{"id":73502,"date":"2021-10-01T10:49:07","date_gmt":"2021-10-01T17:49:07","guid":{"rendered":"https:\/\/www.redfin.com\/blog\/?p=73502"},"modified":"2023-03-16T20:57:42","modified_gmt":"2023-03-17T03:57:42","slug":"what-is-a-co-op","status":"publish","type":"post","link":"https:\/\/www.redfin.com\/blog\/what-is-a-co-op\/","title":{"rendered":"What Is a Co-Op? The Pros and Cons of Housing Cooperatives"},"content":{"rendered":"

Investing in a housing cooperative can be a rewarding alternative to the traditional <\/span>homebuying process<\/span><\/a>. But buying a co-op comes with particular considerations and consequences.\u00a0 <\/span>This article will review the pros and cons of investing in a co-op so you can make an informed decision. What is a co-op<\/a> and is it right for you? Let\u2019s find out.\u00a0<\/span><\/p>\n

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What is a co-op?<\/span><\/h2>\n

Co-op is short for housing cooperative. It\u2019s an alternative to home or condo ownership. It\u2019s run like a corporation and owned and controlled by residents. The co-op owns the building, and residents own shares of the co-op.\u00a0<\/span><\/p>\n

How do housing cooperatives work?<\/span><\/h2>\n

Housing cooperatives engage in the cooperative ownership of one or more residential buildings. Co-ops also own the land under the building(s). Residents purchase shares of the co-op instead of deeds to a specific unit, and residents run and operate the co-op in a democratic process that involves the election of a board of directors.\u00a0<\/span><\/p>\n

Buying shares vs. buying real property<\/span><\/h3>\n

When you buy real property, you typically get a <\/span>mortgage loan<\/span><\/a>.<\/b> The property acts as collateral for the loan, which reduces risk to the lender. If the payee defaults on the loan, the lender can repossess the property through the foreclosure process.\u00a0<\/span><\/p>\n

When the buyer purchases shares in a co-op, the lender does not have the property as collateral. Instead, the lender assesses the viability of the co-op. If the co-op meets the lender\u2019s standards, a share loan will be issued.\u00a0<\/span><\/p>\n

Getting a share loan can be just as easy as a mortgage if you live in an area where co-ops are common. However, in areas where co-ops are uncommon, you may find lenders scarce. This can make the resale of your shares difficult.\u00a0<\/span><\/p>\n

The co-op board and board rules<\/span><\/h3>\n

Co-ops are organized much like non-profit corporations. There\u2019s typically a board of directors that deal with the day-to-day operations of the organization. Board officers are residents elected or appointed by the group. How a co-op\u2019s board is created depends on the rules and bylaws of the organization.\u00a0<\/span><\/p>\n

Those rules and bylaws also determine what you can do with your unit. Many co-ops restrict owners from subletting their homes or listing them on sites like Airbnb. There may also be pet restrictions, quiet hours, and procedures residents are required to follow.\u00a0<\/span><\/p>\n

Within the unit, residents are often required to submit renovation plans to the board for approval. Sometimes even minor renovations are subject to approval, especially in historic buildings.\u00a0<\/span><\/p>\n

Cooperative living<\/span><\/h3>\n

Living in a co-op means taking part in a democratically controlled housing community. That means you may have voting rights and duties. But you may also be required to participate in the maintenance and care of the property.\u00a0<\/span><\/p>\n

The responsibilities of residents will be determined by the co-op. Typically, smaller co-ops require residents to be more hands-on.\u00a0<\/span><\/p>\n

Co-op expenses<\/span><\/h3>\n

In addition to your loan payments, you\u2019ll most likely pay a monthly maintenance fee for the management of the property. These maintenance fees cover day-to-day needs like lawn care, pest control, and shared utilities. If residents are performing maintenance, these fees are usually inexpensive. But in luxury buildings, these fees can be very high.\u00a0<\/span><\/p>\n

Monthly fees can also include resident shares of loan payments owed by the co-op. Occasionally, co-ops will have increased fees due to property investments, such as a lobby renovation. However, most of the time, residents have the chance to vote on these investments.\u00a0<\/span><\/p>\n

Types of housing cooperatives<\/span><\/h2>\n

There are three types of cooperative housing structures:<\/span><\/p>\n

1) <\/span>The market-rate co-op: <\/b>With a market rate, co-op residents buy and sell their shares based on what the market dictates. This type of co-op is common, especially in large metros like <\/span>New York City<\/span><\/a>. Residents living in a market-rate co-op have the opportunity to make a profit when they sell their share(s).\u00a0<\/span><\/p>\n

\u00a02) <\/span>The limited-equity co-op<\/b>: The limited-equity co-op restricts the price point at which a resident can sell their shares. This is commonly used for affordable housing cooperatives. Buying into a limited-equity co-op lowers the financial bar for homeownership.\u00a0<\/span><\/p>\n

3) <\/span>The Group equity<\/b> or<\/b> leasing co-op<\/b>: In this kind of co-op, residents don\u2019t benefit from equity ownership. Instead, they get occupancy rights and pay rental costs below market value.\u00a0<\/span><\/p>\n

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What are the typical co-op home styles?<\/span><\/h2>\n

Co-ops come in many types of housing styles, including:<\/span><\/p>\n