The Downsides of Co-ops

Gentle Readers,

While I am nowhere near ready to begin my home-search in earnest, since my current net worth has been hovering around the -$146,500 mark for the summer, I did check out my first open-house this weekend. It’s a cooperative I’ve been watching on Zillow and I had the time for a small trek.

I walked the 20 minutes from my current home, which also gave me another look at the neighborhood I’m considering. Before I was in such pain, I used to be a marathon runner and would run through that neighborhood as part of my training. Walking a neighborhood is very different from running in a neighborhood. As a woman in a city, I expect street harassment in both scenarios, but it is different when you are in running clothes. During that time of day, the walk felt safe. Good perk to feel first hand.

The building was a little more run-down than the photos showed. That was not a surprise. It’s also a bit off the beaten path, which is why it is going for $135,000 for all of its 700 square feet. I live in a group house now and could not really visualize what 700 SF meant and this was a good learning opportunity. It’s a lot of space for one person, but not overwhelming. I am hoping to buy something around that size, because I want the opportunity to live with someone comfortably if that is a possibility in the future. I definitely don’t want a studio, because I want the ability to host people without us all looking at one another’s pajamas.

The layout was a little strange. The kitchen is a good size, but it is currently situated so that you cannot fully open the oven or fridge because they face one another. This seems to be an issue of old outlets, but the room to move the oven over is available. There’ll be a whole in the cabinetry, but you could work with it. Overall, the place was cute and had nice windows and a bathroom of one’s own plus some good closet space.

Not bad as an incentive to keep me working toward my home-buying goal.

What distinguishes a co-op different from a condo?

Co-ops are different from condominiums in very important ways. With a condo, you are buying the unit you live in. With a co-op, you are buying a share of the building’s corporation. This is a huge difference with enormous impacts on you for as long as you own. The corporation/board has a lot of power. You do not.

Co-ops almost always require higher down payments and have higher monthly fees. I cannot find a co-op in my city that requires less than a 10% down payment. FHA loans are a no-go here, which would make it hard on first-time home-buyers.  Co-op and condo buildings both prefer to have relatively high owner-occupancy, which prevents owners from renting their homes out easily or at all. Co-op boards have the power to block potential buyers, which means closing on a co-op is hard when you are buying in and when you are trying to sell. It’s a lot of hassle that could keep you paying on a space you do not want anymore.

Co-ops often have high association fees. Partially, this is because the co-op fee may cover an underlying mortgage on the building and property taxes on top of maintenance and utility costs. The share you live in may sell for lower than a similarly sized condo, but the co-op fee can more than offset that. In some buildings, the fees include all utilities up to wi-fi. It may be a wash. You must look at the bylaws closely.

You also have the problem of finding a real estate agent and mortgage broker who knows what co-ops mean for buyers. At the place I checked out near me on Saturday the agent could not answer any of my questions. She eventually told me that she does not normally do co-ops, and it showed.  A big problem in some cities is the dearth of banks that offer co-op mortgages. Shopping around rates will be hard.

There is one major perk for those of us who would like the safety of stealth-wealth. Co-ops offer privacy. You own a share in a corporation, which does not include a public record of ownership. You can hide your address to people not in the building. This is helpful for folks fleeing abuse or famous people who’d like to be left alone.

The more I learn about co-ops, the less I want them. They feel less free than I’d like in my major purchase, but I am intrigued by the privacy option.

Would you consider a co-op over a condo?