When you buy a share in a co-op, you’re joining a community of owners, each of whom has a say in the operation of your co-op. As a shareholder you’re responsible for paying your monthly fees — which include your share of the real estate taxes — and following the regulations of the community. You also have the right to vote on co-op membership and suggest changes to the rules that govern your community.
Co-ops can be highly selective in approving shareowners, since most communities
are seeking members who can not only meet their financial obligations, but who
share a similar lifestyle and will abide by the rules of the corporation. For
instance, there may be strict rules about subletting, pets, and the kind of alterations
you can make to your unit. However, in keeping with the Fair Housing Act, it
is illegal for a co-op to discriminate on the basis of race, color, religion,
sex, family status, national origin, or disability.
Building equity in a co-op
How you accumulate equity, or ownership, will depend on the type of co-op you’re considering buying into:
1.
Market-rate housing co-op. These co-ops most closely resemble other types of real estate in that you can buy or sell your share in the corporation at the going market price.
2.
Limited-equity housing cooperatives. These units, which may be subsidized by low-interest
mortgages,
grants, and favorable tax status, are usually designed to provide affordable housing to lower- and middle-income families. For these reasons, there are restrictions on how much co-op members may ask for their units.
3.
Leasing,
or zero-equity, cooperatives. In some circumstances, the co-op corporation will lease property from a non-profit organization. The members of the corporation are essentially tenants.
Share loans
Like most real estate buyers, you’ll probably have to borrow
some money to pay for your co-op. Co-op purchasers take out a share
loan, rather than a mortgage, since they’re purchasing shares
in a corporation rather than actual real estate. Share loans are
similar to mortgages in that you borrow the funds you need to make
the purchase and make monthly payments to the lender. A co-op unit,
however, may be difficult, if not impossible, to refinance.
Make sure to investigate the
financial well-being of the co-op corporation, including any lawsuits
it may be involved in, before making an offer.
