Condo vs. Co-Op as a Second Home? Pros and Cons

[G-Man]

I'm in the early stages of researching and educating myself on ownership of a second home near a local beach that is about 60 miles from my primary residence.

If I move forward with this decision, there is a co-op building that has oceanfront view units that sell occasionally and seems to more economical than condo units at the beach.

Based on the research I have done so far; the co-op lacks flexibility, you don't own the unit (you lease it), low appreciation, and it may be difficult to sell.

Does anyone have any experience with owning a co-op unit? Any recommendations as I do more research on ownership of a second home?

FYI. Here are some good articles on condo -vs- co-op
https://www.washingtonpost.com/real...4e7bd6-faf5-11e7-ad8c-ecbb62019393_story.html
https://www.reddit.com/r/RealEstate/comments/p15nzn/buying_in_coop_pros_cons/

 

[bloom2708]

Is this a hurricane prone area? Or non-hurrican area?

As a second home, I can see advangates to leasing/renting. Especially as you determine how much you will use it. 60 miles is an easy drive, so hopping over for a weekend is no issue. I see too many people that buy 300 miles away that just don't use it enough.

The buying/selling gets very expensive quickly.

Insurance for owning may be prohibitively expensive as well.

I am leaning toward renting/leasing and not owning anything in retirement. I know you may miss out on appreciation, but there is a flip side to appreciation. Expensive repairs, weather damage, high property taxes, high or no insurance.

A co-op may be a good way to test the waters. Probably higher entry standards than a standard rental unit. Hopefully some with direct experience can chime in.

 

[G-Man]

Is this a hurricane prone area? Or non-hurrican area?

As a second home, I can see advangates to leasing/renting. Especially as you determine how much you will use it. 60 miles is an easy drive, so hopping over for a weekend is no issue. I see too many people that buy 300 miles away that just don't use it enough.

The buying/selling gets very expensive quickly.

Insurance for owning may be prohibitively expensive as well.

I am leaning toward renting/leasing and not owning anything in retirement. I know you may miss out on appreciation, but there is a flip side to appreciation. Expensive repairs, weather damage, high property taxes, high or no insurance.

A co-op may be a good way to test the waters. Probably higher entry standards than a standard rental unit. Hopefully some with direct experience can chime in.

Non-hurricane area

 

[LateToFIRE]

OH boy do I have [past] experience with co-ops. This is a fairly common form of ownership in NYC, where I've spent the bulk of my adult existence. There is a reason the co-op units are priced lower and that is because there is less flexibility.

You're half right about leasing vs owning the unit. But, don't let that bother you - its not like a conventional lease. It's called a Proprietary Lease. Basically, you own shares in a corporation that owns the real property. Those shares entitle you to a proprietary lease on the specific unit - its basically a perpetual lease that never expires.

But, because you do not directly own the property, the corporation (governed by a board) can impose more restrictions and bylaws than you might find in a condo [some might actually find this comforting]. For example, the corporation may have the right to review and veto potential buyers or renters of your unit. Getting into a co-op in NYC is often like applying to private country club - tougher in some cases. You get all your financials reviewed, you have to go for interviews, even your pets and children might have to be interviewed. Hopefully, the situation you're looking at is not that severe.

Another major difference is that the corporation can take on debt, where-as an HOA or condo association cannot do that. So, there could be underlying debt on all the units. You have to scrutinize the corporation's financials very closely, because if its been run poorly, this could hurt the value of the units. For this reason, while some banks will lend for a co-op purchase, the rate tends to be a little higher.

Despite the negatives, a co-op purchase is usually just fine if you've got a decent board, capable of walking the line between enforcing the rules vs behaving like dictators, and if you're not putting out a fortune to buy the unit. [Helps if there's at least one financially savy individual on the board, like a retired lawyer, accountant, banker, etc.]

One last thing - in comparing the carrying costs - in a co-op the prop taxes are embedded in the common charge, whereas in a condo it is a separate item.

 

[G-Man]

OH boy do I have [past] experience with co-ops. This is a fairly common form of ownership in NYC, where I've spent the bulk of my adult existence. There is a reason the co-op units are priced lower and that is because there is less flexibility.

You're half right about leasing vs owning the unit. But, don't let that bother you - its not like a conventional lease. It's called a Proprietary Lease. Basically, you own shares in a corporation that owns the real property. Those shares entitle you to a proprietary lease on the specific unit - its basically a perpetual lease that never expires.

But, because you do not directly own the property, the corporation (governed by a board) can impose more restrictions and bylaws than you might find in a condo [some might actually find this comforting]. For example, the corporation may have the right to review and veto potential buyers or renters of your unit. Getting into a co-op in NYC is often like applying to private country club - tougher in some cases. You get all your financials reviewed, you have to go for interviews, even your pets and children might have to be interviewed. Hopefully, the situation you're looking at is not that severe.

Another major difference is that the corporation can take on debt, where-as an HOA or condo association cannot do that. So, there could be underlying debt on all the units. You have to scrutinize the corporation's financials very closely, because if its been run poorly, this could hurt the value of the units. For this reason, while some banks will lend for a co-op purchase, the rate tends to be a little higher.

Despite the negatives, a co-op purchase is usually just fine if you've got a decent board, capable of walking the line between enforcing the rules vs behaving like dictators, and if you're not putting out a fortune to buy the unit. [Helps if there's at least one financially savy individual on the board, like a retired lawyer, accountant, banker, etc.]

One last thing - in comparing the carrying costs - in a co-op the prop taxes are embedded in the common charge, whereas in a condo it is a separate item.

Thank you so much for the detail response. I will try to get more information about the financials for the co-op. Not sure if this information is publicly available as well as all the restrictions.

As far as selling your co-op unit, does the co-op dictate the sell price? What control do you have in selling the co-op unit?

 

[cathy63]

...One last thing - in comparing the carrying costs - in a co-op the prop taxes are embedded in the common charge, whereas in a condo it is a separate item.

The handling of property tax depends on the location or corporate structure or something. MIL's estate owns a co-op in San Francisco. Each unit in her building receives a separate bill from the county assessor and pays its own property taxes. Otherwise it's a standard co-op with a master lease and shares in the corporation.

 

[G-Man]

The handling of property tax depends on the location or corporate structure or something. MIL's estate owns a co-op in San Francisco. Each unit in her building receives a separate bill from the county assessor and pays its own property taxes. Otherwise it's a standard co-op with a master lease and shares in the corporation.

Any pros or cons to be aware of?

 

[LateToFIRE]

Thank you so much for the detail response. I will try to get more information about the financials for the co-op. Not sure if this information is publicly available as well as all the restrictions.

As far as selling your co-op unit, does the co-op dictate the sell price? What control do you have in selling the co-op unit?

The financials are not public or at least not easy to find, usually need to get from the seller or board. Would be unusual for co-op to set a price, but I’m general the board has broad powers.

 

[LateToFIRE]

The handling of property tax depends on the location or corporate structure or something. MIL's estate owns a co-op in San Francisco. Each unit in her building receives a separate bill from the county assessor and pays its own property taxes. Otherwise it's a standard co-op with a master lease and shares in the corporation.

Oops, my bad. Figures there could be some regional variations.

 

[G-Man]

Oops, my bad. Figures there could be some regional variations.

The monthly maintenance fee in the co-op I'm researching includes everything except electricity.

 

[Sunset]

How many times do people living on the beach walk on it. Or stare out at the water for hours ?

Being only 60 miles away, if the desire to be at the beach is strong, it's a short drive. If I wouldn't drive there, then I would feel I don't really really want to be there.

 

[G-Man]

Any other comments or recommendations?

 

[cathy63]

Any pros or cons to be aware of?

Sorry, I don't have any pros or cons that would be specific to a condo vs co-op, just wanted to point out that the assertion that property taxes would be included in the monthly payments might not be accurate.

In MIL's case, living in a co-op day to day was no different than if it were a condo building with an HOA. There's an elected board and they hire a manager, doormen, and maintenance people. Sometimes there are special assessments for repairs. Some rules are petty and some board members are on power trips. That can happen anywhere though, and it can change over time as new boards get elected.

The estate will be selling the unit this year. I expect it will go for about 3.5x what they paid 30 years ago.

 

[tmitchell]

I owned a condo and the HOA was a nightmare. There were a number of elderly people and a couple disabled who were on fixed incomes. Every time a serious repair matter came up for the building there had to be a special assessment because no one would vote to raise the monthly HOA fee. This meant regular hits of $5-10k most years I was there. Also a number of those residents were in arrears on their monthly payment, and no one had the heart to throw them out (including me) since they would be in real financial trouble. I vowed to never get into another HOA if I have a choice.

In terms of appreciation, there was some but with all the assessments and internal repairs needed I basically broke even after 5 years.

 

[Scrapr]

My new wife sold a home a few years ago with an HOA. She saw large special assessments coming soon & bailed to a condo. Condo HOA was fine if a bit behind on maintenance. If going to a condo I'd look very closely at the finances & board minutes for clues on big assessments being talked about. And perhaps go back channel & talk to residents informally about any issues in the building....relationships, finances, board members, etc

 

[Brat]

One of the advantages of a co-op is that residents are screened, often background checks are conducted and financials examined. Co-ops are not immune from special assessments but should a big one happen the board often works with a resident who can't pay immediatly working out a time payment.

Any building on the coast is high maintenance so keep that in mind.

 

[Lewis Clark]

My mother owns a co-op apartment. In her building, some residents are owners and others are renters. The different statuses causes some governance issues. I'd recommend not buying into a situation where different residents are not equal in this way.

 

[LateToFIRE]

^^^
To some of the comments on co-ops being able to screen buyers or keep out renters, these items are both blessings and curses. Ability to screen buyers might be a positive as an owner, but hurts you when you want to sell. Ability to prohibit rentals a positive if you never intend to rent out, but a negative if your circumstances change and you'd like to have the rental income. IMO, both of these items are net negatives which is why I didn't buy a beachside co-op years ago when I had the opportunity. That said, kinda wish I'd gotten in at the 2009 prices I was lookin at - ah well - I'm just not destined for waterfront property.

P.S. Like some others, I have sworn never to live under a HOA/condo/co-op board ever again (even though I was an officer on the board). The fights were epic. Yet, I am also fairly certain I'll be lured back in for a nice little winter pad in FL somewhere in the future. What can I say. Hopefully low dollar amount of purchase and only seasonal usage will keep me from caring too much about the condo politics.

 

[G-Man]

^^^
To some of the comments on co-ops being able to screen buyers or keep out renters, these items are both blessings and curses. Ability to screen buyers might be a positive as an owner, but hurts you when you want to sell. Ability to prohibit rentals a positive if you never intend to rent out, but a negative if your circumstances change and you'd like to have the rental income. IMO, both of these items are net negatives which is why I didn't buy a beachside co-op years ago when I had the opportunity. That said, kinda wish I'd gotten in at the 2009 prices I was lookin at - ah well - I'm just not destined for waterfront property.

P.S. Like some others, I have sworn never to live under a HOA/condo/co-op board ever again (even though I was an officer on the board). The fights were epic. Yet, I am also fairly certain I'll be lured back in for a nice little winter pad in FL somewhere in the future. What can I say. Hopefully low dollar amount of purchase and only seasonal usage will keep me from caring too much about the condo politics.

There are definitely pros and cons of co-op housing. Just trying to get more educated-on co-op housing as well as the specific co-op building I'm interested in. Still in the early stages of researching.

 

[Brat]

I live in an 'unofficial' housing cooperative (aka, Oregon has no conforming statute). A couple shareholders want us to convert to condo, most oppose.

If you are comparing a coop to a condo in the specific area look at your local State statutes. IMHO, a coop is a better value than a condo.

See my earlier posting.

That said, I would NEVER buy a home on the coast. My husband is a retired architect. When we retired we considered where to buy our retirement home. The cost of maintenance eliminated that option.

 

[MarieIG]

I don't know about your venue, but when I used to research building ownership, including coops and condos (mostly in NYC) I more often than not found a large amount of information, such as deeds, declarations, form priority leases, rules (as an exhibit), mortgages, assignments, tax info, etc. filed online, and accessible to the public.

In any event, if you decide to buy, you want to be fully familiar with the building documentation and financing before closing.

 

[G-Man]

I live in an 'unofficial' housing cooperative (aka, Oregon has no conforming statute). A couple shareholders want us to convert to condo, most oppose.

If you are comparing a coop to a condo in the specific area look at your local State statutes. IMHO, a coop is a better value than a condo.

See my earlier posting.

That said, I would NEVER buy a home on the coast. My husband is a retired architect. When we retired we considered where to buy our retirement home. The cost of maintenance eliminated that option.

The co-op building is a 12-story brick building 1 block away from the beach. It is well maintained building in the area.

 

[Brat]

Then go for the cond.

 

[FLSUnFIRE]

I have a friend trying to get a parent out of a co-op and it's been a nightmare. There is equity but the co-op has shot down every offer because they don't like the price (to the extent that they admit), this as the building has a leak into the unit reducing it's marketability. One offer was shot down by the board, the next passed the board and was shot down by management. I'd never buy a co-op. Wasn't keen on the concept before and seeing first-hand what it can become there is no way. We are all hoping for a catastrophic loss to the property to get her out of this mess.

 

[G-Man]

I have a friend trying to get a parent out of a co-op and it's been a nightmare. There is equity but the co-op has shot down every offer because they don't like the price (to the extent that they admit), this as the building has a leak into the unit reducing it's marketability. One offer was shot down by the board, the next passed the board and was shot down by management. I'd never buy a co-op. Wasn't keen on the concept before and seeing first-hand what it can become there is no way. We are all hoping for a catastrophic loss to the property to get her out of this mess.

I will definitely make sure I'm educated on all the restrictions and ask the realtor a lot of questions. However, it looks like the co-op units in the building I'm researching sell quickly when one comes available. Once again, I'm still researching the pros and cons.