What is a cooperative, or "co-op?" You may have heard agents or friends suggest that you avoid buying into a co-op, but do you or the person who "warned you" truly know how a cooperative differs from a condominium? Not many people know the difference. The Watergate (you may have heard of that), The Westchester near the National Cathedral in Northwest D.C., Tiber Island and Harbour Square on the increasingly popular Southwest Waterfront, among others, are cooperatives, and are also some of the most desirable places in which to live in the D.C. area.

Daily life in a cooperative is essentially the same as in a condominium. The main difference is that in a condominium, one owns actual real estate, whereas in a cooperative, ownership is held via shares of stock in the corporation that owns the entire building. Not all cooperatives are created equal, however! Each has their own rules which define them. Some may allow owners (shareholders) to rent out their unit, while others may have restrictions against rentals. Some co-ops may allow pets, others may not.

"BUT CO-OP FEES ARE SO HIGH!", you may have heard. Not true! Another important distinction to understand is that typically most cooperatives have real estate taxes included in their "fees", whereas condominium owners pay their own real estate taxes. Therefore, when comparing fees, this difference must be taken into account. Also, many cooperatives have common metering of utilities, and therefore utilities may be included in the fee. Some Co-ops also may have an underlying or "blanket" mortgage which may have been secured for improvements. This mortgage payment also is often "lumped" in what is referred to as the co-op fee, when in actuality, it is a mortgage that has tax-deductible interest and payment of principle which inures to the benefit of the owner each month. It most certainly is NOT a fee, but many agents don't even understand this, so how can they be expected to eexplain it to their clients? A high cooperative fee may actually be less than a condominium fee when these other items are figured into the equation! Real estate taxes which are paid via the cooperative and along with your fees are tax deductible.

Some cooperatives have more rigid rules than condominiums, but they aren't necessarily a negative. Sometimes these rules help prevent default by an owner which can help protect the other shareholders. Cooperatives also may have the ability to leverage costs or necessary renovations, whereas a condominium would typically have an assessment that each owner is required to fund on their own, which if one doesn't have the necessary funds or is unable to afford to refinance to pay this assessment, could put the owner in a difficult position.

The distinction isn't simple between cooperatives and condominiums, and not even all cooperatives are created equal! Many vary greatly in their own rules, fee structure, and operation. While day-to-day life is not much different, it is important to understand the nuances of the cooperative form of ownership so that you can make a fair and informed comparison when weighing the "cooperative vs. condominium" decision.

I develop and have consulted to cooperatives since 1987 (and have lived in one for almost as long!), so I'm happy to go over any questions you may have concerning the cooperative form of ownership!