There are so many possibilities for living arrangements once you move out on your own. You can decide to live alone or with one or more roommates. You can share space in a house or get an apartment. Another option, that has been around longer than you may think, is buying into or renting within cooperative housing.
Unlike all these other options, people who buy into a co-op own a piece of the entire building. It’s a unique way to own property that’s often more affordable than buying a condo or home.
It’s also a big investment. As a renter, living in a co-op creates a different, more communal atmosphere that you may not find elsewhere.
Before deciding to research co-ops in your area, it’s important to understand what a co-op apartment is.
What is a co-op apartment?
Cooperative housing is where you buy in to become a part-owner of that entire piece of property. “When you buy into a co-op, you become a shareholder in a corporation that owns the property. As a shareholder, you are entitled to exclusive use of a housing unit in the property,” says Lisa Smith from Investopedia. Rather than owning a single unit, you become a part-owner of the whole building. This gives you the right to live on the premises, in an available apartment.
Everyone who is a part of a particular co-op shoulder some of the financial responsibility of ownership. This includes primary expenses of mortgage payments, maintenance costs and taxes. Other fees can consist of utility bills, the expense of running the building, maintaining amenities and insurance premiums. Each cost breaks up among the total number of people vested in the co-op.
The history of co-op apartments
“There is no clear-cut answer as to when the first housing cooperative appeared in the United States.” Says Lynne Goodman from The Cooperator New York. She does reference authors Richard Siegler and Herbert J. Cooper-Levy in “Brief History of Cooperative Housing,” who claim the first American residential co-op was established in 1876 in Manhattan.
As the starting point for co-ops, New York City continued throughout history to offer this housing option. Moving in waves of popularity in this ever-growing city, co-ops began as home clubs, where people organized with the intention of building an apartment building together.
Co-op popularity hit another high in the 1920s as urban populations boomed, post-WWI. The next uptick was in the 1940s as a response to rent control provisions. In the 1980s, popularity rose as a result of increasing oil prices.
Today, co-ops are more than just living arrangements. You can buy into a food co-op or shop at a store that produces goods from a co-op. The methodology of being a part of a larger group has grown beyond investing in housing.
Where can I find cooperative housing?
In varying degrees of availability, you can find cooperative housing in every part of the country. “Housing cooperatives are quite common in certain parts of the country, such as New York City, Washington, D.C. and Chicago, but can be harder to find in other areas,” according to the National Association of Housing Cooperatives. They’re popular throughout the Northeast but exist elsewhere.
How do fair housing laws impact cooperative housing?
The Fair Housing Act consists of laws that prohibit discrimination based on race, skin color, sex, nationality, religion, disability and more when it comes to buying, selling, renting or financing housing.
Co-ops must abide by these laws, but at the same time, their approval processes for tenants is very different than what you find in a regular apartment. There’s no landlord-tenant relationship. Instead, a community board reviews applications. The members of this board can set up their own qualification system within the fair housing parameters. This can include net worth minimums or a certain debt-to-income ratio for eligibility.
“The board must not reject an applicant based solely on his or her race, gender, national origin, religion, sexual preference, marital status or familial status. The board can, however, take into consideration factors that impact an applicant’s ability to meet the financial obligations of the community, as well as governing responsibilities,” according to the law firm, Pentiuk, Couvreur & Kobiljak P.C.
A community board can be more restrictive than other housing options when it comes to inviting people to become owners or renters. This can make for a longer and more tedious approval process that doesn’t always feel so fair.
Is it worthwhile to buy in and become a part-owner?
Personal preference is what makes a co-op apartment appealing. To figure out whether it’s the right place for you, weigh the pros and cons carefully.
As a part-owner within a co-op, you influence how the building runs. You attend board meetings and get to vote on all decisions. This includes shaping rules and regulations for how the building is managed and who is eligible for consideration to join the co-op. You pretty much get to pick your neighbors and prevent anyone from moving in who might not maintain their space in the same way as the rest of the shareholders.
Another perk is the cost. Cooperative housing can cost less than owning a condo. “Co-ops tend to be cheaper per square foot. They typically offer buyers more control as an individual shareholder and often have lower closing costs,” says Lester Davis from The Washington Post.
The last primary perk to co-op living is community. This special living situation gives you more than somewhere to live, you get a whole community. You more often than not know your neighbors, have a network of people watching out for you and our home and connect with people you can rely on when in need of assistance.
To get into a co-op, prepare for a more rigorous approval process. Not only will the board run a background and credit check, but you’ll have an in-person interview to get through. Everyone receives the same treatment. Once you’re approved, you’re in, but the process can also make it harder to sell when you’re ready to leave the co-op.
Rules within cooperative housing can feel more confining than in other living situations. Because you don’t own the unit you live in, you’ll have to contend with restrictions on how you can use your unit, whether you can sublet and more. You’ll also need extra insurance for your personal belongings since the building’s insurance won’t cover it.
One final key drawback goes back to cost. It may cost less to buy into a co-op, but with shared expenses comes more potential financial responsibility. If someone defaults on their payments, you and your neighbors are obligated to cover a portion of their missed payment.
Can I rent within a co-op?
This is a tricky question. Since a set of shareholders own the building, no single unit belongs to any one person. Because of this, many co-ops don’t allow renters at all. Additionally, the rate of owner occupancy in cooperative housing is much higher than you’d find elsewhere.
If a building does allow it, you may face a large application fee, along with set limits on the length of your lease. You’re also technically subletting rather than renting outright since you rent the unit from the co-op shareholder who holds a lease on that particular space. It’s a little more work to rent within a co-op, but it’s not a terrible option. If you want something more flexible, with a little less upfront cost and rigidity when it comes to the approval process, you may want to consider other options.
Is a co-op right for me?
A co-op may be right for you if, after learning more about what it really is, the idea still sounds appealing. It all depends on your own personal needs, which is why it’s good to know you have options when searching for your perfect living situation.
While co-ops can get you more square footage for your dollar, they can also feel more strict when it comes to rules and regulations. Finding the perfect balance of cost and comfort will help you know whether it’s time to start looking for a co-op.