Types of Housing Cooperatives
In addition to the tax benefits and low turnover rates, co-ops have other advantages:
- Financing: Home loans carry favorable lending terms, including low down payments and closing costs. In a co-op building that carries its own mortgage on the property, buyers must obtain less financing than a condominium buyer would need.
- Limited liability: While you're responsible for paying your personal loan, as a shareholder you have no personal liability for the co-op's mortgage.
- Community control: Shareholders participate in property decision-making.
- Consumer clout: As an association, co-ops can exert influence on local governments and utilities.
- Surplus revenues: In some cases, unspent funds are returned to the shareholders (think of the dividends you receive from your stock in a company), although they may have to be reported for individual income tax purposes.
So with all of these good things attached to co-ops, you're probably ready to run out and apply for one. Well, not so fast. First, you need to figure out what kind of co-op you're looking for. As described below, co-ops are not only for well-heeled Manhattanites. They're a concept that works for all income levels through their various types, and can be vehicles for economic development.
- Market-rate co-ops are just that -- you can buy or sell your interest in them at whatever price the market will bear. You acquire equity much the same as in other types of home ownership.
- Limited equity co-ops are usually properties designed to offer affordable housing, and carry certain benefits such as lower-interest loans, tax breaks and grants. In return for the reduced costs of ownership, there are restrictions imposed on how much equity tenants can accumulate and how much they can profit from the sale of their stock in the corporation. These co-ops work for people whose income otherwise would not qualify them to purchase a home.
- Leasing co-ops: Also known as zero-equity co-ops, these properties are owned by outside investors (usually nonprofit organizations) who then lease the property back to the corporation. The co-op may buy the property later if it comes up for sale and convert it into one of the other types of co-ops.
- Mutual housing associations: Nonprofit corporations established to develop, own and operate housing. The corporation is owned and controlled by the residents who move in.
There are also co-ops designed for elderly residents, co-ops subsidized by the government and rural cooperatives designed to assist farmers. To find out more, just follow the links below.