If you are beginning a search for a condo in the DC metro area you will almost certainly run into a few coops (Cooperatives) along the way. From the outside, an apartment building, a condo, and a coop all have a similar look. They’re all buildings of one type or another made for residence to live in individual units with some shared common space. However, there are differences to the legal way these units are owned and operated. Neither is absolutely better than the other but the differences should be understood when making your determination on where to live.
An apartment building, one company owns the entire building and rents out each individual unit for a set amount of time in exchange for a rent check. Since I sell real estate and do not represent renters in apartment buildings, we won’t go into great detail about these. In a condo, each individual unit is bought and sold and title is exchanged for that particular unit. The owner of the unit pays a condo fee which helps maintain common areas which could include the roof, lobby, front desk staff, gym, pool, and/or other amenities. In some cases the condo fee also includes utilities. However, in a coop, there is one company that owns the entire building including the individual units. Instead of purchasing your individual unit and the title that goes with it, you are purchasing a set number of shares in the company that maintains ownership of the building and the unit in exchange for your right to occupy the property. While that may sound overly complicated, records of ‘shared housing’ such as a coop date back all the way to Babylon so this is not a new concept. Coops are quite common in major cities like Paris, Chicago, NYC, and we have over 120 in DC alone.
While there are some additional hurdles to purchase a coop, if you are able and willing to jump those hurdles there are some benefits. Coops in general have a lower price per square foot than a similar condo, have some of the ‘best addresses’ in DC, coop fees include your taxes, and you’re taxed at the non-profit status rate of the coop compared to the regular rate of a condo owner. Additionally, since coops typically have tight rental restrictions it is unlikely you will be surrounded by renters moving in and out, taking less care of the property, and an added sense of community with similar owners living next door. The Watergate and The Chastleton are two of the best known buildings in DC that are coops.
Coops can have additional restrictions that do limit some purchasers. In some coops, they require a 10% down payment regardless of whether you can get a loan approved with 5% or less down. Since the title to the property is not exchanged and you are actually purchasing shares, most local lenders do not lend to coops but the big banks like Wells Fargo, PNC, etc. would need to be contacted for a loan. Most coops also have tight rental restrictions. They may include no renting at all, or renting only for 1 year after you have occupied the property of two years, and you must move back in after one year or sell your property. There are many different variations to this but ultimately, you should not buy a coop if your plan is to eventually turn it into a rental property. Last but not least, most coops require an interview as part of the approval process to purchase. Depending on the coop and the situation, this could be a phone call with someone from the board, or an in person panel with the entire board. Almost always this is to introduce you to the board, make sure you understand the rules and guidelines, etc. Given all the Fair Housing laws in place, it is unlikely you would be turned away from a purchase for any reason other than financial qualifications.
Since there are additional hurdles, particularly the financial ones, it can reduce the amount of buyers interested in purchasing the property when you go to sell. The coop fee can also surprise many prospective buyers but here understanding the tax difference is critical. In a $500,000 condo taxed at 0.85% your annual would be $4,250 or $354 per month. In a condo, this would be added to your monthly mortgage payment. Since the tax is paid through your coop fee, you could pay a $354 per month more in a coop and have the same total fee as a similarly priced condo.