The purchase process for a co-op is similar to buying a condo or house but there are significant differences in the ownership structure.
When you purchase a co-op you are not actually buying physical property. You are buying shares in the corporation that owns the physical property. Shares are allocated to each apartment. Along with the shares comes a “proprietary lease” allowing you to live in the apartment. You can obtain a mortgage on a co-op in a manner similar to purchasing a condo or house. The proprietary lease is held by the bank until the mortgage is paid off much in the same way the bank would hold the deed to a mortgaged condo or house.
Each month you will pay a “maintenance” fee to the managing agent of the cooperative. This maintenance fee covers the expenses to fund the day-to-day operation of the cooperative. Items funded by the maintenance fee include items such as the underlying mortgage on the property, property taxes, maintenance of common areas, maintenance of building and infrastructure, snow removal and landscaping, heating and cooking gas and water.
The cooperative is run by a Board of Directors. The Board meets on a monthly basis and makes the decisions necessary to keep the cooperative in a state of good repair and to ensure the happiness of all residents. An Annual Shareholders Meeting takes place once a year where all shareholders are invited to hear the accomplishments of the Board over the past year. All shareholders can voice their concerns in an open forum. An election is held at each annual meeting where shareholders are given an opportunity to join the Board.
Co-ops offer significant advantages:
– Versus Rentals: Co-ops are bought and sold in the local real estate market just like condos and homes. The benefits of home ownership can be realized instead of paying rent to a landlord every month. Renovations are also allowed in a cooperative apartment. Unlike a rental unit where you might be stuck with a bathroom you don’t like or a kitchen that might be a bit dated, you can make improvements to a cooperative unit as long as they are approved by the management prior to any work being started.
– Versus Condos and Houses: Co-ops are typically are priced significantly lower. Property taxes, which are part of the maintenance fee, are also much lower.
– Conveniences of a rental property combined with the advantages of owning a home. Shareholders are only responsible for the maintenance of items in their units that are not within the walls.
Here are some examples:
Example 1: Your fridge is broken. It is your responsibility to fix it.
Example 2: The walls need to be repainted. It is your responsibility for renovations.
Example 3: The roof is leaking. The cooperative is responsible for fixing it.
Owning a cooperative shields you from a lot of the pains of owning a house as the management is responsible for keeping many items you would have to take care of yourself with a house in a good state of repair. This is all funded by your monthly maintenance fee.