Condominiums and Housing Cooperatives
Here’s an overview of how to share ownership through purchase of a condo or housing co-op.
In addition to buying a single-family house with others, you can share ownership in a condominium or housing cooperative. Here are the basics on these types of real estate.
Condominiums are legally divided so that portions of the property can be separately owned. Condominium ownership typically involves owning both an individual unit and a share of ownership in common areas, often called "common elements." Multi-unit properties that were not built as condominiums can often be converted to condos; this usually requires the assistance of an attorney and professional surveyor, and the process depends greatly on local laws and regulations.
A condominium form of ownership is often used in housing where residents own separate units. A condominium complex can be as small as a duplex or as large as a multi-story apartment building. Cohousing groups frequently use the condominium form because it facilitates both individual autonomy and sharing. Condominiums are much easier to finance than undivided property, such as TICs.
Condominium ownership typically requires membership in a community association that governs and manages the common elements and enforces restrictions on the use of units (called “covenants, conditions, and restrictions, or CC&Rs). These homeowners’ associations collect monthly dues, often called "assessments," from each owner to pay for the costs of upkeep, taxes, insurances, and other expenses.
In a housing cooperative, residents own shares or a membership in a corporation, which, in turn, owns the entire property, including the individual units. Cooperatives can be formed as for-profit or nonprofit entities. Housing cooperatives are most common in the northeastern United States, but the cooperative form is also used throughout the country to create affordable housing. Because co-ops exist to benefit their owners or members, and there is no landlord seeking to profit from tenants, the cost of living in a cooperative can be kept relatively low.
A resident buys into a housing cooperative by purchasing shares and signing a "proprietary lease" that entitles the resident to occupy a particular residential unit. Unlike typical leases, a proprietary lease has no fixed term. It lasts as long as the resident is an owner in the cooperative and doesn't violate important lease terms. The cooperative corporation typically holds a single blanket mortgage on the property, and resident shareholders sometimes take out loans to finance their purchase of shares in the cooperative. In addition, residents pay regular fees to cover property taxes, management expenses, mortgage payments on the building, and so on.
Even though residents don't own the real estate directly, they still enjoy some of the tax benefits of home ownership. For example, although the corporation makes the mortgage and property tax payments, residents may still deduct their portion of these expenses from their income taxes. If residents take out a loan to purchase shares, however, the loan interest will be deductible only if it was arranged as a mortgage loan rather than a personal loan.
Cooperatives are typically governed by a board of directors elected by the resident shareholders. The board of directors has the duty to act in the interest of all resident shareholders of the cooperative, and is usually empowered to approve or deny new owners and to respond when members fail to pay dues.