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What is a Co-Op Apartment? Guide to Housing Cooperatives

By: Davina Ward
September 27, 2021

Co-op apartments are units within a cooperative housing property in which co-op’s shareholders are entitled to use. Sounds confusing? Don’t worry. You’re in the right place!

If you’ve come across the term cooperative housing or co-op during your apartment search and been confused, you’re in the majority. Most people have misconceptions about co-op apartments and how cooperative housing works.

In this guide, we’ll clear up any co-op confusion and misconceptions you might have. Here’s everything you need to know about co-op apartments and housing cooperatives..

What is a Co-Op?

A co-op apartment is an apartment within a building or complex owned by members of a housing cooperative.

Cooperative housing or co-op is a type of home ownership in which each individual in the cooperative housing arrangement owns a share (or many shares) of a property.

When you buy into a co-op apartment, you become a shareholder. As a shareholder, you are given exclusive use of an apartment unit within the building.

However, you are not an owner of the unit itself and your shares in the co-op are not considered real property.

This differs from investing into a condo, as when you buy a condo, you are the sole owner of the unit. Your condo is considered real property.

Co-op apartments are most common in older buildings in large cities. You’ll find a high concentration of co-op apartments in New York City.

Differences Between Co-Ops and Condos

Although the buying experience for condos and co-op apartments is similar, there are major differences between the two.

Understanding the difference between a co-op and a condo before investing in one is essential, as the financial implications and difference in living arrangements can be significant.

Keep reading for a breakdown of the three main differences between co-ops and condos.

Differences in Ownership

Property ownership is an important financial and personal investment.

Beyond a sense of ownership pride, property ownership can have substantial implications come tax time. So, it’s important to know whether you want to be a shareholder or apartment owner.

Here’s what you own when you buy into a co-op or purchase a condo.

  • Co-op owners own shares in a co-operative housing property. They do not own individual apartment units.
  • Condo owners own individual apartment units. They do not own shares in the apartment building itself.

Differences in Buildings

If you have a strong personal preference regarding the type of building you live in, here’s what you can expect when living in a co-op or condo:

  • Co-ops are usually found in older buildings in large cities.
  • Condos are found in newer buildings in large cities or remodeled older buildings.

You’ll likely find more apartment amenities and more modern aesthetics in condos, while co-op apartments usually boast a charmingly antiquated aesthetic.

Differences in Price

Price is one of the most important factors to consider when purchasing a co-op or a condo. Generally, co-ops are cheaper than condos.

That said, co-ops may require a higher your down payment.

For example, you can expect to put down at least 20% down when buying a co-op in New York City. However, the down payment can be as low as 10% in other markets.

Differences in Organization

Co-op apartments are organized and managed as a collective.

Smaller co-op buildings are usually managed by the residents as a whole. So, if you buy into a small one, you’ll definitely be called on to participate.

However, larger co-ops are typically managed by a board of directors (usually other owners), so you may not need to participate as much. It all depends on your personal preferences.

That said, if you’re more of an introvert who prefers the low communication aspect of a traditional renting arrangement, a co-op may not be right for you.

Things to Know About Owning a Co-Op

As co-ops aren’t the most popular housing option around, many renters don’t know what to make of them when they see them. Fortunately, the basics of co-ops are easy to understand.

Here are the three fundamental things to know about owning a co-op.

There are Financial Benefits to Owning a Co-op

First and foremost, owning a co-op is not owning an apartment, it’s owning a share in the apartment building. It’s a financially nuanced decision.

On one hand, co-ops require buyers to take out a share loan, pay high down payments, and have higher monthly fees than condos.

On the other hand, while you forego equity in a co-op, it can be a financially lucrative move.

Co-ops are usually appraised with lower property taxes than other buildings. These savings are passed onto shareholders.

Additionally, shareholders are granted tax deductions based on their co-op ownership, similar to homeowners. Co-op owners can deduct real estate tax and interest taxes.

Some co-op owners choose to lease out their co-ops and collect rent payments.

However, many co-ops have bylaws in place that prevent leasing co-ops, so be sure to check whether your co-op will allow you to lease your unit before buying one.

Finally, if you own a market rate co-op, you can sell your co-op shares at market rate, which can net some substantial profit if the sale is timed right.

The Co-op Application Process

When buying a co-op, you’re not submitting an application to a landlord or sending a bid to a seller. It’s a nontraditional experience in which you send an application to the co-op board.

Your application will be vetted based on the traditional details like income and rental history. However, you’ll also be vetted based on whether or not you’d be a good fit for the community.

That said, co-ops are still bound by the non-discrimination laws set by the Fair Housing Act, meaning theycan’t discriminate against applicants.

If you are accepted when buying a co-op apartment, you'll become a part of the community that makes decisions on the building.

Co-op Monthly Charges

When it comes to owning a co-op, monthly charges are the name of the game.

Generally, monthly co-op fees consist of:

  • Maintenance Fees
  • Property Taxes
  • Property Mortgage
  • Utility Bills
  • Insurance Policy Premiums

Generally, monthly co-op fees are much more expensive than monthly condo fees. However, that is due, at least in part, to the fact that mortgage payments aren’t included in condo fees.

Pros and Cons of Owning a Co-Op

There’s a lot to consider when looking into buying a co-op apartment, which is why it’s crucial to assess the pros and cons of owning a co-op before making a final decision.

Below, you’ll find a breakdown of the pros and cons of owning a co-op.

Pros of Owning a Co-op

  • Community: Owning a co-op provides you with access to a small community within the massive population of your city. It’s a great way to make friends if you are new to a city and you may form close relationships with your co-op neighbors.
  • Lower Costs: Most co-op owners are attracted to the lower costs of co-ops compared to condos. Moreover, the reduced cost means you pay less money for more square footage.
  • Perks of Ownership: While you may have to abide by some general rules when living in a co-op apartment, you still enjoy many of the same perks of ownership that you would in a traditionally owned property. You can paint your walls, remodel, and even install new appliances to make your home your own. Just be sure to run any changes by the co-op board first.

Cons of Owning a Co-op

  • You May Have to Cover Someone Else’s Costs: When you buy into a co-op, you are responsible for covering your portion of the building’s maintenance costs. Unfortunately, some co-ops may require you to pay a higher monthly cost if another resident is unable to pay. As these situations are unpredictable, you may end up spending a lot more each month than you bargained for.
  • Organization: As a co-op owner, you may have to be more involved in the property’s management. If you want to avoid this, opt for a large co-op managed by a board of directors. Additionally, you may be bound by strict rules that can cause friction down the road.
  • May Be Difficult to Fund: Buying a co-op takes a bit more work than buying a traditional apartment. Many lenders are unwilling to take on the risk associated with cooperative housing, so you’ll have to spend some time tracking down a lender to work with. Additionally, the high down payment required for co-ops can mean less money allocated to your moving costs budget and other related expenses.

Final Thoughts

Is a co-op right for you?

That depends on your preferences and personal situation. If condos are out of your budget and you like the idea of living in an apartment building run by shareholders, then a co-op may be the right move for you.

However, if you prefer stability, a traditional rental experience, or want to invest in apartment ownership, then you may want to consider other options.

When it comes down to it, choosing the right apartment for you starts with knowing exactly what you want.

When you start your apartment hunt with Apartment List, we take all your preferences and match them with apartment units that suit your needs.

In short, Apartment List puts you first.

Ready to start your apartment hunt? Take our quiz today!

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Davina Ward is a contributing author at Apartment List and freelance writer specializing in real estate and digital marketing. She received her B. Read More
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