Although they are similar, condos and co-ops are not the same, and it is essential to understand their differences before buying one.

Many people confuse condos with co-ops, thinking they are interchangeable. A condo is a private residence in a multiunit structure that includes ownership of commonly used property. A co-op is also a multiunit building, but that’s where the similarities end. A co-op owner has an interest or share in the entire building and a contract or lease that allows the owner to occupy a unit. While a condo owner owns a unit, a co-op owner does not own the unit.

Co-ops are collectively owned and managed by their residents, who own shares in a nonprofit corporation. The corporation holds the title to the property and grants proprietary leases to residents, Isaacs said. The lease grants permanent rights to residents to live in their units and to use the common elements of the cooperative according to the co-op’s bylaws and regulations.

The first housing cooperatives arrived in New York in the late 1800s, and co-ops remain popular in that city. Thirty percent of all housing there is co-ops, according to the National Association of Housing Cooperatives. Co-ops flourished in Washington starting in the 1920s, particularly along Connecticut Avenue. The first D.C. co-op, the Concord, was introduced in 1891, while it took the first condo 70 more years to arrive on the scene, Isaacs said. Chicago is another city where co-ops are popular.

The difference in costs. Co-ops tend to be cheaper per square foot. They typically offer buyers more control as an individual shareholder and often have lower closing costs. Condos are often easier to finance. Obtaining a mortgage for a co-op can be tricky. Some lenders shy away from co-ops or require higher down payments. Condo fees are usually lower. A co-op owner’s monthly fee can include payments for the building’s underlying mortgage and property taxes, amenities, maintenance, utilities and security.

The tax advantages of owning a condo or a co-op are about the same. If the owner has a mortgage, the yearly interest paid on the loan is deductible. Co-op owners also can deduct their share of the mortgage interest paid on the building’s underlying mortgage and their share of property taxes the co-op pays. Property taxes often are lower for co-ops than condos.

Living with the rules. An important distinction between a co-op and a condo is that most co-op associations require a prospective purchaser to be approved by the co-op board. The upside is being able to pick your neighbors. The downside is that when you sell, the board must approve the buyer and that can delay the sale. By laws the board can reject applicants for only two reasons: financial or a refusal to abide by the association’s rules and regulations.

Some people worry that a co-op board has too much power. However, during the financial downturn, co-ops came through better than most condos.

Can you rent it out? 
There’s nothing inherently good or bad about buying one versus the other, however co-ops tend to have restrictions that limit secondary rentals, residents generally feel more invested in the property, which can foster a strong sense of community among shareholders.

So what do you think? Is it better to buy a condo or a co-op?