Are you ready to get your own place?  Are you considering co-ops as your next home?  Then there are some essential things that you need to know about co-ops to help you decide whether it’s the right one for you. 

What is a co-op?
Basically, co-operative housing projects or commonly known as “co-ops” aren’t really owned as real property by those who buy them.  Instead, they own shares of stock from the company owning the building.  Co-op shareholders are entitled to live in a particular unit, utilize common areas, and vote in the company.   In order to maintain these rights, co-op owners pay monthly fees that cover their share of the operating expenses. 

In terms of governance, the board of directors elected among residents, manage the co-op.  Under the majority of bylaws, the board has the right to evict tenants or shareholders that fails to give their monthly fee for maintenance.  Everybody should abide by the co-ops rules, which can prohibit pets and even kids under certain age.

What are some advantages of co-ops?
Apart from being able to avail of certain tax deductions, co-ops are said to have low rates of turnover, lesser real estate tax assessments, resident control and participation, lesser maintenance costs, and the capacity to avoid investor ownership and absentee. 

Additionally, co-ops are usually less expensive compared to similar condominium apartments.  They also provide secure and long-term housing where tenants can experience real feeling of home and community in a helpful environment.  Being a shareholder means having better control over your home. 

What are some disadvantages of co-ops?
Co-ops can enforce strict guidelines for a new buyer, like a required cash purchase or minimum income.  A number of co-ops also require a buyer to show a monthly income that’s four times the monthly obligations, including maintenance, mortgage, credit card debts, child support or alimony, and other loans.  A buyer can be subject to careful background check as well.  Moreover, the board must approve every prospective buyer, and this approval process can often be rigorous and time-consuming. 

Some monthly maintenance fees can be higher, as they can include part of the building’s underlying mortgage.  If some shareholders fail to pay these monthly fees, other shareholders may need to make-up for the difference –but this is a rare case.   Lots of co-op boards necessitate higher downpayments, limiting the purchase price amount that may be financed.   Additionally, co-ops are harder to sub-lease. 

Co-ops vs. Condos
There are some subtle differences between buying a condo and a co-op housing. First, when it comes to community control, co-op members democratically run the cooperative with a board of directors that oversee all its operations. On the other hand, condo residents govern the condo association but don’t have control over approval of new owners or sale of units.

In terms of tax benefits, co-op members may deduct pro-rata share of the mortgage interest of the corporation and real estate tax on their income tax returns, as well as on interest paid on their co-op mortgages.  On the contrary, condo residents pay their own “property taxes” via monthly mortgage escrow fees or through local government –they can deduct personal property tax and mortgage interest on personal income tax returns.

Quick Tips when buying co-ops
It is very important to check on what’s covered in the master insurance policy for the co-op. There is a chance that you will need additional insurance for covering your belongings in case something happens.  It is also vital that you do not do any payments without first having an idea of the people who lives there.  Look into who comes in and goes out during peak hours, have a little chat with some residents, or even a board member.  

A co-op is a great option for those who want more security and stability for their housing.  Nevertheless, ensure that you know everything you need to know before buying a co-op apartment.