A co-op apartment is a company-owned building where the tenants are shareholders. These shareholders own a piece of the whole building, but not the entire property itself. Co-ops work on an at-cost basis, meaning each tenant pitches in to cover expenses. This could lead to high monthly fees, but the initial purchase price is lower than most condos and homes.
If you live in an expensive, crowded city, you may think owning property is an impossible task. Housing prices are expensive, so how could you own an entire home or condo? That’s where co-ops come into play.
Cooperative housing is a unique and affordable way to own property in an expensive city. Throughout this article, we’ll talk about the price, the application process, and some of the advantages and disadvantages a co-op building could offer you.
What is a co-op apartment?
A housing cooperative, or co-op, is a popular housing option in populous cities where a corporation owns an entire building. Owning a co-op apartment means you are a shareholder of the company that owns the building. You do not own the building outright.
Each buyer takes out a share loan for a co-op purchase instead of a traditional mortgage loan. Because co-ops collect money from all residents to cover expenses, they can be more affordable than apartment buildings.
What are some key differences between co-ops and other housing options?
Co-op housing is unique to busy cities, where costs are well beyond many homeowners’ budgets. While a co-op may sound similar to apartments or other city living situations, there are a number of differences we want to highlight.
Deed vs. shares
With a house or a condo, you own a deed and the property outright. Co-op owners, on the other hand, own shares in the company and are tenants of the apartment.
When buying a co-op, you also need a “share loan” rather than a mortgage loan. When taking out a share loan (also called a share-secured loan), you’re borrowing against your own savings account.
Longer vetting process
As opposed to a house or condo, the co-op board approves all residents before they buy a co-op. This approval process can be fairly lengthy. It includes interviews, submitting referrals, financial history, and more.
If you’re looking for something a little less rigorous, check out multifamily properties in your area. They might be just what you need.
Condos, apartments, and houses are widely available throughout the United States. Co-ops, however, are usually reserved for large cities. Some of these cities include New York City, Seattle, Chicago, and Philadelphia.
The down payment and purchase price of co-ops are much cheaper than houses or condos. However, co-op residents will likely pay a higher monthly fee than those in a condo or apartment. This is because the fee covers maintenance costs, utilities, and more. We’ll cover this in more detail further in the article.
Given the strict application process in a housing cooperative, co-op boards usually ban renting or subletting out your apartment. This is not always a restriction with condos or houses.
What are the different kinds of co-ops?
The type of co-op in place depends on the location of the building. The three most popular co-ops in the United States and Canada are:
- Leasing co-ops: The co-op corporation leases this building instead of owning it. They do not collect equity in this case. The co-op corporation may have a cash reserve accessible if the building goes up for sale.
- Limited equity co-ops: Restrictions are set for what the property can be bought and sold for.
- Market rate co-ops: Co-op members can buy and sell shares at any rate.
What are the pros and cons of co-op living?
While co-ops may sound like a unique and affordable option for city homeownership, they also come with some downsides. Before applying for a co-op, consider these pros and cons.
Here is a list of the benefits and the drawbacks to consider.
- Lower purchase price
- Tax benefits, as maintenance fees and interest are sometimes deductible for shared properties
- Neighbors vetted and trusted by co-op board
- Amenities and maintenance provided
- High monthly fees, which cover such costs as property taxes or utilities
- Extensive application process
- Limits what renovations can be done
- Difficult to sell or sublet
Are co-ops risky?
Co-ops are not risk-free. One major risk of co-op apartments is shared ownership. Cooperative housing operates on an at-cost basis. This means they collect money from each resident to cover expenses. If one shareholder defaults on payments, all members of the co-op apartment are affected.
Is a co-op better than renting?
It depends on what your priorities are. Co-ops are usually cheaper per square foot, but they’re also more restrictive. To clearly demonstrate this difference in price, take a look at the following:
Say you’re looking to live in New York City. For a downtown apartment at 800 square feet, your monthly rent is about $4,680 not including utilities.
Compare this to a downtown co-op, which has a purchase price of about $199,000. Let’s say you get a 15-year term loan for $200,000 at 5% interest. Without including taxes, maintenance, or HOA fees (if applicable), your monthly loan payment equals about $1,600.
As you can see, the right co-op could make sense for certain people. If you live in a smaller co-op, you could have more responsibilities. So, while the cheaper price may seem appealing, make sure you would like the lifestyle.
What influences the price of monthly payments?
Part of the reason why co-op’s monthly payments are so expensive is because of monthly maintenance fees. Many factors influence these fees, so it’s important to look at the following before buying a co-op:
- Location. Some cities have more expensive co-ops than others. For example, a Manhattan co-op could be pricier than a Brooklyn co-op.
- Age of the building. If the building is newer, the monthly maintenance fees are higher.
- Amenities and utilities. Depending on the kind and number of amenities available, you may have higher fees to keep up with repairs and maintenance.
- Staff. If the building has a cleaning crew or door attendants, their payment likely comes from monthly maintenance fees.
- Number of owners. Since maintenance fees are divided between co-op owners, fewer owners mean higher fees.
- Underlying mortgage. The corporation could have underlying mortgages attached to the building. While you don’t have to make direct mortgage payments, owners usually pay for part of it in the fee.
If high monthly payments aren’t right for you, maybe looking for a home loan is a better option. SuperMoney allows you to customize your mortgage search through personal reviews and comparison tools. Check out a sample of reviews below and find your ideal loan today.
What do co-op boards ask applicants for?
As we’ve mentioned before, getting approval from the co-op board is mandatory to live in co-ops. Each co-op board is different, but most usually ask for the following things:
This usually includes bank accounts, brokerage accounts, car loans, mortgage loans, salary information, child support, life insurance, records of tax returns, and more. This provides the co-op board with a better idea of your financial obligations, which proves you can afford the monthly fees.
Personal and professional reference letters
Use your employer and someone you conduct business with for professional references. This could be a colleague or even an accountant. For personal references, find someone who can talk about how good of a neighbor you are.
A criminal and credit background check will be conducted. It is also likely that the co-op board will check out any social media pages you have. Review your social media profiles and make sure they’re professional.
If your financial statement, background check, and reference letters have impressed the co-op board, they will likely ask you for an interview. It is recommended to treat this like a job interview. Dress nicely, answer honestly, and act professionally.
The co-op board will ask you several questions, some of which include:
- How often do you have guests over?
- Do you play any instruments?
- What pets do you own?
- Who will live with you?
- Are you willing to serve on the co-op board?
What do part-owners in a co-op do?
If you want to have more of an influence in your co-op, look into becoming a part-owner. Becoming a part-owner is a long process. The co-op board will interview you and run a credit and background check.
Part-owners attend board meetings, vote on decisions, structure the building’s rules and regulations, and help decide who lives in the co-op. So, while the approval process is tedious, it may be worth it for you.
Who are co-op units best for?
Co-ops are an intriguing option for those living in crowded, high-cost cities such as New York City or Chicago. Because co-ops work on an at-cost basis, they are often less expensive than apartments. But remember, a co-op’s monthly fees could be more costly than other housing units.
Since everyone living there does so with board approval, there is also a social aspect that plays heavily into housing cooperatives. For example, residents run smaller co-ops. Everyone helps take care of duties and maintenance.
If you’re in a busy city and this lifestyle sounds appealing to you, ask a real estate agent to check out co-op buildings in your area.
- A co-op is a building owned by a corporation where the shareholders as tenants.
- Shareholders own part of the building with a co-op, but not the unit outright.
- Co-ops usually have a low down payment and purchase price, but high monthly fees.
- Co-op apartment buildings don’t accept everyone, and it is a rigorous application process.
Specialized loans for your unique lifestyle
Even though co-op housing doesn’t require mortgage payments, you still need the right financing to live in one. If you need help finding the perfect share loan (or mortgage loan if co-ops aren’t for you), you’ve come to the right place.
Through years of intensive market research, SuperMoney offers detailed reviews of mortgage lenders and rates in one location. Learn more about your expected rates right here.
- Co-Op Housing — City of Boulder
- Cooperative Housing — U.S. Department of Housing and Urban Development
- What is a Multifamily Home? Everything You Need to Know — SuperMoney
- Moving Out of Your Parents House – The Definitive Guide — SuperMoney
- Best Renters Insurance for Apartments — SuperMoney
- Why New York Real Estate Is the New Swiss Bank Account — SuperMoney
Camilla has a background in journalism and business communications. She specializes in writing complex information in understandable ways. She has written on a variety of topics including money, science, personal finance, politics, and more. Her work has been published in the HuffPost, KSL.com, Deseret News, and more.