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Condo vs. Apartment: Which Should You Buy?

Buying a condominium means buying an individual unit in a property with public areas owned and managed by a homeowner’s association. Buying an apartment usually means buying a share of ownership in a cooperative association that owns the property and grants proprietary leases allowing shareholders to live in specific units. Condos may be more expensive to buy, but easier to finance. Apartments in cooperative buildings tend to cost less, but are harder to finance.

A financial advisor could help you create a financial plan for your homebuying needs and goals.

Condo and Apartment Basics

Both condos and co-op apartments are generally single-family residences that are part of multi-unit buildings. Both usually share walls with other units and are overseen by boards elected by residents. They are common interest properties, meaning common spaces such as hallways, lobbies and grounds are owned jointly by all the owners.

Condos and apartments aren’t the same, however. Here are specific definitions for each:

In a condominium, individuals own each specific unit. Owners may be the residents or they may not live there and, instead, rent the dwellings to others as living quarters. Along with ownership of the unit, which is defined by a legal description of the air space the unit occupies, owners have a joint interest in common areas and amenities including pools, gyms and parking areas. A condo association oversees common area and building exterior maintenance, collecting fees from owners to pay for the work.

Apartments that aren’t condos but are owned by residents are usually set up as cooperatives. Cooperative apartment owners technically don’t own their units. Instead they own shares of the co-op and the co-op owns the property including each individual unit. Cooperatives are governed by boards, which grant proprietary leases to shareholder residents. The boards also oversee maintenance and improvements paid for by fees charged to shareholders.

Condo Pros and Cons

Condos are different enough from apartments that each has significant pros and cons in relation to the other. Here are three advantages for owning a condo:

  • Easier financing. Lenders are often more willing to finance condo purchases than the purchase of cooperative apartments. That’s because in the event of default, the lender can seize the unit that is serving as collateral.
  • Fewer ownership restrictions. Condo owners freely decide to whom they will sell or rent their unites, without requiring approval from the association.
  • Lower monthly fee. Association fees can be significant costs to owners of condos or apartments, but condo associations often have lower fees.

Condos don’t have all the advantages. Here are two disadvantages for owning a condo:

  • More costly. Condo units tend to sell for more per square foot than similar co-op apartments.
  • Higher closing costs. Condo buyers pay more at closing. One significant add-0n is a title insurance policy premium.

Apartment Pros and Cons

Condo vs. Apartment: Which Should You Buy?

The special characteristics of co-op apartments give them advantages and disadvantages compared to condos. Here are three pros:

  • Less costly. Assuming other factors such as location are equal, a co-op apartment often will sell for less than a comparable condo.
  • Lower closing costs. Co-op apartment buyers usually don’t pay for title insurance when closing on a purchase, and may also have fewer other closing costs.
  • Co-op apartment owners can control who their neighbors are. Purchases usually must be approved by the association.

In addition, co-op apartments typically have these three cons:

  • Harder financing. Lenders can’t repossess a co-op apartment if a borrower fails to make payments, since the borrower owns shares in the co-op rather than an individual unit. As a result, many lenders are reluctant to finance co-op apartment purchases.
  • Harder to sell. Co-ops boards often must approve buyers, meaning owners can’t just sell to anyone. For instance, co-op rules may limit buyers from financing more than 75% of the purchase price.
  • Harder to rent. Co-op rules may be more likely to prohibit owners from renting units.

Bottom Line

Condo vs. Apartment: Which Should You Buy?

When buying a home you have numerous choices. Condos and apartments are similar in many respects but quite different in others. Condo buyers often pay more for their properties and have higher closing costs. They also exercise more control over their units, however, and may more easily sell or rent them to others. Non-condo apartments that available for sale, are usually co-ops. Co-op apartments may cost less and have lower closing costs but are typically harder to finance and subject to tighter restrictions on renting or selling.

Tips on Home Buying

  • A financial advisor can help you identify the type of property purchase that best fits your financial objectives. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • Some condominium units are separate buildings rather than sharing walls with other residents. These are still subject to the same homeowner association rules and associations also pay for exterior and common area maintenance. Townhouses are another type of property similar to apartments except they are more likely to be multi-level and not have units above or below them. Townhouses are typically condominiums.

Photo credit: ©iStock.com/Svetlana123, ©iStock.com/Olga Kaya, ©iStock.com/DragonImages

Mark Henricks Mark Henricks has reported on personal finance, investing, retirement, entrepreneurship and other topics for more than 30 years. His freelance byline has appeared on CNBC.com and in The Wall Street Journal, The New York Times, The Washington Post, Kiplinger’s Personal Finance and other leading publications. Mark has written books including, “Not Just A Living: The Complete Guide to Creating a Business That Gives You A Life.” His favorite reporting is the kind that helps ordinary people increase their personal wealth and life satisfaction. A graduate of the University of Texas journalism program, he lives in Austin, Texas. In his spare time he enjoys reading, volunteering, performing in an acoustic music duo, whitewater kayaking, wilderness backpacking and competing in triathlons.
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