What is a Co-Op Apartment?

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What is a Co-Op Apartment?

Teresa Bergen · Mar 24, 2022
Group of co-op living mates enjoys time together in a communal living space.

You might have heard of co-op apartments before, especially if you’ve spent time in New York. But what are they, and is a co-op apartment right for you? Let’s look at the basics of co-op apartment living.

Understanding Co-Op Apartments

Instead of being a renter or owner, co-op members are shareholders in a corporation that jointly own a building. It’s a little weird to wrap your head around if you’re used to renting. As a co-op member, you don’t own a single unit, but you’re part owner of the entire building. That gives you the right to live in an available apartment within the building you invested in.

Since you partially own the whole building, your financial responsibility extends beyond a single unit. In addition to mortgage payments, taxes, and maintenance costs, your fees could include utility bills, insurance premiums, and other expenses for running the building and its amenities. Costs are split among the shareholders.

Each co-op has a board of directors which establishes rules and by-laws, but each shareholder gets a vote in running the building. People who jointly own a co-op often feel more communal and tight-knit than people who merely rent in a regular apartment building.

New York City is home to the US’ first co-ops, but today, you can find them all around the country.

Co-Op Vs. Condo

Expansive co-op living area.

While co-ops and condos share some features, there are a few important differences between the two. Condos are much more individual and separate. If you buy a condo, you’ve selected an individual unit where you’ll reside. You will probably go through the typical home mortgage loan process. You also usually have quite a bit of freedom in how you renovate the interior of a condo.

In a co-op situation, you don’t own the specific unit you occupy, you and may not be able to renovate as freely as you could if you bought a condo. The financing process is different from buying a condo, as you’re paying for shares of a corporation rather than real estate. Instead of a home loan, you’ll need something called a share loan. If your lender isn’t familiar with the specific co-op, they’ll have to research the board of directors and make sure the underlying mortgage is sound.

Both condo and co-op owners pay monthly fees for building upkeep. Condo homeowner association fees tend to be higher. Either way, read the fine print and pay special attention to monthly fees before signing anything.

Joining a Co-Op

If you dread presenting yourself to potential landlords when you want to rent an apartment, brace yourself for the co-op application process. A community board of shareholders will review your application and interview you to see if they want you to live in their co-op. While they have to adhere to the Fair Housing Act, which protects people from housing discrimination based on race, skin color, nationality, sex, disability, or religion, it might still feel like sorority rush week (or month). The process can drag on. There’s no landlord-tenant relationships in a co-op. Instead, the board will want to be sure that all new shareholders are reliable adults who are likely to get along with each other.

Aside from weeding out psychos, the community board wants to ensure that any new co-op owner will be able to meet financial responsibilities. Be prepared to answer nosy questions about your income level and savings. After all, everybody is expected to pony up for building maintenance.

Co-Op Pros and Cons

Group of co-op living mates enjoys time together in a communal kitchen space.

So, is co-op living for you? Like anything, there are pros and cons. Are you a people person? You need to be at least sociable enough to communicate and cooperate with other shareholders, and to think about what’s good for the greater co-op community rather than simply what goes on within your interior walls. If you’re a love-thy-neighbor sort of person, you might thrive in a co-op, but hermits will do better in an a standard apartment unit.

Once you’re in, you’ll have influence on how the building should be run. You’ll get to vote on who can be your neighbor. Also, the cost of joining a co-op is generally lower than that of buying a condo. This is especially true in large, spendy cities like New York and Washington, D.C. There may also be tax benefits for co-op owners, depending where you live.

On the other hand, the approval process can be nerve-racking. There’s the background check, the credit check, the in-person interview, the wondering if your prospective neighbors like you, and of course, wondering whether you’ll like them. Also, if you eventually sell your share, it can take longer since this whole process will also apply to your successor.

Co-op rules might feel confining. Since you don’t technically own the unit you occupy, there might be restrictions on renovations. You’ll also need to get your own insurance for personal belongings, as they won’t be covered under the building’s insurance.

If you get into a co-op, pick your neighbors carefully. If somebody defaults on their payment, everybody else’s fees will go up to cover that deficit.

Can You Rent in a Co-Op Building?

Possibly. It depends on the co-op. Since the individual units don’t belong to particular shareholders, many co-ops prohibit renters. However, if a co-op does allow renters, prepare for a hefty application fee. You’ll technically be a subletter rather than a renter. If you get the chance to sublet in a terrific co-op, it’s worth investigating, but it probably won’t be your simplest rental option.

If you’re thinking of making the move from renter to owner, a co-op might be a good choice. It’s especially appealing to people looking for community and those who thrive in situations of shared decision making.

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