Condo or co-op could be a hedge against rising rents

Buying a condominium or shares in a cooperative apartment building can be a good way to own your own housing. Two reasons usually lead to this kind of investment. You may decide your house is too big and requires too much effort to maintain. If you do sell the family homestead, I strongly recommend hedging your position against continuing rent increases by owning instead of renting.

Another case occurs when the apartment you have been renting goes condo or co-op. You are then faced with the decision: Buy, move, or rent from an investor who buys your apartment.

Condominiums and cooperative apartments are similar in some ways and dissimilar in others. In a condo you own a precisely prescribed space that defines your living unit. You also own an undivided interest in what is known as the "common areas" -- elevators, front entrance, halls, lawn, and swimming pool or other amenities, if any.

You pay taxes on your space plus a portion of the taxes on the common areas, and these taxes are deductible when figuring income taxes. If you finance the purchase, you may also deduct interest paid on the mortgage loan. In a condo you have more freedom to sell or rent your unit and live your own lifestyle -- within limits.

Co-op apartments function somewhat like condos except you do not own your living space. Instead, you own a cooperative share in the housing complex that entitles you to live in your apartment and use the common areas. Depending on the language of the contract, you may or may not be eligible to deduct property taxes when figuring your income taxes. Any interest on a financed loan will be deductible.

Both condos and co-ops are manahed by the owners or their representatives. Since the co-op is a group venture, less than full occupancy could increase the costs of the remaining owners. In a condo only the costs associated with the common areas would be increased if any of the units remain unoccupied. Individual condo units could be foreclosed with only a minimum effect on other owners. Not so in a co-op. If enough units remain unoccupied and the owners fail to make payments, the other shareholders in the co-op must pony up the difference or the whole complex could be foreclosed.

Condominium and co-op complexes frequently include both owners and renters occupying units. Renters may be paying for units owned by others who bought one or more apartments as an investment. Or, renters may be temporarily occupying units unsold by the developer. Either way renters do not have a voice in the management of the complex -- how much to spend on maintenance, resolution of complaints about common facilities, or discipline for the common good. Owners of units gain the right and responsibility for sharing management functions.

Numerous factors affect a decision to buy either condo or co-op -- cash required for either a down payment or the full price, income before and after purchase if securities are sold to raise cash, and potential for appreciation. Reduced income from selling securities may be offset by reduced or eliminated monthly rent payments. Owning might cost more in the short run but would likely cost less than rent in the future as apartment rents continue to double every five to six years.