What is a Housing Cooperative?

What is a housing cooperative?

A housing cooperative is a multi-unit dwelling formed when people join democratically to own or control the housing and related community facilities in which they live (http://coophousing.org/resources/owning-a-cooperative/buying-into-a-housing-cooperative/).  Unlike a condominium in which each unit is independently owned and all owners contribute financially for the maintenance of the common areas, a housing cooperative is owned by a cooperative corporation established for the purpose of owning the property and running the cooperative. Therefore, the residents of the co-op do not own any real property but instead own shares of the cooperative corporation.

Owners typically acquire shares through a share purchase agreement. A share loan is a special type of loan that provides those who wish to acquire a share in the cooperative with borrowed shares if they do not have the capital to buy in up front. Those who obtain a share loan are provided with funds from the lender to cover the monthly carrying charges to the cooperative (http://coophousing.org/resources/owning-a-cooperative/buying-into-a-housing-cooperative/).

The monthly carrying charges paid by residents cover the cooperative corporation’s expenses in running the co-op and may include blanket mortgage payments, property taxes, management fees, maintenance costs, insurance premiums and utilities. All expenses are shared by the owners of the corporation. Even though co-op residents do not pay real estate taxes directly, federal tax law allows all residents to deduct their share of the cooperative’s tax payments, as well as their share of the mortgage interest payments and any share loan interest payments, on their personal income taxes (http://www.investopedia.com/articles/pf/08/housingco-op.asp).

The co-op residents gain the right to occupy the property through a proprietary lease or occupancy agreement. All applicants are screened and approved by the cooperative corporation, in accordance with its bylaws or rules, in order to become residents or owners. Housing co-ops must abide by the Fair Housing Act and cannot discriminate based on age, sex, race, sexual orientation or religion (http://www.washingtonpost.com/realestate/condos-vs-co-ops-whats-the-difference/2013/04/25/f673e29c-a5e6-11e2-b029-8fb7e977ef71_story.html). Applicants can only be rejected based upon financial criteria and an unwillingness to abide by the cooperative’s rules and regulations. Typically, the residents of the co-op are also owners of the cooperative corporation.

The owners gain equity depending on the type of cooperative in which they join. The three common types of housing co-ops in the United States and Canada include: (1) market-rate housing cooperatives, (2) limited-equity housing cooperatives, and (3) leasing cooperatives (or zero-equity) (http://www.investopedia.com/articles/pf/08/housingco-op.asp). In a market-rate cooperative, the owner can buy or sell her interest at whatever price the market will bear and acquires equity similar to that of other types of home ownership (http://home.howstuffworks.com/real-estate/buying-home/housing-cooperatives.htm). Limited equity cooperatives have restrictions on how much equity residents can earn and how much they can profit from the sale of their shares in the corporation. This type of cooperative is typically designed to offer affordable housing and are advantageous to individuals who would not otherwise qualify to purchase a home. In a leasing cooperative, the property is owned by outside investors who lease the property back to the corporation.

Housing cooperatives offer a number of advantages to owners of the cooperative corporation that are different from that of other types of ownership. Unlike condominium and independent home ownership, owners have no personal liability in the cooperative’s mortgage. However, if one owner is unable to pay their share, the burden does fall on the rest of the cooperative to cover the difference. In addition, owners have control over the decisions made with respect to the property. Pursuant to the bylaws of the cooperative corporation, the owners and residents are able to vote on changes made to the residence.

As described above there are a number of advantages and disadvantages to cooperative living. The decision to join a housing cooperative is personal, and all housing cooperatives are unique. It is recommended that one fully researches the cooperative before they choose to join. For additional information regarding living in a housing cooperative, please visit http://coophousing.org/living-in-a-cooperative/.