Understanding the Pros & Cons of Housing Co-ops
When you're shopping for a home in Madison, you might need to understand what a housing co-op is and the pros and cons. Housing cooperatives can be a great way to go compared to traditional housing, but it may not be the right choice for you. There can be some pros and cons with housing cooperatives.
What is a Housing Co-op?
Of course, co-op is short for cooperative and this type of option offers an alternative to owning a home or condo. The co-op will be run much like a corporation with the control and ownership going to the residents. While the housing co-op owns the building, the residents will own shares in the co-op.
How do Housing Co-ops Work?
A housing co-op works with cooperative ownership with at least one residential building. Sometimes, there are multiple buildings and the co-op will own the land with the buildings. Residents will buy shares in the co-op instead of buying the deed to the unit, such as when you buy a condo.
Residents will also run and operate the housing co-op. It's typically a democratic process and the residents will elect a board of directors to oversee the co-op.
Types of Housing Co-ops
There are a few different types of housing co-ops you might run into, including:
- The Limited-Equity Co-op - This co-op will restrict the price point when a resident wants to sell their shares. It's used for affordable housing more than anything else.
- The Market-Rate Co-op - This type of co-op allows residents to buy and sell shares based on the current market rate. It's often used for larger projects in big cities.
- The Group Equity or Leasing Co-op - With this type of co-op there isn't a benefit for equity ownership. Instead, residents get occupancy rights and will pay a rental cost below the market value.
These are the three common types of housing co-ops you might run into.
Within these types of co-ops, you might find apartment complexes, single-family homes, mobile home parks, senior housing, retirement communities, townhomes, or even student housing.
Pros & Cons of Housing Co-ops
- Affordable - Often housing co-ops are very affordable.
- Low-maintenance - You won't worry about repairs or maintenance with this type of housing.
- Tax savings - Residents won't own the property, but still, get a homeowner’s tax deduction.
- Less turnover - Compared to rental properties, housing co-ops have a lower turnover rate.
- Community living - The culture of a co-op is all about the community.
- Strict financing rules - It can be hard to get financing for a housing co-op.
- Very restricted - Those living in a co-op will deal with heavy restrictions and rules.
- Shared financial responsibilities - You will share the financial responsibilities with other residents.
- High bar for entry - If you want to get into a co-op, you have to get board approval.
Housing co-ops are unique and quite different from buying a house or condo in Madison. Make sure you know what you're getting into before you go this route. It might work for you, but for most, buying a home or condo is a better option.