A co-op is a corporation made up of shareholders or unit owners. The shareholders own shares of stock in this corporation and a proprietary lease on their apartment. To compare it to purchasing a condo, as a condo owner you have fee simple ownership. The use of the physical space of an owner’s unit in a co-op is the same as a condo, it’s just a different type of ownership.
As an owner you can still use the space the same as you would a condo and renovate it as you like as long as you adhere to the bylaws and rules and regulations. Most restrictions would only be with major structural changes that can be reviewed by the board, the same as structural changes to a condo.
The shareholders elect a board of governors that manages the business affairs of the co-op and supervises its operation. Co-ops often will have more restrictions in their bylaws and rules and regulations about renting your apartment than a condo comparatively. If renting your co-op in the future is something you have the ability to do down the road, you just need to review the bylaws and rules and regulations to be sure they will work for your purposes.
The financing is a little more complicated if you are buying a co-op. You will have to use a lender that has a recognition agreement with the co-op. A lender that does not have a recognition agreement in place with a co-op you like can acquire one.
Buyers and renters both have to make application to the co-op board. Each co-op has a different set of requirements. You will typically submit an application with supporting documents to help confirm your income and assets.
The co-op board will review your application. Once your application package has been submitted, most co-op boards will schedule a meeting for you to meet a board member or in some cases all board members. Once approved you can move forward to lease or to settlement.
Here are some pros and cons to consider when weighing whether to buy or lease a co-op:
• The main advantage of purchasing a co-op is that they are often cheaper to buy than a condo.
• Co-ops are typically more financially stable.
• The instance of foreclosure is rare.
• Co-ops are typically going to be a higher owner occupancy rate.
• You can typically get better square footage for your money.
• Most co-ops require a 10 to 20 percent down payment.
• The rules for renting your co-op are often quite restrictive.
• Because there are a limited amount of lenders who do co-op loans, your loan options are restricted.
• Typically it is harder to rent your co-op with the restrictions that most co-ops have.
If you are trying to rent a co-op it is harder to do a shorter amount of time with the approval process.
If you are looking to buy a home as an investment property that you plan to rent, then buying a co-op is probably not the right property to choose. If you need to rent a home in two to three days or sooner, a co-op is not going to be the best choice.
But if you are looking for a primary home that you would like to live in for several years, a co-op can be a wonderful option.
Catch up with some of Nancy’s previous columns: