To my surprise, in 2022, I got a call from a reporter for the Toronto Star who wanted to feature an apartment I had just sold in multiple offers for one of my clients. The article’s title was “In Toronto’s hot housing market, how did this midtown condo sell for $420,000?”
The article’s title got it wrong. The unit I had just sold was not a condo; it was, in fact, a co-op. No, not the subsidized rental housing that most people think of when they hear the word co-op. This is Cooperative Ownership, and it might just be the most cost-effective housing option that you didn’t know about.
On the fence about moving to a condo? Click here to read my post about 5 signs it’s finally time to downsize.
What’s the Difference Between a Co-op and a Condo?
With a condo, you own real property. You are the owner of your unit; it is deeded to you. The rest of the building is common property.
In a housing co-op, you own shares in the corporation but have exclusive use of your unit. This means fewer banks will mortgage these properties because they can’t use the unit as collateral, and these properties don’t appreciate as much as condos. In my experience, most buyers are looking at a handful of credit unions for mortgages on a co-op.
Like a condo, a co-op is also run by an elected board of directors. A co-op purchase must be approved by the board. Co-ops typically have more stringent requirements; you likely will need to have a 20-30% downpayment to qualify, and they will look at your creditworthiness because you are purchasing shares in a corporation. Having said this, several of my young first-time home buyers purchased co-ops with a mortgage without any issues.
With a condo purchase, you will typically request the status certificate to understand the corporation’s bylaws and any liabilities, special assessments, and property insurance. Condo corporations are highly regulated, require financial audits, and must have periodic engineering inspections of the property. With a co-op, you can request an estoppel certificate with similar property information. Where Co-ops differ is that they are not subject to the same regulatory restrictions and audits as condo properties.
In my experience, co-ops tend to be much larger in square footage than their condo counterparts but contain fewer amenities and are usually in more “vintage” buildings.
Looking for more advice on finding a great home? Check out these other posts from my blog!
- Should I Rent or Buy a Starter Home in Toronto?
- Should You Help Your Kids With a Downpayment?
- Scarborough’s Best Neighbourhoods For Downsizers: Guildwood “The Guild”
Are Co-ops Good for First-time Homebuyers?
During the height of the real estate market, many first-time home buyers were attracted to co-op apartments because of the lower purchase prices. These buyers were getting priced out of the market and could not save down payments at a rate fast enough to keep up with the escalating price increases of condos. First-time home buyers who had saved a healthy down payment could still purchase a co-op in a great neighbourhood at a reasonable price, so it made sense for them.
Are Co-ops Good for Downsizers?
The group that might find co-ops the most attractive might be the downsizers. Whether you are downsizing financially because of the escalating cost of living or because you are entering retirement and living on a fixed income, you might be ideally situated for a co-op.
Most property owners who sell their current home or condos find they have considerable equity and can easily live mortgage-free in a co-op in a great neighbourhood. However, they still roll some of their equity into their retirement savings to generate additional income. At the time of this blog, a generously sized 2-bedroom co-op is available in my neighbourhood of the Beaches for sale for only $420,000. Less than a 5-minute walk to the boardwalk!
Another feature of co-ops that might be attractive to buyers on a fixed income is that the maintenance fees are usually a bundled combination of maintenance, property taxes, and some utilities. Many properties will also include amenities like cable. This means fewer bills to track and pay. While co-ops don’t usually have the amenities that newer condos have, it also means that the maintenance fees are lower and more predictable.
Are Co-ops Good for Investors?
I have also had investor clients purchase co-op properties. While many co-op buildings do not allow rentals, those that do are attractive to investors looking for cash-flowing properties. The low purchase price of a co-op means cash flow is more likely with a co-op than a condo. However, co-ops are not attractive to speculators because they don’t have the chance of double-digit growth that a condo can have in an appreciating market. On the flip side, they are also less likely to have double-digit depreciation in a down market.
Are Co-ops Good for Parents?
Another segment of frequent co-op buyers I’ve encountered are parents of adult children. These might be parents purchasing a first-time home for their children or as a university residence while their child attended U of T or Metropolitan University.
Are Co-ops Good as a Pied-a-terre?
The pandemic led many people to move outside the GTA for more space and nature. In the post-pandemic world, many offices are starting to return at a minimum on a part-time basis. This led to a desire for some out-of-towners to have a crash pad in Toronto for those days they were in town.
I had a client from Barrie who indicated that her carrying cost on the co-op was much cheaper than the expensive condo rentals she had been looking at. She wouldn’t have to worry about being evicted because the owner wanted to sell or live in the unit. Because so many Toronto co-ops are centrally located and on transit lines, commuting to the office would be a breeze.
Thinking about downsizing to a co-op home? You may find these related blogs helpful!
- 5 Tips For Downsizing Your East GTA Home
- I Want to Sell My Home But I Have Too Much Stuff
- Should You Hire a Senior Real Estate Specialist?
Buying a Co-op Pros & Cons
Pros
- It has a much lower purchase price. Often half that of a similarly sized condo.
- Predictable bundled payments. Usually, it includes property tax and even some utilities.
- Larger units
- Stable, lower turnover
- More owner occupied-so pride of ownership
- Fewer amenities mean lower, more predictable maintenance fees
- Most are boutique buildings, so you will be more likely to know your board and neighbours; it is more of a community
- I’ve got several co-op specialized lawyers in my network
Cons
- Higher minimum down payments (usually 20-30%)
- Fewer lenders mean less competition and, therefore higher interest rates
- Older buildings
- Purchase requires board approvals
- Many buildings restrict rentals
- Not a lot of amenities
- Not as regulated as condos, audits of the financials are not required
- You need to find a real estate lawyer who understands and specializes in co-op purchases
If you’d like to learn more about co-ops in the GTA, contact me. I’d be happy to discuss your options and give you more information on the ins and outs of co-op ownership.
Interested in buying a co-op condo? I can help! Call 647.283.2127 or email me at stuart@stuartnodell.com to get in touch.
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