I can buy a condo or a cooperative. What are the differences?

Q. Could you tell me if you think that cooperatives and condos are good investments to be able to take advantage of the capital gain? What things should a first-time buyer consider for these two housing options? I am single and middle aged with moderate income.

– Buyer, maybe

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

We’re glad you try 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 expense sharing by all owners or shareholders in the association, said Steven Gallo, chartered accountant and personal finance specialist at US Financial Services in Fairfield.

“When you buy a condo you receive a deed for the specific unit you are purchasing, you are responsible for paying local and county property taxes for your specific space based on the estimated value on city tax records or of the city, ”he said. mentionned. “When you buy in a co-op you buy shares in the whole complex, the number of shares is based on the square footage of the unit that you will occupy. Therefore, you will not receive an actual deed for your unit instead, just a certificate of share ownership.

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

In a condo, you will normally be sharing the maintenance of common areas such as lawn maintenance, snow removal, exterior painting and repair, Gallo said.

“Most of the insurance costs are included in the maintenance payments, with the owner of the condo only responsible for insuring the contents of his apartment,” he said.

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

“Most new condos have segregated all utilities so each unit will be responsible for its own use, but older complexes that might have been rental units originally and have since been converted to condos often have shared public services, ”said Gallo.

In a cooperative, all of these same expenses will be included in your maintenance payment, but you will have two other important elements to justify.

The first is the underlying mortgage held by the cooperative association in which you buy shares, as well as the property taxes levied on the complex, Gallo said. As a shareholder, you will be responsible for your share of these two items depending on the number of shares you own. Therefore, you will find that the maintenance expense of a co-op is normally much higher than that of a condo, he said.

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

“I’ve never been a fan of co-ops for a number of reasons, but the most important is your lack of control,” said Gallo. “A co-op will be run by a board of directors who will not only be responsible for making decisions about day-to-day operations, but will also vote on who can and cannot join the co-op. “

“Ultimately you will have to be approved when you buy, but more importantly when you want to sell your shares, you will not only have to find a buyer, but that buyer has to be approved by the board of directors, thus adding a layer added to the selling process, “he said.” I don’t believe, and this is just my opinion, that co-ops are as good an investment as a condo, although both should allow the owner to share future appreciation. ”

You should make sure you carefully review the co-op or condo’s budget and operating statements, Gallo said.

If money has not been set aside in the budget for future maintenance needs such as a new roof or new heating system, you may well consider future capital appraisals when these items need to be replaced. did he declare.

“In the case of the co-op, you also need to know the underlying mortgage of the complex and its terms,” he said. “If this is a balloon mortgage that will mature in the next few years, you might also consider an increase 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 problem unless you plan to pay in cash, he said.

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

“Make sure that whichever unit you choose meets your needs because a purchase made now will be up to the market and if you find that you are not satisfied and want to sell in a few years , you risk finding yourself in a bad spot. cycle and unable to recoup your costs, ”Gallo said. “Make sure you are comfortable with your housing budget and provide a cushion for future increases in maintenance, because in either case you will have little control over these expenses. “

Good luck.

Email your questions to [email protected].

Karin Price Mueller writes on Bamboo column for NJ Advance Media and is the founder of NJMoneyHelp.com. Follow NJMoneyHelp on Twitter @NJMoneyHelp. Find NJMoneyHelp on Facebook. Register for NJMoneyHelp.com‘s weekly electronic newsletter.