Financial Fitness


The differences in condos, co-ops and townhomes

Posted at 6:31 AM, May 14, 2015
and last updated 2015-05-14 06:31:12-04

Multi-family housing can go by many different names — apartments, duplexes, condominiums (condos), and townhouses among them. Adding to the confusion is that some of the terms are reasonably similar, they are sometimes used incorrectly, and the actual definitions may be slightly different based on where you live.

The following is a general guideline for multi-family housing types; you should clarify the meaning before purchasing any portion of a multi-family unit.

Condominiums — With condos, you only own the inside of the building. You do not own the land it sits on or any of the exterior furnishings, so you cannot make any changes to them. You typically can change the interior as you like, but there may be restrictions. Common areas such as stairwells or landscaping are collectively owned.

Maintenance is covered through a homeowners association (HOA) or similar organization, and you will pay a monthly fee to the HOA as your portion of the upkeep expenses.

Co-ops — You do not directly own any of the living space; you own stock in the corporation that owns the building. That partial ownership gives you the right to lease living space in the building. Note that you own a different form of asset in this case (stock instead of real estate).

To own stock and live in the co-op, you must be accepted by the Co-operative Board. They can reject you based on insufficient finances and unwillingness to cooperate with the rules and by-laws (which can be lengthy and nitpicky). However, they cannot engage in discriminatory practices.

Maintenance will be handled through the corporation and will either be charged as a separate fee or incorporated into your lease. The rules of your particular co-op determine what you can change within your co-op space.

Townhouses — "Townhouse" and "townhome" are architectural style terms, not legal terms. They typically refer to side-by-side units that give the appearance of one larger building. However, each unit is considered to be on its own individual lot.

In contrast to a condominium, you own the inside of the living space as well as your corresponding portion of the exterior and the land on which it sits. There may be a similar small portion of yard, roof, and parking garage that you own.

Usually, the townhouse has an HOA that collects fees and handles maintenance issues. The HOA will have rules regarding changes to the visible areas (exterior and landscaping), but you can usually change the interior as you see fit.

If a townhouse has no HOA, you are generally responsible for the maintenance and can do what you wish with any part of it (within state/local laws). That may appeal to your individualist nature, but remember that your fellow townhouse owners have the same right – and probably they are equally individualistic.

Duplexes — In contrast to a townhouse, a duplex contains two adjoined units on a single lot. Rules depend on the definition where you live. There may or may not be an HOA involved, but the rules are generally similar to a townhouse.

Often there is one duplex owner, with the other side rented out under whatever restrictions the owner applies.

An alternative path is a "tenancy in common" — a legal term for co-owners of the property who divide it up and set their own rules contractually. The contract will cover maintenance responsibilities and boundaries for changes.
The bottom line is that you should understand the rules for the building that you live in, whatever it is called. You need to know what you actually do own, what you can and cannot change, what fees and/or maintenance you are liable for, and the tax ramifications. Once you understand that, the name doesn’t matter. We hope you call it, “Home, Sweet Home.”


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