Condo or coop: There’s a difference, and you should know it before you buy real estate in Florida

You can buy a condo, but you will never own your coop.

Everybody wants to live in Florida, and who can blame them? It’s gorgeous here! Pleasant weather all year long tops the list. Most housing is affordable, too. But not all real estate is created equal.

It’s important to know the difference between a condominium (condo) and a cooperative (coop) before you make a real estate purchase. Fortunately, you’ll find condos in just about every Florida community, while coops are less common. Nevertheless, you need to know what each type of real estate is. There’s a striking difference. It determines the property taxes you pay, and the type of loan you’ll need to get.

Condos

It wouldn’t be the Miami skyline without them. Condominiums in the state are governed by the Florida Condominium Act. This legislation regulates how they are treated as real estate purchases. Basically, the law provides you with what’s known as an “undivided interest” in all the common areas of the building. That can include areas such as:

• The pool

• The gym

• The parking area

You’ll own your individual unit in the building, and you’ll be responsible for paying property taxes on it. The IRS gives you a deduction for those taxes. The condominium building will require you to pay monthly dues that cover the maintenance of all the areas that fall under your “undivided interest.” This is not tax deductible.

You’ll have to qualify for a mortgage to buy a condo. When you buy the unit, you’ll receive a real estate deed. So, in many respects, buying and owning a condo is like doing the same with a single-family house. You own the property—and you will pay either a monthly condo maintenance fee, or a yearly homeowners association fee.

Coops

It’s a different story if you decide to buy a coop in Florida. You will not be a property owner. You can’t buy a coop. You instead become a shareholder in the corporation that owns the building. What this means is that you cannot use the financial instrument known as a mortgage for the purchase. You must obtain a home loan.

Wait? Isn’t that the same thing?

They are quite different. When you buy a condo, you own the physical property. You can finance the purchase with a mortgage. You immediately own the condo. The money you borrowed is not a loan, and the mortgage is an agreement that names your condo as the security that you’ll repay what was borrowed. The key thing is that you own the physical piece of property.

You must obtain a home loan—not a mortgage—to finance the purchase of a coop because you don’t actually own the property. You buy shares in the corporation that owns the building. In other words, you’re not taking out a mortgage—instead you’re taking out a loan to invest in a corporation.

Condo can-do

Generally, all it takes is the seller to agree to your offer on a condo if you qualify for the mortgage to buy it (unless you pay cash). You can also sell it whenever you like, and profit on the equity the property has accumulated. In most cases, you’re also free to decorate or renovate your condo interior as you like. You can also decide to rent out your condo if you wish—but you’ll want to be certain of that prior to the purchase.

Coop complexities

Things aren’t so cut-and-dry with coops. You must be approved by the coop’s board before you can become an investor and shareholder in the corporation that owns the building. And since you don’t own anything other than shares, you aren’t building any equity. You’ll still pay property taxes, though. It’ll be a percentage of the property tax assessed on the building.

However, you’ll have more to deduct in property taxes. There’ll be the interest on your home loan, as well as the interest on your portion of the corporation’s mortgage on the building. The monthly maintenance fees are also usually tax deductible.

Renovate or redecorate the interior? Better check with the coop board first. You don’t own it, remember? If you decide you want to sell, your buyer will also have to be approved by the coop board—just as you were. Finally, coops typically don’t allow rentals.

They might look the same from the outside, but a condo building and a coop building present quite a difference in what you own, how you can finance it, and to whom you can sell it. Coops sound restrictive, but there are some condos that enforce similar rules and regulations. Do your homework before you make a purchase decision.