Around the country the number of people living in condominiums and private unit developments (PUDs) has grown markedly during the past two decades, growth which has spurred several questions: What are "condos," what's a "PUD," and how do condos and PUDs differ from cooperative units? Here's a general overview:

If you think about that small house with a white picket fence most probably you are looking at a home which is owned "fee simple." Fee simple means the owner has the largest possible "bundle of rights" and can finance or refinance the property at will, rent it out, paint it bright yellow, or sell it. If you want maximum control over your property, fee simple is the way to go.

Condos work differently: With a condo you own a unit and you also have a right to use common areas. There is a condo association which oversees common owner interests. The condo association may regulate such matters as "approved" paint colors for doors and shutters, the hours of operation for the pool, pet policies, and whether or not units may be rented.

With a condo, each owner finances their individual unit. Unit owners also pay a monthly condo fee, a bill which reflects the cost to run the condo association. The condo fee should also include some money to build up a reserve fund over time to pay for major repairs as they are required.

Co-op ownership is not exactly real estate in the usual sense. With a co-op, a corporation owns a property and each owner obtains a share in the corporation plus exclusive use of a particular unit. The shares (and units) can be bought and sold, but ownership transfers typically require approval of the co-op board.

Costs for a co-op also different when compared with condos and fee-simple properties.

With a co-op owners pay a monthly fee. This fee can include not only the cost to operate the co-op, but also an "underlying" or "blanket" mortgage.

In other words, if a building was purchased for $10 million and there are 100 units of equal size, each unit will pay part of the $10 million mortgage each month. (At 7 percent interest over 30 years, that's $665.30 a month per unit.)

Because co-op fees often include the expense of an underlying mortgage while condo fees do not, the two fees are not entirely comparable. With a co-op you may have a higher monthly cost than with a condo because an underlying mortgage is included in the fee. To compare the monthly cost of condos and co-ops, it's best to look at total expenses.

In addition to an underlying mortgage, over time many co-op owners obtain additional financing, what are known generally as "share" mortgages. While individual owners may obtain or pay-off share financing, that's not true of the underlying mortgage. That loan is secured by all units, so all owners must make payments as long as the underlying mortgage remains outstanding.

Whether you own fee-simple property, a condo, or a co-op, extensive tax benefits are available to owners in each case. A tax professional can explain the specific deductions to which you may be entitled.

And what are PUDs? A "planned unit development" is typically a property which includes a variety of housing options -- detached homes, townhouses, and apartment units in the same community as well an owners' association to represent homeowners. Larger PUDs can include residential, shopping, offices and industrial areas, while smaller developments are typically limited to residential properties.

Published: July 18, 2001

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