Renting and buying a home right now is incredibly expensive in today’s market. But, if you thought those were your only two options, think again. You have another affordable housing option known as co-op housing or co-ops for short. You may be wondering what a housing co-op is. Here’s what you need to know about co-op life.
What are cooperatives?
Co-op housing is the legal term for a housing unit jointly owned and controlled by a corporation or as opposed to a single owner. Owning a co-op is similar to owning shares – instead of one person owning the unit, each person owns a share of the co-op. All residents of the building have access to the common areas and share the expenses and maintenance of the building.
Cooperatives usually also have boards of directors. Co-op boards meet to discuss updates needed for the co-op, rules or regulations to be established, maintenance fees to be implemented, and general conversations about the co-op. Co-op boards are quite common when investing in a co-op.
And, like anything else, there are different types of co-ops and co-op shares you can invest in. Here are some of the defining characteristics of the cooperative.
Market rate cooperatives
Market rate co-ops allow owners to buy and sell their shares at the rate they choose. These are more common in larger cities, such as New York.
Limited capital cooperatives
A co-op with limited capital maintains affordable housing for homeowners. There is a limit to how much you can buy or sell a stock.
Rental cooperatives, group equity and zero equity
Rental co-ops mean that members don’t actually own any equity in their home, but they pay monthly rent that’s usually lower than average asking prices.
There are also co-ops that are not specific to housing, but will give you a better understanding of co-ops in general.
A producers’ cooperative is a cooperative owned by people who produce similar goods. The cooperative member will often use the cooperative to negotiate better prices for their products.
A worker co-op is a business owned by its employees. These types of cooperatives let the workers decide on certain things, such as the direction of the company.
A consumer cooperative is made up of people who use their cooperative purchase to buy goods or services that they will need. REI is an example of a company managed in this way.
What are the main purpose and benefits of living in a housing co-op?
For many people, the primary purpose of cooperatives is their financial benefits and financial obligations. Co-ops generally have lower payments and require a smaller down payment. Co-op owners also have fewer responsibilities than landlords. They are not responsible for small damages and are not personally responsible for repairing them.
A cooperative housing also offers certain tax advantages. Depending on where you live, you can deduct the interest on your loan for your share of the co-op. Property taxes also vary depending on where you live, but often the co-op owner doesn’t have to pay them. Keep in mind that this changes from co-op to co-op, so check with your building or co-op board.
What does co-op a house mean and how does co-op life work?
As mentioned above, housing co-ops or housing co-ops mean that instead of buying and personally owning a deed to a house or apartment, members of the co-op buy a part of the building. Co-ops are usually run by a non-profit association with a co-op board of directors. Here’s a better breakdown of what’s going on in co-op life.
The shareholders select the members of the cooperative’s board of directors who will decide which management company or national association they wish to work with. They also determine how much the monthly maintenance fee should cost and how to maintain the maintenance of the building.
Co-op owners, aka shareholders
When you buy a co-op, you are essentially buying shares in the co-op, which makes you a shareholder in the building. The shareholders usually meet to decide on certain things, such as the rules of the cooperative and the management of the building.
The cooperative association is responsible for deciding how and where to use the monthly maintenance fee. Whether it’s building repairs, property taxes, or underlying mortgages attached to the building or amenities, it’s all decided by the co-op’s member association.
Chosen by the co-op’s board of directors, a management company is usually incorporated into the co-op to help run day-to-day tasks.
How is a co-op different from an apartment or condo?
There are a few differences between co-ops and apartment buildings or condos. The biggest is what you buy. When you go to rent or buy a condo, you pay for your own unit that belongs specifically to you. If you are going to buy a condo, you will have an underlying mortgage and will need to work with lending services.
When you buy a co-op, you buy the building as a whole. The condominium will also generally have a lower purchase price than a condo. You may still need to work with the loan services provided to purchase the unit, but the financial obligations are different because you are investing in the whole building, not just one unit.
Another difference between housing units and co-ops is your ability to make changes to the unit. Whether you buy into smaller or larger co-ops, everyone has a say in how the building works, which means they can regulate what you can and can’t do to your unit. In an apartment or a condo, you have the advantage of being able to renovate and change as you wish because it is your own apartment or condo.
Deciding on your main residence is difficult. There are so many different options it can seem overwhelming. When you’re looking, consider hiring a real estate agent to help lighten your load, help you find places you wouldn’t normally find, and provide advice on buying a home.
It’s always a good idea, no matter where you live, to find out about insuring your future home. If you decide to try co-op housing, consider take out cooperative insurance, too. Before choosing a condo or apartment, take a closer look at co-op housing and see if it’s right for you.
The information in this article is for educational purposes only and does not constitute and is not intended to constitute legal or financial advice. Readers are encouraged to seek professional legal or financial advice if they deem it necessary.