Ins and outs of condos and co-op apartments

For anyone who wants to live in something besides a rental apartment, the real estate ads in many Sunday newspapers look mighty appealing.

They feature bold percentage figures which are several points below prevailing rates for ordinary home mortgages. And while many mortgages being written today are variable and apt to change after five years or so, these ads sometimes even promise rates that are fixed for the life of the mortgage.

In most cases, the ads are not for houses, but for condominiums and cooperative apartments. Commonly known as ''condos'' and ''co-ops,'' these are perhaps the fastest-growing segment of the US housing industry. Yet many people do not know the difference between them. Not knowing can sometimes be financially painful.

In the Washington, D.C., area, for instance, occupants of a new cooperative apartment building, with not all the units yet sold, are concerned because the financially strapped developer is behind on its property tax payments and other obligations. It may go out of business, leaving the tenants with a pile of unpaid bills.

That's one of the differences between a condo and a co-op: with a condo, your only financial obligation is to make the payments on your particular unit and any ''common charges'' or maintenance fees. But in a co-op, the occupants share all the costs. So if another tenant, or the owners in the case of a new co-operative, have financial difficulty, their bills have to be picked up by the other people living there.

Despite this, co-ops should not be rejected outright; there are advantages to co-ops and condos that make both worth exploring.

The main difference, says Myrna Putziger, a Boston lawyer who has handled both condo and co-op projects, is that with a condo you just buy the unit itself. This may be an apartment, town house, or even a separate residence.

With a co-op, all you are getting is shares in the cooperative managing the building. You do not actually purchase the unit you live in and your monthly payments are applied to the interest on the blanket mortgage and the property tax payments. This portion, incidentally, is deductible from federal income taxes.

Many co-op and condo developers come up with financing on their own, obtaining a loan to cover the entire project. Because these loans are so much larger than an ordinary mortgage, they are often several percentage points lower than conventional mortgage rates. This results in lower monthly payments for the residents.

The payments on co-ops may also be cheaper if the building was formerly rental apartments and an old mortgage is not yet paid off. In this case, the mortgage rate may even be under 10 percent.

In addition, Ms. Putziger notes, co-op residents have more say in who their new neighbors are. Because everyone else is a shareholder, they have to pick up the tab if a new occupant defaults. So current residents can ask for assurances of a good credit rating and adequate income. They cannot, however, discriminate on the basis of race, sex, age, or religion.

This shareholder advantage, however, is two-edged, and it's the reason anyone considering a co-op should thoroughly investigate the entire project, including who else is living in the building and the company managing the property. If you are buying into a new building, look into the experience of the developers. Ask a lawyer to look over any documents so you know what your worst-case obligations might be. If you are moving into an already-occupied building, ask some of the current residents about the building's advantages and disadvantages.

If your present apartment building is ''going co-op,'' you may be able to buy into your tax haven at a fairly low price. But look over the engineer's report carefully to see what renovation and maintenance expenses there may be in the future.

While a condominium is a simpler arrangement and has fewer obligations, you can trip on those ''common charges,'' or fees for maintaining community property , notes a report by the New Hampshire Society of Certified Public Accountants. Community property can include a swimming pool, community center, security, and garbage collection. But it can also include the cost of making up for shoddy construction or renovation. You might have to help pay for a new roof or stairs next year, for instance, thus increasing your maintenance fees. And maintenance fees, the New Hampshire CPAs note, are not tax-deductible.

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