Housing cooperatives, or co-ops, are much less common in Los Angeles than condominiums, so the ownership structure can be confusing at first.
A co-op can look and function a lot like a condo community. There are multiple residences, monthly fees, governing documents, and an elected board. The major difference is what you actually own.
In a condominium, you own your individual unit as real property. In a housing cooperative, you generally purchase shares in a corporation that owns the entire property. Those shares give you the right to occupy a particular residence through a proprietary lease or occupancy agreement.
How Co-op Ownership Works
When you purchase a co-op residence, you are not buying the apartment or unit in the same way you would buy a condominium. Instead, you purchase shares in the cooperative corporation.
The corporation owns the building and land. Your shares are tied to the right to occupy a specific residence.
When you sell, you typically sell your shares in the cooperative rather than transferring title to an individual piece of real estate.
The exact resale structure depends on the cooperative. Some operate at market value, while others limit how much equity or resale profit an owner can receive.
Co-op vs. Condo
- Condo: You own your individual unit as real property.
- Co-op: You own shares in a corporation that owns the property.
- Condo financing: Typically uses a traditional mortgage secured by the unit.
- Co-op financing: Typically uses a share loan secured by the buyer’s cooperative shares.
- Condo sales: Buyers generally do not need approval from the HOA board simply to purchase.
- Co-op sales: The cooperative may require a buyer to complete an application and receive board approval.
Monthly Fees and Property Taxes
Co-op shareholders usually pay a monthly maintenance or carrying charge. Depending on the property, that payment may cover building expenses, maintenance, insurance, utilities, property taxes, and payments toward any underlying mortgage held by the cooperative.
Because the cooperative owns the property, individual shareholders generally do not receive a separate property tax bill in the same way condominium owners do.
Board Approval
One of the biggest differences between buying a condo and buying into a co-op is the approval process.
Many cooperative boards review prospective buyers before approving a transfer of shares. That review can include income, assets, debts, credit history, employment, and other financial information.
The reason is largely financial: everyone in the cooperative shares an interest in the financial health of the corporation. If shareholders stop paying their required charges, the cooperative may have to absorb those unpaid expenses.
Can You Rent Out a Co-op?
Rental and subletting rules vary significantly by cooperative.
Some co-ops allow rentals with board approval, while others impose waiting periods, rental caps, minimum lease terms, or limits on how long a shareholder may rent out a residence.
Anyone considering a co-op as an investment property should review the cooperative’s current bylaws, proprietary lease, and house rules before purchasing.
Types of Housing Cooperatives
Market-Rate Cooperatives
Market-rate co-ops generally allow shareholders to buy and sell their ownership interests at prices determined by the market.
Limited-Equity Cooperatives
Limited-equity co-ops are commonly designed to preserve affordable housing. In exchange for lower ownership costs or other financial benefits, restrictions may apply to resale prices and the amount of equity a shareholder can receive.
Leasing or Zero-Equity Cooperatives
In a leasing cooperative, the cooperative corporation may lease the property from an outside owner rather than owning it outright.
Mutual Housing Associations
These are typically nonprofit housing organizations owned or controlled by the residents and created to provide long-term housing.
Potential Advantages of Co-op Ownership
- Shared control over the property and community
- Board oversight of incoming shareholders
- Potentially lower purchase prices in some markets
- Shared responsibility for building maintenance
- Potential homeowner tax benefits depending on the cooperative structure and current tax law
Things to Consider Before Buying a Co-op
- Board approval requirements
- Financial requirements for buyers
- Rental and subletting restrictions
- Monthly maintenance charges
- The cooperative’s underlying mortgage and financial health
- Resale restrictions
- Availability of lenders willing to make share loans
Financing a Co-op
Because a co-op buyer purchases shares rather than an individual parcel of real estate, financing is usually structured as a share loan rather than a traditional condominium mortgage.
Not every lender offers cooperative financing, so buyers should confirm financing options early in the process.
Bottom Line
A housing cooperative can offer many of the same benefits as condominium living, but the ownership structure is fundamentally different.
With a condo, you own the unit. With a co-op, you own shares in the corporation that owns the property and those shares give you the right to occupy your residence.
That difference affects financing, taxes, resale, rentals, and the level of control the board may have over future buyers.
Original Reference
This page was originally based in part on
How Housing Cooperatives Work
by Sarah Siddons for HowStuffWorks.