Readers Question: What is a housing cooperative?
Monty’s Answer: A cooperative is a form of ownership that creates an interest in an abode through stock ownership in a company, as opposed to a deed to a parcel of real estate. It could also be the owner of a lease in a building owned by a cooperative. Cooperatives are a minimal component of the housing stock in the United States. The U.S. Census Bureauestimates about one million units. This method of housing, although a tiny portion in the market, is an accepted segment of the national housing supply. It is a segment worth investigating.
The major differences
With a co-op, you own a share in the company that owns the real estate, while in a condo you own a portion of the real estate. The company has a board that vets and selects your neighbors in a co-op, but anyone can buy a condo. The board can change rules in a co-op, but all owners have a vote on regulations in a condo. There are three types of co-ops - market rate, lease only and limited-equity. Condos are exclusively market rate ownership.
5 tips to consider when searching the cooperative lifestyle
- Comparative shop. The concept of comparative shopping is critical in this sector because the differences in the methods of organization can be striking. Take written notes on each project.
- The rules are very different. Obtain a written copy of the regulations to ensure you understand how the board can change the rules, voting rights and by-laws.
- Understand the motives of the promoters. While many cooperatives are labeled "non-profit" and cooperative law regulates certain developer activities, understand the generation of income and expense. Ask your accountant to review the financials before committing.
- Ask the right questions. How many units are vacant? How many re-sales have you had in the past 12 months? What is your annual budget for repairs and maintenance? Can I examine the budget? How much capital in reserve? Are the buildings concrete and masonry or wood-frame? How is the sound attenuation between units? Are there any "up-charges" on operating costs?
- Ask for references from residents (exclude board members) and from residents that have sold their units. Here are some horror stories at http://bit.ly/2IHjp8D to provide an incentive to take all these tips seriously.
Richard Montgomery is the author of "House Money - An Insider’s Secrets to Saving Thousands When You Buy or Sell a Home." He advocates industry reform and offers readers unbiased real estate advice. Follow him on Twitter at @dearmonty, or find him at DearMonty.com.