The Pros and Cons of Buying a Co-op

by Jonathan Haeber
CMR Columnist

Celebrities love them, they're often called "exclusive", and most are located in central business districts or clean metropolitan neighborhoods. Co-ops are not among the most common of home mortgage purchases, but they are considered to be the home of choice when living in the city. Why? We'll see.

Co-ops are dense, metropolitan multi-unit real estate developments. Unlike condominiums, inhabitants of a co-op do not own the deed to their unit. Instead, they own a common share of stock in the whole development. Because everyone who buys shares in a co-op is concerned with the value of their investment, it is much more difficult to become admitted and approved to buy a co-op.

The Advantages of Making a Co-op Your Home

The extra hassle of the co-op buying process eventually pays off in a number of ways. Benefits of buying a co-op with your mortgage loan include:
  1. Co-ops often have lower property taxes
  2. Homeowners in typical co-ops are rigorously screened, which keeps most of the riff-raff out of your development
  3. When/if you decide to sell your co-op, you will incur much less in the way of local transfer taxes, appraisal fees, and settlement costs--this is because the buyer is not actually buying real estate; rather, they are making an investment by purchasing shares in the co-op
  4. Expensive repairs and improvement projects are paid by the co-op, generally costing less

The Disadvantages of Purchasing a Co-op

On the other hand, the disadvantages of a co-op include the following:
  1. Co-ops have very high monthly dues (much like home owners association dues for a condominium); these dues are used for upkeep/maintenance and to pay for the original loan used to purchase or develop the property
  2. Co-ops have a rigorous application process, often requiring you to submit 2-3 letters of recommendation. You must have a clean credit history, and it's much more difficult to transfer your shares in the co-op to another owner (i.e. 'sell' your unit in the form of co-op shares)

In the end, your decision should be based on your personal needs and budget. If you can afford a co-op, it may be the most prudent decision for your lifestyle and what you're seeking in an urban piece of property.

Source
Bankrate: Condo or Co-op? What's the Difference?

About the Author
Jonathan Haeber is a marketing writer for Discovery Channel Stores. He recently purchased his first home, and took a self-taught crash course in home m

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