What is a housing co-op, and how is it more advantageous than just owning/renting an apartment?

Question

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

Answer 1

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.