Co-Ops

Co-ops, or co-operatives, are similar to condos in many ways. You live in one unit and the exterior maintenance and repairs and such are covered by monthly dues paid by unit holders. Notice I say "unit holders." You don't own your unit in a co-op.

What you buy when you buy into a co-op is shares in a corporation. You become a part owner of the corporation that administers the whole property. The unit you "buy" is really just the unit that is assigned to you, although I have not heard of any co-op boards "re-assigning" residents.

The rules and regulations are similar to those you would find in any condo property. They often are a bit more strict, though, and the penalties for not following them can be severe. Rent a unit against the rules, for example, or have too many relatives move in with you, and some co-op boards can take away your shares without compensation.

Another issue with co-ops is the monthly dues. These can include a mortgage payment on the whole property, so they may be substantially higher than condo dues. Even when this mortgage is paid off, the board of directors may hesitate to lower the dues, choosing instead to use the excess income to finance new landscaping or their favorite pet projects. One co-op we looked at in this area had recently paid off their mortgage, yet was considering raising their dues, despite already being 80% higher than similar condo properties.

This isn't the largest problem, though. The biggest problem is financing. Banks hesitate to loan money to you when all you can mortgage is shares in a corporation. Most co-ops are sold as cash deals. You might not have enough cash to buy in, but this isn't just a problem for you when you buy. It becomes a problem when you sell, because you have to find a buyer who has the entire price in cash.

The upside? They can be cheap living. While two bedroom house may sell for $220,000 here, and a two bedroom condo for $80,000, you can buy a two bedroom co-op for $40,000. That might make it worth paying $100 more per month for dues. Since appreciation is less certain and selling can be tricky, look at it as buying cheap rent, if you have the cash.

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