What is a co-op?

By RealtyCrunch IncMay, 1st 2020
What is a co-op?

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:

  1. Market-rate co-ops - where owners are allowed to sell their shares whenever they want for as much money as they want.
  2. 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.
  3. 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
  • Townhouses
  • 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:

  • Repairs
  • Taxes
  • Maintenance and upkeep
  • Insurance

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!