Wednesday 16 July 2014

What is the difference between a condo and a co-op?

We need to clarify between the terms co-op and condo, because many people interchange them and they are similar in some ways, but very very different animals in the end.

While both are incorporated entities, the big difference is that with a condo you actually own a portion of the property as per the condiminium's design. You OWN the unit, and it is registered on title at the land registry office. You also own a share in the corporation, and thus you effectively own the rest of the property "in common" with the other owners. This is why it is known as the "common element".

With a co-op, however, you do not own any property. You only own shares in the corporation, and those shares come with a right to use a certain unit. But you do NOT own the unit, as the units are not legally distinguished from the overall property the way they are in a condo. The co-op corporation owns the entire property, and you are given rights to use a portion of it. The most significant challenge is that because you can't register the ownership in land titles, you can't get a standard mortgage.

Unless you have a line of credit big enough or other collateral, the only financing you can get is basically a personal loan secured against the value of the shares. There are not a lot of lenders that do this, and of course it's harder to qualify than with a mortgage that is secured on title. I feel that this is a big reason why a co-op tends to be cheaper than a similar condo - the financing makes it harder for most to buy, thus reducing the market for them. This may also hold back the appreciation in the long run.

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