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DEFINING CONDOMINIUMS AND COOPERATIVIES

Created on 02/06/2015.


Condominium Ownership

The owner of a condominium has a fee simple title (the same as for a single family home) and deed to the individual condo unit as well as an undivided interest in the common elements of the property such as the land, walls, hallways, roof, pool, clubhouse, etc. A prospectus or offering plan defines the common elements and describes the individual units. The condominium by-laws define the operating rules and establish procedures for an elected Board of Managers to oversee operation of the condominium. A monthly association fee is paid by the condo owners to cover the expenses of maintaining and operating the common elements (not tax deductible). Real estate taxes on the unit are assessed to and paid directly by the unit owner (tax deductible). Mortgage interest on any purchase loan is also paid directly by the unit owner (tax deductible). Generally, a condominium owner may sell or rent their unit as they wish. Condominium units exist in a variety of architectural styles, including buildings, attached, semi-attached and detached simplexes and duplexes.

Cooperative Ownership

In cooperative homeownership, the title to the land, building(s) and common elements is held by an apartment corporation. Unit owners purchase shares of stock in the corporation and obtain a proprietary lease for the unit and a stock certificate representing the number of shares owned (it is technically the purchase of "personal property" rather than "real property"). As stockholders, unit owners elect a Board of Directors to oversee administration of the building. The by-laws of a co-op typically give the Directors the right to approve/disapprove of prospective purchasers, in accordance with anti-discrimination laws, since all owners are financially vulnerable if other owners default. The by-laws may also limit a shareholder's ability to rent their unit because higher rental ratios can affect the tax status of the entire property (this can result in higher owner occupancy rates than condos). Unit owners pay monthly fees that cover maintenance and management costs, as well as the corporation's property taxes and the underlying mortgage on the building (the portion of the monthly fee that represents the property taxes and underlying mortgage interest is tax deductible for the unit owner). Even though co-ops are considered personal property, for income tax purposes, the IRS allows co-op owners to also deduct the interest on a co-op purchase loan. Values per square foot for co-ops are generally less than for condos and settlement costs are often lower. However, the purchase of a co-op often requires a higher down payment (as established by the co-op's by-laws or the lender) and the pool of potential lenders for a co-op loan may be smaller than for a condominium mortgage.


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