Corporative real estate, or co-op housing, includes a number of residents in the same place. The people who live in a co-op do not own the units they live in, and instead own shares within a larger housing complex. Unlike other types of communal housing, cooperative living is a lifestyle that includes individuals who have a sort-of membership, or rights to the housing community. Their occupancy rights belong in part to a corporation, are legally categorized as a co-op, or housing cooperative.
You may have heard the term co-op within real estate communities, but many people ask, “What is a co-op?”’ You are not alone. Many people have questions about this type of housing. If you want to know more, here is a basic guide to the co-op housing.
What Co-Op Housing?
Unlike other types of housing, residents of a co-op own a part of the corporation that owns their property. Instead of just renting a unit in the building where they live, a person living in cooperative apartment buildings is a shareholder and thus entitled to live in a unit. Typically, the board of directors of cooperative housing exercises their right to limit who can live in the building. In fact, one of the biggest differences between co-ops, apartment buildings, and condominiums is the exclusivity of cooperative housing. For example, a co-op board of directors may not allow someone to purchase a corporation stock, and prevent someone from being a resident.
The benefits of owning cooperative housing include the ability to live in the unit as long as the property is owned by the cooperative. As a co-op resident, the unit has secured ownership as long as the resident owns the stock. This type of security is one of the features of a co-op that is most appealing to people who desire communal living.
Four Types of Co-Op Housing
There are many different looks and styles of community housing. Here are the four most common housing cooperatives to compare.
- Market Rate. In some markets, co-ops are treated like standard residential properties. Within co-ops, owners are able to sell off shares to whomever they want to, when they want, for any amount of money they decide is appropriate. Within the residential cooperative property, owners tend to be the most successful in areas where the financial market is blooming for cooperatives, like New York City. In a market-rate housing cooperative, a tenant can buy, or sell a membership at any price that the market can sustain. Purchases of this type of co-op are similar to a condominium, and single-family homeownership.
- Limited Equity. Also known as LEC, limited-equity housing cooperatives usually have some sort of restrictions applied to members. While co-op members benefit from below-market interest rate mortgage loans, grants, and real estate tax abatement, it is common for restrictions to apply. In some co-op housing, these limitations are found in old bylaws, or they are imposed by new members. Some restrictions can also be established with income limits for new members in order to target families who need support, or financial help the most.
- Leasing Co-Ops. Also known as zero equity cooperatives, these co-ops belong to outside investors and nonprofit organizations that lease the property back. They may buy the property, and rent units in another type of co-op.
- Mutual Housing Association. This type of co-op is developed for the purpose of owning, developing, and operating housing. The corporation is controlled by the residents and owned by the community. In a mutual housing association co-op, the corporation belongs to the tenants.
Condominiums Versus Cooperative Housing
Many people think that co-ops and condos are the same, but their differences are clear when you compare the two. Both of these residences include a multi-unit structure that includes commonly used property to house individual tenants in single units. Knowing the differences between the two most popular types of communal housing is the best way to choose the right home for you. Here is a brief comparison of the co-op and condominium housing.
Financing. Overall, condos are known to be easier to finance, and while getting a mortgage is not a complicated task for qualified applicants, it can be tricky with a co-op. Lenders may be hesitant to offer you down payment or require a larger amount upfront if you want to make a co-op your new home. Property taxes are usually lower for co-ops than condos.
Limited Liability. A personal loan can be risky, but if you are a shareholder there is limited liability. No cooperative housing resident is liable for the mortgage however, condominium residents may take on sole responsibility for the payments.
Community Control. Unlike a condominium, a co-op offers some amount of control over community features. Shareholders of a co-op share property decision-making and also have influence with local governments and utilities.
Returned Revenue. Unspent money that is returned to shareholders is known as surplus revenue. In some cases, the dividends are returned but must be reported for tax purposes.
What You Need to Know Before You Buy
If you are interested in becoming a resident of cooperative housing, there are specific questions that you need to ask. While you are able to gain an understanding of what a corporation can offer, you also need to find out all of the community regulations before you buy.
Here is a sample list of questions to ask before you make any type of investment in a cooperative housing community.
- What are the loan financing options?
- Where can I obtain a share loan?
- What is the share price?
- Are pets allowed? What is your policy?
- Is subletting allowed?
- Can I make alterations to my unit?
It is also important to know the advantages a cooperative housing option provides so that you can make an informed decision. Here are the most notable economic, and social advantages of a co-op.
Economic Advantages of a Co-Op
– Affordable. Most people that live in cooperative housing enjoy a lower down payment, closing costs, and a longer mortgage term. Cooperatives are also known to be more affordable overall than owning a home.
– Stability. Living in a cooperative remains affordable when members have no reason to increase charges. If operational costs increase, or taxes spike, the monthly charges may go up slightly. However, living in a co-op typically offers a stable, affordable monthly rate.
– Tax Deductions. Co-op members are considered to be homeowners, and thus are able to deduct a share of real estate taxes, and mortgage interest paid by the cooperative.
Social Advantages of a Co-Op
– No Landlord. One of the most desirable advantages of living in cooperative housing development is that you are renting outside of a landlord. Security of tenure is not available in conventional rental housing, and usually, the elimination of a property manager makes a co-op socially a more appealing option for renters.
– Diversity. Living in cooperative housing units allows you to become more interactive with other people. You may find that a co-op exposes you to a range of backgrounds, cultures, and income levels in a positive way.
– Services. The extended amenities that cooperative housing offers help people that would not otherwise be able to obtain these services. Looking at the social advantages of services including teams, athletic teams, schools, credit unions, arts, clubs, and senior care support, co-op delivers some of the most desirable advantages.
Talk to a professional real estate agent today, about the many advantages of living in cooperative housing. You may realize that being a co-op resident is the right option for you. Call the offices of Jeff Barchi to learn more about how a co-op could be your next home.