What is a co-op?
By RealtyCrunch Inc•May, 1st 2020
A housing cooperative also known as a “Co-op” are housing units owned and controlled jointly by a group of individuals who have shares and occupancy rights to the housing community.
The best way to think about a co-op is like a financial nonprofit corporation that has a board of director and each member is a shareholder in the community. The Co-op owner doesn’t actually own their unit, but instead owns shares in the co-op.
Types of co-ops
There are three basic types of co-op structures:
- Market-rate co-ops - where owners are allowed to sell their shares whenever they want for as much money as they want.
- Limited-equity co-ops - typically geared towards affordable housing units. There is a cap on how much equity each member can earn in their homes, so they can’t sell their share for a huge profit.
- With group-equity or zero-equity co-ops - where members don’t accrue any financial equity in their homes, but they pay rental rates below market value.
Typical types of Co-op properties:
- Single-family homes
- Midrise and high-rise apartment complexes
- Garden apartments
- Senior housing
- Student housing
- Special-needs housing
- Mobile home parks
Financing a co-op
When home buyers take out a mortgage to purchase housing in a co-op, the loan you get will be to purchase shares in the building. One major factor of living in a co-op is the maintenance fee you’re required to pay to live there. This fee will cover communal expenses like:
- Maintenance and upkeep
Advantages of co-op living
- Often more affordable housing compared to a condo
- Don’t have to worry about the expenses that come with home ownership like repairs/security/maintenance
- Generally new buyers have to be approved by the board of directors
Disadvantages of co-op living
- Difficult to get into due to the board approval with a full vetting process looking at tax records and interviews
- Selling the unit can come with certain restrictions
- Monthly maintenance fees can be expensive
- In a situation you want to rent your property, your co-op rules might introduce restrictions on what you can and cannot do. Often times, how long!