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“Co-op,” which is short for “housing cooperative,” is one of those real estate terms that I have heard about in passing, but never really had a full understanding of what it meant. I knew a co-op was some kind of apartment, but that’s about it. If you have never owned a co-op, there’s the possibility that your understanding of what it is might be a little vague. This week, we will talk about what a co-op is and the pros and cons of living in one. Afterwards, you will leave here with an extra nugget of useful real estate knowledge!
Unlike a condominium, a co-op is owned by a corporation, which means that you’re not buying actual property, but are instead buying shares of the corporation. Typically, the size of your apartment correlates with how many shares you have bought. Because everyone who lives in a co-op owns shares within the corporation, they are usually concerned about who the building does and does not allow to live there. If you don’t meet the standards and requirements set by the co-op board, then you will not be given an apartment.
Now that you have an understanding of what a co-op is, we will now go over the three types. Before you look into any co-op, it’s important that you know the differences between each type. First, there are market-rate co-ops, which are treated similar to most standard residential properties. If you live in this type of co-op, you are permitted to sell your shares whenever you want and for how much money you want.
The second kind is a limited equity co-op, which is mostly meant to attract those who are looking for affordable housing. For these co-ops, there is a limit on how much equity you can earn in your home, and this prevents you from selling your share for a considerable profit. This is meant to help the co-op communities remain affordable.
The third type of co-op is group equity, which is also known as zero equity. In these co-ops, you don’t gain any equity in your home, but instead pay rental rates that are below market value.
Of course, whenever you look for new housing, one of the things always on your mind is affordability, and when you consider a co-op, affordability is possible because, compared to a condo, co-ops are usually less expensive. When you live in a larger co-op, you won’t have any responsibilities regarding upkeep. In these co-ops, a paid crew takes care of all maintenance, repairs, and security. It is for this reason that older buyers are drawn to the bigger co-ops because they know they won’t have to stress over taking care of the building’s exterior. However, smaller co-ops are usually self-managed, so you handle things like shoveling snow, but benefit from lower maintenance costs. Both large and small co-ops have their perks, so choose whichever size works best for you.
A main detractor of trying to move into a co-op is getting through the approval process. Before the co-op board hands you your keys, you have to be interviewed and provide documentation that may include tax records from the past several years. Similar to if you were looking to move into a regular house, doing so for a co-op has its own share of work.
If you have dreamt about moving into a new space with the desire to renovate, it won’t be easy if you move into a co-op. In this scenario, you have to discuss possible renovations with the board and see if your plans meet their approval. After going through the interviews with the board when trying to get accepted into the building, I’m sure one of the last things you want to do is go in front of the board for more discourse.
Although co-ops are mostly found in cities, one of the best parts about them is that they come in numerous sizes and types, such as single-family homes, student housing, senior housing, garden apartment, special-needs housing, and more. Whatever you desire in a co-op, odds are that you’ll find one that will suit you. With the many options you have, your co-op search will be easier and more fun.
Now that you have a better understanding of what a co-op is, you’ll know what to look for if you ever consider moving into one. Co-ops have their benefits and drawbacks, so you have to think carefully about what exactly you want yours to include. Going forward, if you ever want to move, you will feel comfortable adding a co-op to your list of possibilities because of what you have learned. Knowledge is great, isn’t it?
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