Condos versus Co-ops

For my first discussion, I want to talk a little bit about co-ops vs. condos. Co-ops are a very ,misunderstood piece of the real estate market. The basic difference is this: Co-ops are corporations in which you buy shares, in exchange for which you are given the right to occupy a unit. Condos are units that you buy, along with an undivided interest interest in the common elements (like hallways, courtyards, pools, and other amenities.) Though it may seem like a small difference, the implications are actually huge. You can see a further discussion of the differences on my web site here.

First, a disclaimer: I am just not a fan of co-ops. Something about having to get approval of a Board before you can buy property just rubs me the wrong way. And the captive financing–by which I mean you can only use the one or, if you’re lucky, two approved lenders, who certainly know that if you want the unit you have to go through them (guess what that does to your rates?), well, it’s just not in keeping with the capitalist spirit. The MBA in me bristles at it. Co-ops are almost always cheaper than comparable condos, and for good reason.

The financing is one disadvantage, but the biggest drawback I’ve learned of is the “land lease” co-ops. Here’s how it works: when the co-op is formed, they only have a lease on the land that the buiding is on. It’s usually very long term, say 99 years. River Place in Rosslyn is like this. Guess what happens when the lease is up? Everyone gets kicked out, and the building and all its improvements (that means your unit too!) revert to the LAND owner. You get nothing! It’s just like having an apartment that you pay to remodel, but when the lease is up, your landlord gets it all at no cost. River Place’s lease is up in about 50 years. That ‘s why the units there are so darn cheap compared to condos…they decline over time as the lease end approaches. I wonder whether people within the 30 year window at the end will even be able to get a loan? It will sure stink to be an owner in that window. Good luck trying to sell!

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