can be slight, but ownership elements differ significantly. Most importantly, if you buy a condo, you receive a deed to prove ownership in real property. Buying a co-op gets you stock in a corporation, but no deed to real estate. You can sell your condo to anyone you wish, just as you could do a house, but the person buying your co-op may have to be approved by a board consisting of members of the corporation that owns the co-op building. Also, restrictions of owners' rights often are much more severe for co-op owners.

Condos are somewhat different from co-ops when it comes to what an owner can and cannot do with the property. If you buy a condo, you can make chances to the interior space. For example, if you don't like the kitchen cabinets and counters, you can replace them. Don't count on being able to do this in a co-op. It must be stressed that each planned development, whether a condo or co-op, can have individual rules, and you must be well aware of them before purchasing a unit to avoid problems down the road.

In most cases, both condos and co-ops can be used as rental properties; however, restrictions placed on specific properties may limit or prohibit such use. This is why it's important that you check all of the documentation associated with any condo or co-op before you buy it. Again, developers and corporation owners set their own rules for their condos and co-ops. Don't assume anything. Prohibitions concerning nonowner-occupied units would be a disaster for an investor.