My dad keeps suggesting I look into housing co-ops, but his/google’s explanation still leaves me confused about exactly what they are or why anyone would want them.
In: 3
Disclaimer: “co-ops” sometimes refers to a communal living arrangement where residents split chores, cook meals together, etc. It doesn’t seem like that’s the type you’re asking about, so I’m going to talk about the other meaning.
I’m also going to talk about co-ops in the US; not sure what country you’re in.
In a practical day-to-day way, living in a co-op is kinda similar to living in, say, a high-rise condo. You live in a particular unit but don’t fully own the structure and land.
With a condo, you are _purchasing_ the unit. (Well, technically, just the interior of the unit.) This comes with the financial implications, taxes, and various benefits and responsibilities that come with homeownership. You can generally make changes to the inside of the unit (which you own) as you please (within the constraints of the condo association).
With a co-op, on the other hand, **the building is owned by a corporation — and you, the residents, are the ones who own the shares of that corporation.**
A simplified, not-legally-sound example: imagine that you and your friends want to buy a vacation house together. In a co-op arrangement, you would create a corporation that would buy the house. Technically the corporation — not any of you individually — owns the house. But _you own the corporation_, with shares split by how much each person uses the vacation house / how big their room is.
Okay, so **in terms of finances — since buying into a co-op is buying a share of a corporation, a traditional mortgage is generally not an option.** Co-op loans are much harder to come by.
Co-ops aren’t common in the US — NYC is the place you’re most likely to find them. The benefits are basically 1) the buy-in price is often cheaper than comparable condos, and 2) sometimes there are tax benefits.
They aren’t necessarily more advantageous than owning or renting — just different.
A co-op is type of legal ownership structure. When it comes to apartments (generally apartments, although the same could be said of other forms of community-type housing like townhome communities, and strictly speaking, these forms could be applied to collections of single family homes, but they rarely are), there are three main types of ownership/occupancy:
* Landlord/renter
* Condominium (condo)/owner
* Co-op/shareholder
The first is straightforward – some entity owns a building and others rent apartments in said building. Generally, the landlord is responsible for just about everything inside and outside the apartments, including all the common areas and systems.
The second is a bit more complicated. Some legal entity (condominium association) controls the community on behalf of all the owners of the individual units. So you can own your actual apartment, and some legal entity owns and maintains all the common areas. Each unit owner is assessed a fee to cover the common area costs. As a unit owner, you can sell your unit anytime to anyone. Some condos have a right of first refusal, meaning while you can sell your unit to anyone, the condo has a chance to buy it for the same terms you were willing to sell it to a third party.
The third is even more complex. A co-op (or coop) is a corporate legal entity that owns the entire building, including the individual units/apartments. The occupants of the individual units own shares in the co-op, and share ownership gives them the right to live in the unit (and sometimes rent it out). Co-ops can set requirements for shareholders including minimum net worth or earnings requirements, and they can restrict who can own shares in lots of legal ways (there are plenty of illegal ways they try to restrict ownership as well). In short, co-op boards can (and do) refuse to allow sales of shares (and occupancy rights) to willing buyers, and they tend to have more and stricter rules than other types of community living arrangements. There are lots of local laws and regulations that impact what co-ops can and cannot do as well.
I have no idea why your father wants you to look into co-op living unless you have lots of money saved up and a decent job. Even then, just because you may qualify for a co-op doesn’t mean it will be a good arrangement for you. You may find yourself stuck later if you want to sell. Your father might not specifically mean “co-op” but more of a cooperative/communal housing, a catch-all term referring to “looser” arrangements of a bunch of people sharing space one way or another.
Latest Answers