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7 min read Jan 31, 2024

What is a Co-op: A Guide to Understanding Cooperative Housing

A cooperative (co-op) is a non-profit and democratic organization run by its members. If you’re living in a co-op you are a voting member who contributes to the governance of the co-op.

It is a type of community living arrangement that has gained popularity over the years. But many people are still unfamiliar with it.

If you’re one of them, don’t worry! This guide will help you understand what is a co-op, and how it works.

🚀 Key Takeaways

  • Two types of housing coopeartives developed in the USA: Limited equity and market rate cooperatives.
  • A co-op is less expensive compared to apartments. This is mainly because they work on an at-cost basis.
  • There are total 425,000 family dwelling units under limited equity housing and 772,000 under market housing co-operatives.

What is a Co-Op?

Cooperative housing is a type of homeownership. Here, the residents collectively form a corporation that owns the cooperative building.

When you join a co-op, you buy shares in a nonprofit corporation that grants you the right to live in the building. Consequently, instead of a property deed or title, you’ll receive a stock certificate as proof of ownership.

What are the Types Of Co-Op?

The three main types of co-ops are as follows:

  • Market Rate: It allows you to buy and sell shares at rates determined by the market.
  • Leasing: Here, instead of purchasing the building, the co-op rents it from another investor. This way, the co-op residents don’t have any equity in the property, as opposed to if they owned it outright.
  • Limited-Equity Housing: It imposes a price limit on shares in the cooperative that can be bought or sold. The goal is to ensure affordability in housing.

Other Types of Co-ops are:

A housing cooperative owns real estate properties that include a number of residential buildings. These are usually formed in areas where housing costs are high.

Apart from housing co-ops, there are different types of co-ops. It includes consumer cooperatives, producer cooperatives, worker cooperatives, and many more.

They all exist with the stated purpose of helping a group of people with a shared interest to achieve a common goal.

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Difference Between a Co-op and a Condo

The main difference between a co-op or coop and a condominium (condo) lies in its ownership and legal structure.

In a condo, you own a specific unit within a building. On the other hand in a cooperative (co-op), the corporation owns the building.

Condo owners receive a deed to their unit. They also have more autonomy in terms of managing their property. However, when you purchase a coop, you are not buying a specific property but rather shares in the cooperative corporation.

You are free to rent out or sell the condo. In a co-op, you have limited control over the unit. Moreover, you must adhere to the rules and regulations set by the cooperative corporation.

Condo owners can secure mortgages from traditional lenders. However, co-op owners often need to obtain co-op-specific financing. This requires the approval of the cooperative corporation.

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How Does Co-Op Housing Work?

Cooperative housing works on a principle of collective ownership and democratic decision-making. In a coop, a group of interested individuals come together and form a housing cooperative.

The group incorporates the cooperative as a legal entity. This is often known as a non-profit organization.

Once the corporation is formed, you will have to buy shares in the co-op if you want to become a member. The number of shares determines your ownership stake.

For example, if the total property value is $2,000,000 and there are 1,000 shares, each share is priced at $2,000. If someone purchases a one-bedroom unit allocated 20 shares, they would pay $40,000 ($2000 * 20). Having 20 shares out of a total of 1,000 shares means that this individual owns 2% (20 shares / 1,000 shares) of the cooperative.

Later, the cooperative will establish a governance structure. It consists of a board of directors and shareholders. The board oversees the operations and makes management, policies, and financial decisions.

Members of the cooperative will also participate in general meetings. Each member usually has one vote, regardless of the number of shares you own.

Finally, the committee sets rules and regulations to govern its residents’ behavior.

Advantages and Disadvantages of Co-Op Living

Here are a few advantages and disadvantages:

Advantages:

  • Affordability: Its costs are shared among the members. This makes it more affordable compared to condos or single-family homes.
  • Shared Responsibility: Co-op living distributes responsibilities among the residents. This can be beneficial for elderly residents of society.
  • Decision-Making Power: You get an opportunity to participate in decision-making processes. This level of ownership and involvement leads to a stronger sense of community.
  • Long-Term Stability: You have the right to occupy the property as long as you comply with the rules and regulations.

Disadvantages:

  • Limited Flexibility: You are buying a share of the building rather than the unit itself. This gives you less control over the space you live in, limiting your ability to make changes or renovations.
  • Limited Resale Value: It has less demand in the market. This can make it more difficult to recoup your investment if you decide to move.
  • Lack of Privacy: All cooperative affairs are openly discussed in the members’ meetings. In such a situation, privacy and secrecy are unlikely to exist.
  • Decision-Making Challenges: Often the decisions lead to conflict among members. it could affect the working of the committee or compromises the quality of something.

Final Word

Co-op housing offers you an alternative where you collectively own and manage a multi-unit property. As a member, you will purchase shares in the cooperative. This allows you to occupy a specific unit and contribute to the governance of the cooperative.

However, it also comes with more rules and regulations, as they are governed by boards. Hence, it is advisable to do research before purchasing a co-op.

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Frequently Asked Questions

1. What is a condop?

A “condop” is a type of building where some units are owned as condos and other cooperative apartments operate as co-ops.

2. What are the options for co-op financing?

The options for co-op financing typically include obtaining a co-op loan or using personal funds to purchase shares in the cooperative.

3. Can I rent out my co-op unit?

It depends on the rules of your specific co-op. Some co-ops allow subletting, while others do not.

4. How are decisions made in a co-op?

Decisions in a co-op are typically made through a democratic process, with each shareholder having an equal vote.

>> How Does Co-op work?: Click here to know the process of co-op.

5. Who can become a member of a cooperative housing society?

Adults who share common interests can form their associations, join them, and register them with the Registrar of Cooperative Societies.

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