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?


Author: ZJ Thorne

Lesbian on the path to Financial Freedom

  • This is the first time I have even heard of a co-op. Sounds like a timeshare with the opportunity to live in it full-time instead of only one or two weeks of the year. I would personally stick with a condo (or just try and do a traditional lease with less strings attached).

    • They are popular in some cities and were a way to protect tenants. Some cities allow tenants the right of first refusal when the landlord wants to sell the building. If the tenants form an association, they can collectively bargain and get financing together.

      I’m uninterested in living in a single family residence, and won’t be doing a traditional lease.

  • Emily @ johnjanedoe

    $135K for 700 square feet seems crazy to me, but I’ve only bought in the southern suburbs where real estate is moderate. We lived in a townhouse for a while, which I liked except that it had 3 stories and was way too near NC State for quiet family living.

    • In better neighborhoods, non-fancy 450 square foot condos go for $300,000. This is a high col.

  • Mrs. Groovy

    Another thing about when you go to sell – suppose you need to get out badly or rent out your unit. But the board won’t agree to let you rent and/or won’t approve of your potential tenant. So you list your coop for sale and when it doesn’t sell after a month or 2 you lower the price. You get an offer you accept and you’re sure the board will approve of the buyer. But you know what they might not approve of? Your sale price. If they think your sale is going to lower the value of the other units, they can block it.

    • They don’t even have to give their reason for blocking your sale. The co-ops I have been monitoring have been on the market and decreasing in price for months and longer.

      • Mrs. Groovy

        Nor do they have to give a potential buyer a reason if they don’t approve the purchase. My brother has been on coop boards and told me their lawyers advise them not to give a reason. That way there’s less ammunition for a law suit.

        • That makes a lot of sense, but it sounds incredibly frustrating.

  • Vicki@MakeSmarterDecisions

    Interesting. I don’t know anything about co-ops, but we do own a condo. My husband just got voted on to the board so we have a little better idea of the inner-workings of the association. We are happy with the condo. There are enough owners to share major costs and the folks all seem pretty nice. We haven’t lived there for any length of time yet though!

    • Sharing costs is one of the major reasons I want a condo in a larger building. Have you written about your husband’s experience on the board so far?

      • Vicki@MakeSmarterDecisions

        I haven’t. We don’t live there full-time (it’s in Florida and we are in NY) so he mainly gets emails and does Skype meetings. He just started a few months ago – maybe more “newsworthy” by next spring!

        • I love Skype meetings. Forces folks to get to the point. Will be fascinating to read once it’s “newsworthy.”

  • Vicki@MakeSmarterDecisions

    People are fighting over the pool guy right now… nothing major but I’m sure it won’t last long!

  • Vicki@MakeSmarterDecisions

    Not sure about “that” pool guy, but mine is!

  • I’m a looooong way away from thinking about real estate for myself, but I don’t think I would find either good for me – at least right now. Sounds like a lot of rules and regulations. But it depends on what’s important to YOU, not anyone else. If you go the condo route, choose wisely. There are some condos that have great associations that work well. On the other hand it’s not hard to find someone who had a bad experience with a very dysfunctional association. Getting advice like you’re doing now should be very helpful to save yourself from walking into something that you later regret. Best of luck on your search and positive vibes for pain free/low walking!

    • Dysfunctional boards and neighbors are a very real threat anywhere. I will definitely research those as I can.

      Thanks. I finally was able to switch my doctor and have an appointment next week. Hopefully she’ll examine me and help me figure out a plan.

  • Awesome overview of co-ops vs. condos. I really didn’t know exactly what co-ops were before reading.

    700 sqft is a great size for a couple, in my experience. We’re at a little under 600 sqft (we’re huge dorks and actually measured ourselves), plus an unfinished basement for storage and laundry. We shared a 280 sqft basement studio when we first moved in together, so 600 sqft is huge to us. Tiny houses and very small apartments can work, even for couples, but our old apartment was definitely not laid out that well.

    • My worry with a studio for a couple is our erratic hours. I want a door that shuts so the other can sleep even if one person is working on a project until 2 in the morning. I also just feel safer being able to lock my bedroom door, but I’m risk averse that way. I guess good design could fix that.

  • I knew kind of the overall difference between condos and co-ops, but you’ve definitely taught me a few things here! Based on my experience with a nightmare HOA in my last condo, I would never do a condo unless my life depended on it. That goes double for co-ops. At least HOAs have an obligation to act reasonably (in theory) and they have to get a majority vote of what may be a lot of people before they can implement rule changes. With a co-op, you might have just a few people or a handful limiting what you can do, and they don’t even need a reason. Yikes!

    Also, maybe this is just me being overanxious, but as a member of a minority or historically-discriminated-against class (race, gender, sexual orientation) I would be especially hesitant to put such a huge chunk of my wealth in the hands of a small group of potential tyrants.

    Um, and I’m also a bit of a control freak, in case it’s not obvious enough here. 😛

    • I really want a condo because I do not want a single family residence at all. I’m not thrilled with an HOA or coop board, but it will be the price I pay for not having to worry about many many things.

      The small group of potential tyrants could be an issue, but you can have similar issues with evil ass meddling neighbors.

      • Hey, if you’re good with an HOA after considering all the factors, that’s great. You know yourself better than I do. And it sounds like the condo would turn out better than the co-op board if you get a choice.

        Just for a counter-point to consider: I was worried about having the responsibility of maintaining/insuring a house by myself, but my experience has been that SFR ownership has been much, much better than my condo ownership was. My HOA for the condo was reluctant to fix things, especially when their lack of diligence didn’t affect them. I complained about roof leaks for literally years before they finally fixed them. They didn’t care that I had to repeatedly patch the drywall ceiling inside my condo (and they wouldn’t pay for it, either). The HOA was legally responsible for the pipes in the walls, which was reassuring to me, until I had a tub leak into the garage of the people downstairs, and the HOA said that it might be my responsibility to repair if it turns out that the problem was the connection from the pipe to the tub, as opposed to a pinhole leak in the pipe itself. The only way to diagnose it? Hire THEIR plumber, who was a little more expensive, and who was loyal to the HOA so he had an incentive to diagnose it as being my problem. I ended up having to pay for their plumber and the repair.

        Buying a house is scary, and I have a couple of not-so-great neighbors now (one is an evil-ass meddling neighbor, as you describe), and I’m still happier without the HOA. At least that one neighbor can’t complain to an HOA board and get them to send me bullshit “violation” letters and fines for things that are in her imagination.

        Some HOAs aren’t bad, but just try to be careful if you can. Maybe talk to a few of the neighbors before you buy to see what they think of the current HOA.

        • My concerns with SFR are the lack of safety overall. I will be a woman living alone. I don’t want some asshole hiding on my front porch. I want a building with a front hallway full of neighbors I recognize. I want someone to sign for boxes so they don’t get stolen. I want to age in place and want a building with an elevator so that 60 year old ZJ does not need to move because she can’t handle the stairs to her bedroom anymore. I want it hard to protest outside my residence. I want to share responsibility for the roof and to not suddenly have a $20000 repair that must be made immediately. I want less space. I want there to be a groundskeeper who will ensure the sidewalks are shoveled.

          However, I will absolutely check into the HOA via conversations with neighbors. In my girlfriend’s building they make really reasonable choices and keep costs down while maintaining the building and it’s value. People are lovely there and get along very well. And the walls are nearly soundproof, which is excellent. There are horror stories like yours, and there are some good stories. It’s luck of the draw because people are people.

          • Those are all really good reasons. Definitely luck of the draw. Hope it all works out well for you!

          • Also, I never want to buy a car and want fewer home depot trips 😉

          • You’re totally missing out. #LovetheDepot Hehehe

          • It takes all my money when I go. I love it too much, but not having a car prevents my addiction.