In real estate, what is a cooperative?

In real estate, what is a cooperative?

Buying or renting a house are not the only ways of putting a roof over your head. Housing cooperatives, commonly known as co-ops, provide an alternative. We will be explaining what this type of house tenure is, features, differences in condominiums, and costs.  

Basically a cooperative in real estate refers to a membership-based corporation where each member is granted a share purchase in the cooperative. Each shareholder has the right to occupy a space of the building, in this case, a house.  

Features of a Cooperative

One important feature of this type of housing is that it is less expensive than apartments because major costs are covered by members pooling resources, so their buying power is leveraged. Therefore, in places where the cost of living is especially high, a cooperative is an attractive and less expensive option. 

Another important feature and something considered of an advantage is that the members of the cooperative can select the members that will be part of it.  Since there is no landlord or tenant, this decision is made by the shareholders of the cooperative. 

The rules governing co-ops are the same pertaining to fair housing. However, they can restrict housing based on income or net worth of new buyers in order to ensure that they can meet the cooperative's obligations. 

Structure of a Co-op

The structure of a cooperative housing will vary depending on the country.  In countries like the United States and Canada, the most common types of co-ops are:

  • Limited Equity Co-ops. Restrictions on the price of the shares.
  • Market Rate Co-ops.  Partners can buy and sell shares at whatever price the market can dictates. 
  • Leasing Co-ops.  This corporation leases the building instead of owning it and do not build equity. 

What are the Costs?

If you are planning on buying into a co-op, you must consider that shares are given in the form of a "share loan", which, even though is not a mortgage, it behaves like one. Usually, this cost is included in the monthly fee of the cooperative. 

 

 

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