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Part 3: Forms of Homeownership: Housing Cooperative

Oct 20
6:38
AM
Category | General

In today's blog (Part 3), we'll take a look at Housing Cooperative (Co-op) Ownership. You'll learn how a Co-op works, what types of co-ops exist, and more! In case you missed Part 1 and Part 2 of this 4-part series you can find them here:

Part 1: Forms Of Homeownership: Fee Simple

Part 2: Forms of Homeownership: Leasehold

 
Housing Cooperative (Co-op) Ownership Explained:
A housing cooperative or a co-op is a corporation whereby the owners don’t own their units outright; instead each resident is a shareholder. Buying a house or renting an apartment aren’t the only living arrangements available, and they can both be cost-prohibitive. A co-op provides an alternative to the traditional methods of owning a primary residence.
 
How does a Co-op work?
  • Some co-op owners are allowed to sell their co-op shares in the open market, depending on the market rate for co-ops in that location.
  • Co-ops can be less expensive than apartments since they operate on an at-cost basis, collecting money from residents to pay expenses.
  • However, before buying shares of a company, be sure to check out the company's financial situation and the fees involved.
  • Smaller co-ops are run by the residents, with everyone pitching in to take care of maintenance, landscaping, rules, etc.
  • Large units may be run by a board of directions that consist of residents.
Types of Co-ops:
  1. Market Rate: Allow partners to buy and sell shares at whatever rate the market will bear.
  2. Limited Equity: Set restrictions on the price at which shares may be bought/sold.
  3. Leasing Co-ops: The co-op corporation leases the building rather than owning it and builds no equity.
Before buying a co-op, check out the company’s financial situation and meet the company’s shareholders. You’ll want to consider location, amenities and costs before buying as well. When you purchase shares in a co-op you take out a “share loan” instead of a mortgage, which operate like mortgages. In addition to the loan payments, which are made to the lender, co-op residents are responsible for paying a pro-rated share of the costs of running and maintaining the building. Other fees included each month could be cost of the property’s mortgage, utility bills, etc. In addition, buyers are entitled to tax deductions enjoyed by homeowners, including the deductions for interest and real estate taxes.