Buying a cooperative, or co-op, is different from purchasing a house or condominium. Depending on your needs, it may have some benefits. In order to know whether buying a co-op is a good idea, you'll need to understand those differences.
Co-ops Are Different
When you buy a co-op, what you're really purchasing are shares in the corporation rather than actual property. However, you're still considered a partial owner of the community. Buying shares in the corporation entitles you to live in a specified unit under a proprietary lease.
For example, if you want a two-bedroom unit, you'll need to buy more shares or pay a higher price than another co-op owner would pay for a one-bedroom apartment. You can sell your shares whenever you're ready to move.
Co-ops Can Be Financed with Loans
You can still finance the purchase of your co-op, but it's through a share loan rather than a traditional mortgage. Like a mortgage, the bank will hold an interest in your co-op shares as collateral in case you ever stop making payments on the loan. As you pay off the balance of the loan, your equity in the shares increases. Some banks may even allow you to borrow against this equity with a home equity loan.
Fees to the Cooperative Association
If you're a first-time co-op buyer, the documents you must sign at closing may be different from what you've signed for a home purchase. You need to consider the cooperative association&'s bylaws. When you buy a co-op, you become subject to the association's rules, which in most cases will include your obligation to pay monthly maintenance fees. You don't want any financial surprises down the line. Make sure your budget can afford these charges in addition to your loan payments.
You Can Still Deduct Property Taxes and Interest
Owning shares in the co-op allows you to take the same tax deductions as other homeowners. You usually pay your share of property taxes directly to the association. However, you can deduct your portion of property tax payments on an income tax return. Even though your share loan is not technically a mortgage, the mortgage interest deduction is available for your interest payments.
A Residential Real Estate Lawyer Can Help
The law surrounding co-op ownership is complicated. Plus, the facts of each case are unique. This article provides a brief, general introduction to the topic. We hope you found it useful. For more detailed, specific information, please contact a residential real estate lawyer.