Home ownership has been not only a dream but usually the largest investment that the average family in America will make. Tax laws give strong incentive to purchasing a home, as discussed in detail in our article Homeowner’s Tax Primer-the Tax Advantages of Owning Your Own Home in the United States. And for the last twenty years, the real estate bubble also led people to believe that it was an investment that would always appreciate and could also be used via equity lines to generate ready cash for other needs.

The fallacy of assuming inevitable real estate appreciation was made apparent in the crash in real estate prices both in the United States and Europe in the first decade of the twenty first century and those homeowners who ignored their level of equity in the home found themselves in often desperate situations.

But once one takes a longer view it remains true that home ownership is a good investment if properly recognized for what it can offer and what it cannot offer. Assuming one does not go too deep into debt, the deduction of the mortgage interest and the fact that over the past hundred years real estate has appreciated at the average rate of five percent a year gives economic motivation to the purchase. It must be seen as a long term investment and the goal of building up equity must not be abandoned for access to ready cash via equity lines.

Above all, the primary purpose of owning a home must be the pride of ownership that one achieves in owning and improving one’s living space. Or, as one client put it, “There’s nothing like coming home, doing a project, and knowing you own it…you don’t leave it behind when the lease ends…”

In the immediate aftermath of the real estate collapse, more and more people are opting for apartment living, feeling that avoiding a large investment in real estate makes perfect sense when the first decade of the twenty first century saw people lose most of their wealth as their family homes declined in value. There is much to be said for the relative simplicity of renting and there is an uptick in the number of apartment houses being built nationwide.

It remains probable that over the years the single family dwelling will recover much of its value and those families with children will always gravitate to homes with backyards. Further, the significant tax advantages that investing in one’s home are so significant, that even those who like the apartment lifestyle will gravitate to attempting to own the apartment they live in, via purchasing a condominium or a cooperative apartment, both of which allow one to invest in one’s home and achieve the advantages of home ownership without the usual need for repair, upkeep and a very large down payment.

As housing costs continue to rise, the hope of affording even what was once called a “starter home” may be out of reach for many people. Many people see renting as a better alternative to buying, but renting provides no equity. The answer for people who want to own their own home or who want equity but like the convenience of apartment-type living is to purchase a condominium or a cooperative apartment.

Condominiums and cooperatives are known as “common interest communities.” All the common space, including hallways and corridors, lobbies and common rooms, and exterior grounds, are commonly owned or maintained by all the owners in the development. Although condominium ownership differs in significant ways from cooperative ownership, both afford the owner with the opportunity to achieve equity at a relatively lower price without giving up some of the amenities of apartment living, such as on-site repair people, security, access to common areas such as pools and gyms, and location close to cities without paying the premium of purchasing a home in the city.

This article shall give the basic characteristics of both the condominium and cooperative apartment and suggest some methods useful for the prospective buyer to use in selecting which unit to purchase…or whether to purchase at all. The reader should first read our article on Real Estate Ownership and Transactions in the United States and Tenancy in Common Ownership in San Francisco and Bay Area Communities.



Condominiums, also known as “condos,” offer many of the same amenities as home ownership, except that the development is managed by an “association” that acts much like a cooperative’s board of directors (see below). Individual owners of condominium units share in ownership of common areas, such as corridors and recreation rooms indoors and courtyards outdoors. The association has a duty to ensure that the common areas are kept in good repair. The members of the association are usually elected annually by the owners and are usually unpaid volunteers. There may be an on-site superintendent, or there may be a maintenance crew on call.

Condominium sales are treated just like house sales; the buyer secures a deed of trust and on the day of purchase signs an actual deed for the unit. That deed does not grant the same level of ownership that a deed to a house would provide. All the buyer really owns is the air space within the unit. Because the common space is jointly held by all the residents, they are restricted and often prohibited from making any changes, even beneficial ones. Thus, a condominium owner who wants to renovate indoors can install new fixtures, tear out non-supporting walls, even install a new kitchen or bathroom. That same owner is probably not allowed to do any exterior painting or do any gardening outdoors, not even moving a bush or planting a tree. (In some complexes, property is set aside for this purpose, but even then any plantings must conform with the overall character of the development.) Indeed, many condos even limit the type of window coverings that are allowed so as to provide a uniform appearance to the outside world.

Condominiums can take many forms structurally. They may be like regular apartments, or they may be townhouses. Indeed, many are converted apartment houses or townhouse complexes. Some condominium communities actually offer individual stand alone houses; these communities look like typical housing tracts, but again the residents own only the air space inside their homes. Even though each may have a fair amount of property, that property is managed by the association and not the individual owners.

The tool that imposes these restrictions are the Association Rules and Covenants, Conditions and Restrictions (“CCRs”) that apply to the units. California law imposes strict disclosure laws upon the sellers of a condo and the buyer finds that there are usually hundreds of pages of documents that they are to review and initial to close the transaction. Part of the required disclosures include a history of past assessments charged to the unit holders, both the usual monthly assessments and any one time assessments that may have been levied for unusual work. (Most associations charge a monthly assessment for landscaping, anticipated repairs and maintenance. There can be assessed a larger onetime assessment for such projects as installing roofs, paving, etc. Most associations vote on the issue of assessments and allow monthly or quarterly payments of the larger ones.) Note that assessments are usually not tax deductable to the owners.



A cooperative, more commonly known as a “co-op,” is generally much more like apartment living than a condo. A large number of co-op buildings actually started out as rental buildings but were later converted. Co-ops are more restrictive than condominiums, but they also offer residents greater say in several aspects of how the property is managed.

The owner of a co-op does not own his or her unit. The co-op is a corporation, complete with a corporate board of directors, and each resident is a “shareholder.” Co-op buyers do not sign a deed. Instead, they purchases shares of the corporation, shares that include a lease granting use of a specific unit. The number of shares owned is based on the size of the unit.

The “mortgage” that one receives when making a co-op purchase is not really a mortgage but rather a loan to purchase shares. To all intents and purposes, however, it functions as a mortgage or deed of trust.

In addition to the selling price for a co-op, there is also a monthly maintenance fee for upkeep of the property. It can include utilities, maintenance and repairs, and property taxes. This fee can range from a small amount to levels higher than mortgage payments. Parts of the maintenance fee may be tax deductible.

Because they do not own their individual units, co-op owners are generally not allowed to do anything inside their apartments beyond simple maintenance. A co-op owner cannot put in a new kitchen or bathroom or tear down any walls. In this regard, co-op living is very much like apartment living. The positive side of this is that residents are not responsible for making their own repairs; the on-site maintenance crew or superintendent perform those.

When one sells a co-op unit, one sells the shares that one owns and transfers the lease. Often the co-op rules prohibit leasing to any but owners of shares or their families.

Co-ops are found more often on the East Coast and are especially popular in New York City.Condominiums are typical for California though co-ops do show up from time to time.



A renter who wishes to build equity in his or her home but who has no desire to incur the responsibilities of maintaining a home may choose condominium or co-op ownership because it provides many of the same maintenance services as a rental unit would. A single person who wishes to own property but who cannot afford a house may turn to the generally less expensive condominium or co-op market. Condos can cost millions, but most cost less than an equivalent single family dwelling and anyone who has owned a home and faced the time and trouble needed to paint it, repair a roof or handle a plumbing issue knows that being a home owner requires the skills of supervising numerous trades.

Older homeowners who wish to give up what has become a large and unwieldy house which requires extensive garden work and day to day repairs but who have no desire to spend their equity on a rental unit with no tax deduction often see condominiums or co-ops as an appropriate alternative.

Although condominium and co-op owners are responsible for the maintenance in their own units (more so for co-op owners), the comfort of knowing that someone else will do the landscaping, the exterior painting, and the snow removal is often more than enough to make this option more attractive than home ownership.

No Free Ride:


A condominium or co-op owner has to pay not only a monthly mortgage but also the maintenance (assessment) fee. In an expensive unit, this can run into many thousands of dollars over the course of a year. Most of it is not tax deductible, and the money goes for maintenance and other common costs. Nevertheless, some people see the combination mortgage/maintenance fee as similar to paying double rent. Thus, the older couple who wants to trade their large house for a small co-op might find the various costs prohibitively expensive when they are all added up. And remember, there can be special assessments that are imposed due to unusual repair needs. Most good associations build up a reserve fund for anticipated future costs (repairs of old roofing; plumbing, etc) but such events as an earthquake or fire can impose unanticipated assessments. And do not forget that property taxes have to be paid, predicated on the value of the property. Such property taxes may be deducted from income tax in most instances.

Because many condominium and co-op buildings are older, converted apartment houses, chances are that maintenance and repair costs will be higher than with new structures. For the condominium owner, this means higher repair costs within his or her own unit. For the co-op owner, this means higher monthly fees to pay for repairs throughout the building.

But when all is said and done, the required assessments are not only spread out over the all the owners but are professionally managed by most associations who use managers and thus both the time, turmoil and supervision is no longer a task of the individual owner. And, ideally, such maintenance and repair improves the value of the property. As one owner told the writer, “I’d be paying for it if it was my own home anyway…and if renting, they’d pass it on in the rent payments. No big deal.”


The extent of restrictions in condominiums depends on the layout of the development. If the development consists of free-standing homes or townhouses, residents may have a fair amount of leeway as far as landscaping, for example. For buildings, the restrictions will probably be more comprehensive and more carefully enforced.

Restrictions in co-ops are far more all-encompassing. Co-op residents who wish to sell their unit, or rather, their shares, often find that the co-op bylaws are extremely strict about whom they can sell to. People who fail to meet a minimum income may be ineligible to live in a particular co-op, even if they have enough money to make the purchase. For that matter, co-op apartments in wealthy neighborhoods will sometimes refuse to sell to celebrities, citing their fear that the presence of a celebrity will draw too many fans and other celebrities to the building. That said, prohibitions of illegal discrimination in housing applies to co-ops and condominiums equally.

Co-op subletting is also subject to significant restrictions. Some co-ops only allow a set number of subleases per year. Thus, a person who has been transferred to another state will need to seek approval to sell the co-op or to sublet it, and that approval may not be readily forthcoming.

Particularly in co-ops, the board of directors wields considerable power; often the only way to gain some influence within the development is to join the board. The politics involved in decision-making can be remarkable and time consuming, and many do not enjoy the experience.

Because many people are unwilling to put up with the restrictions found in condominium and co-op communities, it can be much harder to find a buyer to begin with. Condominiums and co-ops do not rise in value the same way houses do, so while they preserve equity they do not build as much as a private home would.



It is not uncommon for rental buildings to be converted to condominiums or co-ops; in fact, most of the older buildings that are condominium or co-op developments started out as rentals.

Frequently the first indication that a building’s owner is considering a conversion is a series of improvements to the building—new windows, new kitchens and bathrooms, redecorated common space (corridors, lobby). The sponsor of the conversion (usually but not necessarily the owner) will contact all the tenants and give them the opportunity to purchase their own units, usually for a good price. If enough tenants decide to take the sponsor up on the offer, the conversion can go through. Although there is a fairly low minimum number, sponsors like to get as high a percentage of tenants to buy in as possible, because it means more money to pay for upkeep and keep maintenance fees down. Some locales, such as San Francisco, have rigid restrictions on the number of conversions allowed in a given year with long waiting lists for owners hoping to convert.



People interested in condominium or co-op ownership should pay close attention to a number of factors at each development they visit:

  • They should ask about the financial condition of the association or corporation that manages the property. They may request a copy of the latest financial statements and budgets. They can find out about the ratio of owners to renters, the stability of the maintenance fees, and recent unit sales. In California, this is required by law before the close.
  • They should find out whether there are any pending lawsuits against the development. Builders, neighbors, and even former owners might have filed suit. If anyone did, they can find out why and find out the outcome. In California, this is required by law before the close.
  • They should review the bylaws and the restrictions. If they are particularly strict, prospective buyers may not wish to purchase a home there. Even if they have no trouble with the restrictions, potential subsequent buyers might when it comes time to sell later on.
  • Prospective buyers should hire an inspector to check the structural condition of the building (including electrical, heat, and plumbing). They should find out the condition of the roof and the common areas. Also, they need to find out about how soundproof the building is.
  • Prospective buyers should talk to current or former owners if possible. They may be able to find out from the owners what are the pros and cons of the development in question—what they like and what they wish they could change.
  • They should review the minutes of the association or board meetings for the past two or three years to determine matters of concern to the community and how well the organization is operating.
  • And, if wise, visit the locale at various times of the day and night to determine the level of noise and activity. One wise buyer made it a point to visit a proposed unit after ten on a Saturday night during the summer. Sure enough, the teenage son who lived next door was blasting his music with many of his friends. Not a bad kid, the client told the writer, but not someone wanted as a next door neighbor.
  • Check the policies on pets and barbeques as well, if those matters are important to you.
  • If there is a common area for a gym or swimming pool, make it a point to visit them at times of peak use.
  • Get condo insurance to cover the interior. Review the insurance policy for the exterior that the association is required to have in California.

Condominium and co-op ownership is not for everyone. If people think it will meet their needs, however, they will do themselves an enormous favor simply by making a checklist of the items above, adding in those that are important to them personally, and being prepared when it time to make an offer.