So You Want to Buy a Co-Op—Or Do You?

12 Jun

Co-ops, or housing cooperatives, are one of the many housing options available to people looking to have their own home.  Many people don’t even know what they are, especially if you find yourself living outside of major cities. Where I live, cooperatives are everywhere and they can be highly sought-after.

If you don’t know what a co-op is, or if you’ve heard of it but don’t really understand the purpose, you might find it to be kind of bewildering.  Sarah Siddons sums it up:

When you acquire a home in a housing co-op, you don’t actually buy real estate — you buy shares in a corporation, whose only asset is the property. This corporation owns the home you live in; you own no greater part of it than any other member. You gain the right to occupy it through what’s called a proprietary lease or occupancy agreement.

Technically, unlike a house or condo, you do not actually own the piece of property you are paying for so you might be scratching your head and wondering why anyone would want a co-op in the first place.

Why would anyone want a co-op?

Even though some people might be put-off by the idea of cooperative units, they actually have quite a few benefits.

1. Co-ops are generally more affordable than houses or condos

Where I live, co-ops can be significantly cheaper than condos or houses. By significantly cheaper, I mean hundreds of thousands of dollars less for properties of comparable size. In my area, I could not afford a condo let alone a house. To be fair, I have seen a total of two condos in a year and a half of looking on Trulia that we could afford and both needed work, which is not even a problem for me.

2. Co-ops are good for people who aren’t good with maintenance or lack the funds for upkeep

Currently, I am a renter in a co-operative building. People who actually own units in my building pay maintenance fees somewhere between $500-$800/month depending on the size of their unit on top of their mortgage payment. Maintenance includes a lot of things, which I will discuss below, but it also includes contributing to the buildings finances. If the elevator breaks down or if the building needs a new roof, you are not suddenly finding yourself responsible for thousands of dollars in repairs.

3. Co-op maintenance fees may work in your favor

Maintenance fees in co-operative units can range quite drastically depending on the building you’re in and may benefit you in a number of ways. You may find that :

  • Some of these fees include certain utilities such as gas or electric
  • Some co-ops have additional things like gyms, doormen, storage units, maintained gardens and a live-in super
  • Taxes and other charges such as water and heat are often included
  • And the biggest factor— maintenance can be anywhere from 30%-70% tax deductible
Why would I avoid a co-op?

Just like anything else, co-ops can their disadvantages. Many of these are really off-putting to potential homeowners.

1. You never technically own your property and may not be able to make a profit

As mentioned above, you are just purchasing shares of a property so you do not technically own the property itself. On top of that, some co-ops have a flip tax which may take all or part of any money you would otherwise make from a sale. Additionally, because most co-ops do not allow subletting, it virtually eliminates the potential for an investment property.

2. Co-op boards can be a hassle

If you know anybody who owns a co-op, you might have heard about the infamous “board” that may be the bane of his or her existence. Depending on where you are looking for a home, co-op boards can be barely noticeable or a constant annoyance. Boards can be notoriously choosy as to the people they allow into their units and can reject people for a variety of reasons. On top of that, restrictions on what you can do to your unit can be placed at any time. For example, my uncle had a washer installed in co-op and not too long after that the board decided that people could no longer install them.

3. Maintenance can be awfully high for not very much

Maintenance can vary widely from co-op to co-op. In some buildings, you get a lot more for your money than in others. For example, a co-op that I looked at this past weekend had the maintenance listed at 32% tax deductible, which is far cry from the other co-op I looked at that had the maintenance listed at 50% tax deductible. While some will include certain utilities and other extras, others will include only the very basics. Many people will find that maintenance can be prohibitively expensive for people on-top of a mortgage payment.

How do you feel about co-ops? Would they be a viable option for you? For us, it’s currently the only option.

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