Most people think a condo and a coop are basically the same thing - an apartment you own. Maybe they have different names in parts of the country, or one is more exclusive. But the truth is that there are several key differences between condos and coops, and if you are considering investing in one, not understanding those differences can be costly.

The main difference between a condo and a coop is ownership. When you buy a condominium, you buy the apartment just like you would buy a house. You have purchased real estate and receive the deed.

When you buy a coop, you are buying a share in a 'cooperative corporation.' The building is owned by the cooperative and run by a board of directors. As a shareholder, you obtain the right to lease an apartment in the cooperative.

When you own a condominium, you pay property taxes just like you would for a house. Each time the condo is sold, it is reappraised, and its value (and the property taxes) can rise. Since you do not own a coop, you don't directly pay the taxes. Instead, your percentage of the taxes for the whole building is factored into your maintenance fees. When a new person buys a coop, it's not reappraised because ownership of the property has not been transferred, so property taxes will stay relatively lower.

Another consequence of the distinction in ownership is ease of sale. In order to sell your condo, you simply contact a real estate agent and find someone who wants to buy. At most, the condominium association will require proof of the prospective owner's ability to keep up payments. If you want to sell your coop, any applicant will need to be approved by the board of directors of the coop association. They will require proof of ability to pay, as well as minimum income, a background check, and personal interviews.

When buying a condo, you can shop around for a good deal on a mortgage. Once you own it, you can use it to get a home equity loan. It can be trickier to get financing for a coop; if you default on payments, the bank cannot foreclose on the apartment since you don't own it. Cooperatives often have relationships with a few lenders, who may not be willing to cut you a deal - they know they don't have much competition.

In short, condominiums are easier to buy and sell, and you have more freedom to do what you want with the space. However the neighboring apartments may change hands often and may not make the best neighbors. It can be a hassle to be approved to buy or sell a coop, but you know your neighbors have passed the same stringent requirements you did. In order to decide which is right for you, keep these differences in mind, and consult a tax accountant and a realtor to be sure you understand all the legal and tax-related technicalities.