What is a co-op?
The term co-op is short for “cooperative.” It describes an apartment in which you don’t actually own your property. Instead, you own shares in a co-op which owns all the properties in that cooperative. How many shares you own depends on the size of your apartment. So, if you own a two-bedroom place you’ll have more shares than your neighbor who has a studio.
An elected board of shareholders runs the building. The board makes decisions for everyone. As well as paying for your co-op you’ll also be expected to pay maintenance fees dictated by the board, which cover expenses such as property tax and building insurance. So, you need to take into account both mortgage payments and maintenance fees when doing your financial calculations.
Why would you want a co-op?
Co-ops account for around three-quarters of New York’s owner-occupied buildings and are usually more affordable than owning an apartment outright. It’s also a much simpler way of owning real estate as everything is taken care of within the monthly maintenance fee.
You won’t have to worry that pest control will become an issue, or that other problems with the building won’t be promptly taken care of without you having to manage them yourself.
What are the drawbacks of co-ops?
Although co-ops are often cheaper in the long run, it can be complicated to find the money for the down payment. Co-ops will usually ask for around 25 percent of the purchase price, but some can be up to 50 percent. The approval process can also be tough, and you’ll often be required to hand over financial records, employment history, and lots of other personal information for review by the board.
There are usually several more rules to follow. For example, subletting your apartment may be against these regulations and can lead to hefty fines or even eviction. Be sure to read and understand all the rules before you make a final commitment.