Renting and buying a house right now is incredibly expensive in the current market. But, if you thought those were your only two options, think again. You have another affordable housing option known as housing cooperatives or co-ops for short. You might be wondering what is a housing cooperative. Here’s what you need to know about co-op living.
What are co-ops?
Cooperative housing is the legal word for a housing unit that’s jointly owned and controlled by a corporation or as opposed to a single owner. Co-op ownership is similar to owning stocks — instead of one person owning the unit outright, each person owns a share of the co-op. All building residents have access to the common areas and share expenses and maintenance of the building.
Co-ops usually have co-op boards, too. Co-op boards meet to discuss any updates needed to the co-op, any rules or regulations to establish, any maintenance fees that need to implement and general co-op conversations. Co-op boards are pretty common when you invest in a co-op.
And, just like anything else, there are different types of co-ops and co-op shares you can invest in. Here are some of the co-op’s defining characteristics.
Market rate co-ops
Market rate co-ops allow owners to buy and sell their shares at any rate they choose. These are most common in big cities, such as New York.
Limited equity co-ops
A limited equity co-op keeps affordable housing for owners. There’s a limit to how much you can buy or sell a share for.
Leasing co-ops, group equity and zero equity
Leasing co-ops mean the members actually own no equity in their homes, but they pay a monthly rent that’s typically lower than average asking prices.
There are also co-ops that aren’t specific to housing but will give you a better understanding of co-ops in general.
Producer cooperatives
A producer cooperative is a co-op owned by people who produce similar goods. The co-op member will often use the co-operative to negotiate better pricing for their goods.
Worker cooperatives
A worker co-op is a business that’s owned by its employees. These types of co-ops let the workers decide on things, such as the direction of the business.
Consumer cooperatives
A consumer co-op is people who use their co-op purchase to buy goods or services they will need. REI is one example of a business run in this manner.
What are the main purpose and benefits of living in a housing cooperative?
For many people, the main purpose of co-ops is their financial benefits and financial obligations. Co-ops typically have lower payments and require a smaller down payment. Co-op owners also have less responsibility than homeowners. They aren’t responsible for small damages and aren’t personally responsible for fixing them.
A co-op home also has some tax benefits. Depending on where you live, you can deduct interest on your loan for your share of the co-op. Real estate taxes also vary depending on where you live, but oftentimes, the co-op owner doesn’t have to pay them. Keep in mind that this does change from co-op to co-op so check with your particular building or co-op boards.
What does it mean to co-op a house and how does co-op living work?
As mentioned above, housing cooperatives or housing co-ops mean that instead of buying and personally owning a deed to a home or apartment, co-op members buy a share of the building. Co-ops are typically run by a non-profit association with a co-op board. Here’s a better breakdown of what goes into co-op living.
Co-op board
Shareholders select the co-op board members who will make decisions about which management company or national association they want to work with. They also determine how much monthly maintenance fees should cost and how to keep up maintenance on the building.
Co-op owners, a.k.a. the shareholders
When you buy into a co-op, you’re essentially buying co-op shares making you a shareholder in the building. Shareholders usually come together to decide on things, such as co-op rules and the building’s management.
Co-op association
The co-op association is responsible for deciding how and where to use the monthly maintenance fee. Whether it be building repairs, property taxes or the underlying mortgages attached to the building or amenities, this is all decided by the co-op’s member association.
Management company
Chosen by the co-op board, a management company is typically brought 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 one is what you’re buying. When you go to rent or purchase a condo, you’re paying for your own unit that’s specifically yours. If you go to purchase a condo, you’ll have an underlying mortgage and will need to work with lending services.
When you’re buying into a co-op, you’re buying into the building as a whole. Co-op ownership will generally have a lower purchase price than a condo, as well. You still may need to work with lending services provided to buy into the unit, but the financial obligations are different because you’re 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’re buying into smaller co-ops or larger ones, everyone has a say in how the building runs, meaning they can regulate what you can and cannot do to your unit. In an apartment or condo, you have the benefit of being able to renovate and change as you like because it’s your own apartment or condo.
Co-op housing
Deciding on your primary residence is difficult. There are so many different options that it can feel overwhelming. When looking, consider using a real estate agent to help lighten your load, help find you places you wouldn’t normally find and provide you with home buying tips.
It’s always a good idea no matter where you live to look into insurance for your future home. If you decide to try out cooperative housing consider buying cooperative insurance, too. Before deciding on a condo or apartment take a deeper look into co-op housing and see if it’s right for you.
The information contained in this article is for educational purposes only and does not, and is not intended to, constitute legal or financial advice. Readers are encouraged to seek professional legal or financial advice as they may deem it necessary.