Readers Question: What is a housing cooperative?

Monty’s Answer: A cooperative is a form of ownership that creates an interest in an abode through stock ownership in a company, as opposed to a deed to a parcel of real estate. It could also be the owner of a lease in a building owned by a cooperative. Cooperatives are a minimal component of the housing stock in the United States. The U.S. Census Bureau estimates about one million units. This method of housing, although a tiny portion in the market, is an accepted segment of the national housing supply. It is a segment worth investigating.

The major differences

With a co-op, you own a share in the company that owns the real estate, while in a condo you own a portion of the real estate. The company has a board that vets and selects your neighbors in a co-op, but anyone can buy a condo. The board can change rules in a co-op, but all owners have a vote on regulations in a condo. There are three types of co-ops; market rate, lease only, and limited-equity. Condos are exclusively market rate ownership.

Five tips to consider when searching the cooperative lifestyle

1. Comparative shop. The concept of comparative shopping is critical in this sector because the differences in the methods of organization can be striking. Take written notes on each project.
2. The rules are very different. Obtain a written copy of the regulations to ensure you understand how the board can change the rules, voting rights, and by-laws.
3. Understand the motives of the promoters. While many cooperatives are labeled “non-profit” and cooperative law regulates certain developer activities, understand the generation of income and expense. Ask your accountant to review the financials before committing.
4. Ask the right questions. How many units are vacant? How many re-sales have you had in the past 12 months? What is your annual budget for repairs and maintenance? Can I examine the budget? How much capital in reserve? Are the buildings concrete and masonry or wood-frame? How is the sound attenuation between units? Are there any “up-charges” on operating costs?
5. Ask for references from residents (exclude board members) and from residents that have sold their units. Here are some horror stories at http://bit.ly/2IHjp8D to provide an incentive to take all these tips seriously.

Richard Montgomery is the author of “House Money – An Insider’s Secrets to Saving Thousands When You Buy or Sell a Home.” He advocates industry reform and offers readers unbiased real estate advice. Follow him on Twitter @dearmonty, or find him at DearMonty.com