Cooperative Housing

Definition of "Cooperative housing"

The definition of cooperative housing is well known by real estate agents because they are often involved in the selling process, in most cases. Cooperative housing is a form of homeownership that is widespread in big cities like New York, Washington, as well as in other major metropolis. A co-op is usually an apartment in a building owned by a company. When someone purchases a unit, instead of owning equity in a particular building, he/she will own only shares of the company that owns that building. In simple words, you purchase stock, not real estate.

So, in comparison with condos, co-ops are not such a good investment, unless one plans to live there long-term. In fact, this is a great benefit - you get to know your neighbors, who are also more likely to live there for the rest of their lives. Cooperative housing tends to be cheaper, too, but the purchase process is quite complicated. Before you are approved for a loan, you have to meet with the co-op board. Due to real estate disclosure rules, a real estate agent is not allowed to tell you if you qualify or not and boards can reject your application without stating a reason. Usually, a down payment is required, but not many lenders offer loans for co-ops. Consequently, it is not possible to buy a co-op with a VHA loan, line of credit or home equity loan. Closing costs are also higher than for condos.

Some people prefer co-ops for their low maintenance requirements, however, the maintenance fees could be quite high, especially for the upscale units. In some cases, though, the maintenance fees include all utilities as well as the property tax, which tends to be lower for this kind of real estate. Another benefit is that the maintenance fees cover also any repairments inside the apartment that a condo owner would have had to hire other contractors.

Since most co-ops are located in great areas, it is easy to let yourself become carried away by the view or by all the facilities provided. However, you must do an X-ray to the whole building to find out whether it is healthy or not - think like a home inspector. Check the debt-to-income ratio or whether there are any capital assessments scheduled in the near future. To get a better picture of your neighbors, you may also want to find how many of them are late on their maintenance fees. Take a look at the latest financial statements as well, and find the investor ratio (how many co-ops are rented). Since most co-ops have a ton of restrictions, if you plan to rent that apartment, make sure you are allowed to. Also, when reselling the unit, there could be an income threshold for the new buyers, who will also have to be approved by the members of the board.