• A housing co-op is a non-profit business that owns a residential property.
• You can buy shares in a housing co-op to secure the right to live in the property it owns or manages.
• Each co-op establishes regulations for community membership, outlines resident obligations, and defines procedures for transferring shares and their pricing.
• Co-op housing comes in various forms, such as apartment complexes, single-family homes, duplexes, and mobile home parks.
• People buy co-ops to reduce housing costs, decrease property upkeep responsibilities, and experience a feeling of community by living among similar neighbors.
• On the other hand, co-ops can have drawbacks like steep monthly maintenance fees, community limitations, and restricted share resale opportunities.

A co-op, or cooperative, functions much like a non-profit corporation (which it technically is)[1]. To reside in a co-op housing unit, you must buy shares in the corporation. As a result, residents become members and shareholders of the co-op, which owns the property.

As an unconventional form of property ownership, a co-op involves a collective of individuals owning and overseeing a building or a group of buildings. The co-op typically owns the residential structure where its shareholders reside, but some co-ops may lease the property. It collects fees[2] from residents to fund its operational expenses, including property maintenance, mortgages, and yearly real estate taxes (subject to inflation).

Furthermore, if you want to live in a residential co-op, you may need to buy a personal insurance policy[3] and employ specialized financing[4] to acquire co-op shares rather than opting for a conventional mortgage.

One of the best examples of a housing co-op in pop culture is the Begich Towers in Whittier, AK[5]. Over half of the city’s residents call the 14-story building home, earning Whittier the nickname “the town under one roof.”

The Begich Towers Condominium in Whittier, AK (Gillfoto, CC BY-SA 4.0, via Wikimedia Commons)

Housing Co-Op Rules and Requirements

Every co-op has rules every resident should follow, spelled out in its bylaws. Larger co-ops have a board of directors, comprising select residents, while smaller ones engage all shareholders in decision-making.

Co-ops are selective in their admissions because they cater to specific groups, such as older individuals or high-net-worth professionals. They impose strict share ownership requirements, such as a low debt-to-income ratio[6] and a background check on undesirable parties like pet owners[7].

Due to the absence of a landlord-tenant relationship, all shareholders are responsible for one another. Consequently, if you can’t meet your financial commitments to the co-op, your fellow residents may need to cover them for you, and vice versa.

What Do Owners in Co-Op Buildings Actually Own?

What owners in co-op buildings actually own is the right to live in a specific housing unit. You can get it by buying shares in the corporation that owns or controls the co-op property while meeting the community’s residency criteria.

Expect to pay a premium for spacious co-op units, especially in areas with a hot market.

The value of co-op shares depends on how big and desirable a housing unit is. In other words, the more square footage and sought-after it is, the more you have to pay to get the right to live in it.

There are several types of co-ops, including market rate, limited equity, zero-equity, and leasing co-ops.

• Market-rate co-op: This type allows shares to change hands at whatever rate. In other words, you can buy and sell shares for as much as you want.
• Limited equity co-op: This co-op sets a maximum limit on share prices. This way, it can provide you with affordable housing and restricts the profit you can pocket should you sell your shares.
• Zero-equity co-op: In a zero-equity type, you do not build equity in the co-op unit as you do not own it but rather have a membership that provides occupancy rights. In return, it might give you access to below-market rental rates.
• Leasing co-op: This type is where the corporation doesn’t own the residential building. Instead, it only leases it from a third party. Of course, there’s always a chance that the owner will sell the property, so the corporation tends to keep a cash reserve if it happens.

Regarding properties, co-ops can be any form of residential real estate. Many look like apartment complexes, but they can also be single-family homes, townhouses, mobile home parks, and tiny houses on co-op land.

Likewise, co-ops can manifest as residences for seniors, students, and people with special needs.

People live in co-ops because they can be more affordable than mainstream housing options in cities. In addition, they operate on an at-cost basis, making them cheaper than many rental apartments.

Another reason is that some people want to delegate some of the typical responsibilities of home ownership to others. For example, unless you choose to live in a self-managed community where everybody plays an active role in the property’s upkeep, you may not have to worry about most of the maintenance.

Co-ops are attractive to those who yearn for a sense of community that other neighborhoods may not have. Studies also show that living with a group of people in a similar situation can improve your mental health and well-being[8].

Benefits of a Co-Op

The biggest benefit of a co-op is affordability. It’s popular in densely populated cities with limited and expensive housing options[9]. If buying a condo in a major urban area is out of your reach, a co-op can be a less expensive alternative.

Furthermore, residing in a co-op can alleviate a few responsibilities as a homeowner. Like an apartment tenant, you aren’t usually personally liable for maintaining areas beyond your unit.

Since co-ops can be pretty selective in terms of residency, only suitable applicants get in. Strict requirements ensure that no member can bring everybody down financially. Plus, you can avoid being neighbors with questionable character.

Finally, co-op living comes with many tax benefits since many of your expenses can be tax write-offs[10]. The interest of your “share loan” and the blanket mortgage the co-op board holds may also be eligible for tax deductions.

Disadvantages of a Co-Op

The disadvantages of owning a co-op include higher monthly fees, community restrictions, less privacy, and limited share resalability.

Although co-op shares can be cheaper than condo units, you may have to pay greater maintenance fees than an average condo homeowners association (HOA) charges. However, this can vary widely depending on the co-op and its specific arrangements.

Additionally, co-op bylaws may force you to change your lifestyle; for instance, co-ops may ban pets entirely. Some co-ops even prevent you from subleasing your unit for profit[11]. If your community’s rules say you can’t make certain home improvements, you won’t be free to change your unit that suits your taste and needs.

There’s also the issue of privacy. Presenting your financial records to existing co-op shareholders may cause you to share more about yourself with your future neighbors than you’d normally do.

Considering that some co-ops don’t let you sell your shares for more than what you originally paid to acquire them, buying into one can mean divesting in real estate. In short, holding co-op shares may not grow your wealth.

1. The Difference Between a Nonprofit Corporation and a 501(c)(3). (2020, August 25.) Chron. Retrieved from https://smallbusiness.chron.com/difference-between-nonprofit-corporation-501c3-59719.html
2. What Are the Differences Between Condo Fees and Co-op Fees? (2023, March 6.) UrbanTurf. Retrieved from https://dc.urbanturf.com/articles/blog/what_are_the_differences_between_condo_fees_and_co-op_fees/20714
3. Insuring a co-op or condo. (n.d.) Insurance Information Institute. Retrieved from https://www.iii.org/article/insuring-co-op-or-condo
4. B4-2.3-04, Loan Eligibility for Co-op Share Loans (08/07/2018). (2018, August 7.) Fannie Mae. Retrieved from https://selling-guide.fanniemae.com/Selling-Guide/Origination-thru-Closing/Subpart-B4-Underwriting-Property/Chapter-B4-2-Project-Standards/Section-B4-2-3-PUD-and-Co-op-Eligibility-Requirements/1032997041/B4-2-3-04-Loan-Eligibility-for-Co-op-Share-Loans-08-07-2018.htm
5. NPR Staff. (2015, January 18.) Welcome To Whittier, Alaska, A Community Under One Roof. NPR. Retrieved from https://www.npr.org/2015/01/18/378162264/welcome-to-whittier-alaska-a-community-under-one-roof
6. What is a debt-to-income ratio? (2022, June 8.) Consumer Financial Protection Bureau. Retrieved from https://www.consumerfinance.gov/ask-cfpb/what-is-a-debt-to-income-ratio-en-1791/
7. Douglass, J. (2011, February.) Pets Allowed? CooperatorNews New York. Retrieved from https://cooperatornews.com/article/pets-allowed
8. Gilbert, S. (2019, November 18.) The Importance of Community and Mental Health. NAMI. Retrieved from https://nami.org/Blogs/NAMI-Blog/November-2019/The-Importance-of-Community-and-Mental-Health
9. Arnold, C., Benincasa, R., Chu, H., & GaNun, J. (2022, July 14.) There’s a massive housing shortage across the U.S. Here’s how bad it is where you live. NPR. Retrieved from https://www.npr.org/2022/07/14/1109345201/theres-a-massive-housing-shortage-across-the-u-s-heres-how-bad-it-is-where-you-l
10. Myers, E. (2021, December 9.) Are co-op maintenance fees tax deductible? How does it work? Brick Underground. Retrieved from https://www.brickunderground.com/buy/are-co-op-maintenance-fees-tax-deductible-how-does-work-nyc
11. Sineriz, M. (2022, October 16.) How Does Subleasing Work? How to Sublet and Not Get Burned. realtor.com®. Retrieved from https://www.realtor.com/advice/rent/what-is-subletting-how-to-sublet/