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House Hunting: Cooperative Apartment TOP SOURCE

If you were a multi-millionaire, you could ponder your investment possibilities and think about buying a whole apartment building in downtown Manhattan, Tokyo or London. But chances are you can’t afford this type of real estate luxury and are looking for a single apartment. If you’re single, newly married or have a small family, you may be interested in looking into a cooperative apartment. A co-op is an apartment owned by a corporation that owns the apartment complex. A buyer buys shares from the corporation and obtains a proprietary lease on an apartment in the building.

Who is Interested in Cooperative Apartments?
Cooperative apartments became popular after the Second World War as a way for people to build their home equity. Today, cooperative apartments are best suited to those who plan to live in them for five years or more. As a share-holder in the building, you are partially responsible for building maintenance and a percentage of real estate tax payments.

How a Coop Differs from a Condominium
Cooperative apartments are different from buying a condominium because for a condo, a buyer purchases a title and interest in common areas of the condominium. However, cooperative apartments and condominiums are both expensive in certain downtown areas, like Manhattan, where a one bedroom apartment can cost up to $400,000.

What to Look For in a Cooperative Apartment
When looking for a place to live, you primarily want to consider how big an apartment you need and your budget. Typically, you will want to consider neighborhood safety, the distance to your area of employment, availability of grocery stores, fitness centers and entertainment in the area, and schools if you have children.

The internet is a great place to start your apartment search. Search engines on housing sites usually allow you to specify the specific area you are interested in, price range, number of bedrooms, amenities and neighborhood features. Once you have a list of prospects, you can call the leasing agents to ask about availability and start scouting apartments.

Inspecting the Apartment for Damages
When you are looking at apartments, you should look for any major damage in the structure of the home. Check to make sure you have working amenities such as washer/dryer, dishwasher and electrical outlets. Test out the water pressure, heating and cooling system, and look for signs of mold and mildew on the walls. Inspect the hinges on doors and door handles and examine just how much closet space you will have. If there are elevators, make sure they are working properly.

Whether you are going to rent or buy this apartment, you will want to make a list of damages incurred in the apartment and attach it to your lease agreement. Do not accept a verbal agreement from the landlord about making repairs or renovations. Any repair pledges should be written into the contract. Before you sign a contract, take your time to read all documents carefully. If there is something you do not understand, you can ask for clarification or take your questions to a real estate lawyer for elaboration.

Preparation for the Cooperative Apartment Interview
To buy a share in a cooperative apartment, you will likely need to attend an interview, which will be conducted by the cooperative board of directors. During the interview, the board of directors will be assessing you to determine whether you are suited to their building and whether you will fit in well with the tenants already living there.

Before the interview, you should have your credit rating analyzed and obtain a credit report. Be well prepared and well-dressed for the interview as this will determine whether you are an eligible candidate to join the cooperative. You should have a list of questions prepared to ask and a list of personal references with you.

Questions to ask Cooperative Board of Directors
Here are some examples of questions you may want to ask before investing in a cooperative apartment:

 

  • How much is the share price?
  • Where can I find financing for my share loan?
  • Are there any carrying charges from month to month?
  • Can you explain the underlying mortgage?
  • How are requests for repairs usually dealt with?
  • What happens if someone defaults on their monthly payments?
  • What is your policy on pets?
  • Do you have monetary reserves set aside in case of extra expenses?
  • What is your parking policy?
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Benefits of Cooperative Apartments
According to the National Association of Housing Cooperatives, there are several benefits to buying shares for a cooperative apartment:

 

  • Co-ops are more affordable because your mortgage will have lower down payments, smaller closing costs, and longer mortgages than other types of housing.
  • Co-operative apartments are about 20% to 40% cheaper than similar condominium units.
  • A share-holder of a cooperative apartment can deduct their percentage of real estate taxes and mortgage interest, the interest on the underlying mortgage in their income taxes.
  • You can build up your home equity in market rate cooperatives
  • You can be involved in the primary decision-making about the building by attending the cooperation’s meetings.
  • You may be able to work with other co-op members to improve tax and utility rates and obtain better government services in your area.
  • There may be less crime and vandalism in a building that is cooperatively owned.

 

Disadvantages to Cooperative Apartments
Despite the many benefits, there are some drawbacks to buying into a cooperative:

 

  • You must undergo an exhaustive application process and interview
  • You need to provide copies of two years of federal income tax returns to the Board of Directors
  • You may not be allowed to borrow for the purchase and forced to pay in cash
  • There may be restrictions on renting and subletting
  • Because you do not own your apartment outright but the shares, you cannot make any major renovations or repairs to your apartment
  • Have to pay monthly mortgage fees and building maintenance fees
  • It may be difficult to sell your shares if you have to leave unexpectedly
  • Coops do not increase in value like private homes do