What is the difference between a housing cooperative and a condominium complex?

I understand the concept of condos fairly well. You basically buy an apartment/townhouse/whatever, subject to the rules and restrictions of the condo association.

I can’t get my head around the concept of a cooperative, however. Do you buy a piece of the apartment complex, and pay rent, of which you get a share of the profit? If that’s it, it seems a little financially incestuous, for lack of a better analogy…

In a co-op you are buying shares of the corporation that owns the complex. They then give you a perpetual lease for your unit. You do not pay rent, you pay maintenance fees and real estate taxes through the corporation. It can be a bit more sketchy financially since you are more dependant on the health of the corporation. It’s also more involved to buy and sell, since the corporation has a say in the matter.

However, even with a condo you still are interrelated with your neighbors. You share a foundation and roof, for example, problems with those have to be handled somehow, and you will suffer the financial hit.

One important advantage/disadvantage of a co-op over a condo is that a co-op can raise money by getting a mortgage using the building as collateral. This is one reason why the maintenance payment for a co-op might be much higher than those for a condo. Furthermore, the mortgages they get are rarely 30 year amortizing loans. More commonly they are 10 year loans with a balloon payment at the end, usually paid by getting another loan. It pays to find out how much of a loan is being held by the building before you get involved with it.

A condo, on the other hand, cannot use the building as collateral because it does not own the building.

As far as making a profit is concerned, that is highly unlikely. Most co-ops goal is to charge just what it needs to get by, although they will sometimes charge extra to put in the capital improvements fund. Furthermore, if the co-op contains non residential areas (such as stores) and makes more than 20% of its revenue from those sources, the shareholders may lose their right to a tax deduction on the co-op’s loan. This leaves some co-ops in the position of having to charge less than market rates to rent stores.

The other major difference is that a co-op can disallow your sale for any lawful reason . They can, for instance, require that purchasers have a certain amount of liquid capital. A condo, OTOH, generally has the right of first refusal which means that the condo would have to buy the unit. This right is rarely exercised.

What’s the diff? About 20% in rent, IIRC. :slight_smile:

My mom helped develop co-ops when I was in high-school, and we lived in the first one.

The place was owned by a corporation whose only shareholders were the tenants. When you moved in, you paid a membership fee that bought your household a share.

The rent payments (technically, they weren’t “rent”, but a “housing charge”–I’m not sure of the legal difference) were set by the board of the co-op corporation. Said board was responsible to the members.

Someone from each household could serve on various co-op committees, be a member of the co-op corporation’s board of directors, be president, etc. Every year there was a general meeting to hash out policy for the coming year: who’s going to be doing the snowplowing, is it time to replace the roof shingles/repave the roads/fix that sewer problem/etc, will the rent payments cover the complex’s mortgage, taxes, and reserve funds, etc.

Really, it was a classic example of small-scale corporate democracy in action. We had the power and the responsibility to decide our fate.

We could raise the rent and sock away savings against future need, or lower rent to make things easier in the short term. We could decide to lower the rent on some units to help struggling members of the community, and make the difference up from everyone else… or not.

Raise rents for greater profit? That would only return to the shareholders, the tenants, so it was kind of circular. (Actually, I think the co-op corporation was required to be non-profit, but I’m not certain.)

It was like SimCity but with real buildings, and a lot more at stake. :slight_smile:

I think one reason that more people don’t live in co-ops is that they don’t want to have to be involved to the degree that such local democracy demands. They are willing to pay the extra to let a landlord take the whole decision-making thing off their hands… hence the survival of rental landlords.

In condominiums, you buy your unit, and pay fees to support the use of the common elements (car park, building structure, hallways, elevators, guards, etc). “Rent” costs include profit for lenders and building management and tend to be higher then co-ops for equivalent space.

This is balanced by the whole real-estate private-profit motive: a lot of people buy condos in the hope that they will rise in price and can then be sold for a profit. Acrually living there can even be a secondary motive.

It’s a completely-different perspective than co-ops.

Too, amount of co-op creation was influenced by various govenrment programs to encourage it (special fifty-year mortgages offered through CMHC, for example). IIRC liberal govenments tended to support it; conservatve governments, no so much.

I should add… “first one in the town we lived in”. :slight_smile:

These were Canadian residential co-ops, as well. I think US ones may be different.

As a New York real estate lawyer and treasurer on my co-op board, I know all too much about this.

One technicality about a condominium that VunderBob didn’t note is that in condo ownership you own both your unit and an undivided percentage share of the common elements. For instance, in a 50 unit condo, you might own 2% of the common elements. You also elect a condo board which has a power of attorney to act on behalf of the whole condo. The condo board sets the amount of common charges which each unit owner pays to maintain the common elements (in proportion to their ownership). In New York, a condominium may take out a loan on the whole building, though this wasn’t always the case.

In a co-op, you buy shares and the co-op corporation in conjunction with a proprietary lease for one of the units. The co-op corporation owns the whole building and leases it to its shareholders under their proprietary leases. The shareholders elect a board of directors, by voting their shares. The board sets the amount of maintenence (technically, rent under the proprietary leases) and may also charge assessments, both of which are proportional to the number of shares held. Co-ops are considered non-profits under the tax laws, and the maintenance and assessments are generally set to only provide for the operating and capital needs of the building, plus accumulation of a reserve fund for furture expenses.

In New York, at least, most co-ops require board approval of all sales and subleases of units (with some exceptions, such as sales or subleases from the original sponsor). The board may assess the financial condition of the potential buyers or sublessees, as well as generally consider whether they would be compatible with the cooperative living requirement. They may not, however, discriminate based on race, nationality, religion or other protected classes. Nonetheless, there is a widespread perception that some co-ops, particularly some of the highest-end luxury co-ops, do discriminate on the basis of race, religion or nationality in deciding that some potential purchasers are “not our sort of people, dear.” Condos generally, though there are some exceptions, do not have these sorts of requirements, though they do have a right of first refusal which in practice is virtually never exercised.

I am currently trying to become a member of a co-op, so I have some immediate experience here.

As has been said, with regard to a co-op, the co-op owns the property and you are buying a share in the co-op. The price of your share in the co-op, however, is set by regular market forces with regard to the unit you are purchasing. The current “owner” of a unit (actually a lease holder who owns a share of the co-op) put his or her actual unit on the market and has to sell it like the owner of any house or condominium unit would have to. So, you have to get a mortgage and everything. The difference is that you are technically not buying the unit you are living in. You are taking out the mortgage just to buy a share in the co-operative.

Another thing I have noticed is that co-ops generally have much stricter rules than condos. At my co-op for example, subletting and renting is prohibited. No non-resident (investor) members are allowed. If you occupy your unit for less than six months in a calendar year, then you have to sell your membership, or else the co-op will declare you an “undesirable member” (the actual term) and put the unit on the market. You’ll get the money from the sale of course.

[QUOTE=acsenray]
The price of your share in the co-op, however, is set by regular market forces with regard to the unit you are purchasing. The current “owner” of a unit (actually a lease holder who owns a share of the co-op) put his or her actual unit on the market and has to sell it like the owner of any house or condominium unit would have to. So, you have to get a mortgage and everything. The difference is that you are technically not buying the unit you are living in. You are taking out the mortgage just to buy a share in the co-operative.

[quote]
This seems an unnecessary extra step, instead of simply assigning a share of the co-op’s costs to the new member. Is it legally required? Does the co-op as a whole not have a mortgage?

I’m almost certain this is different in Canada… at least for co-ops started during the era when my mother was acrive (late seventies, early eighties). I don’t remember anything about the “rent” in my mother’s co-op being tied to anything other than the co-op’s costs, but I could very much be wrong. I also don’t remember anything about having to get a mortgage and buy an actual percentage of the complex. I know there was an application process; one year my mom was on the committee that interviewed potential members.

The CMHC’s Guide to the Basics says:

Further details. There is no mention that the co-op’s housong charges have to follow market-rate rents, although I suppose that the cost of the complex as a whole would reflect the condifions when it was built.

Co-operative Housing Federation of Canada

But how do you set the value of the share? And how do you decide how much money the departing member gets for selling?

I don’t see why it should be legally required. A co-op can arrange its rules however it wants.

The co-op does not have a mortgage. It owns the property outright. There is a monthly operating fee to cover the co-op’s operating expenses, which include property taxes, utilities, maintenance of common areas, etc.

IIRC, it was enough to weed out non-serious applicants. It may have been around the value of one month’s “rent” at the time, come to think of it. When the departing member leaves, they get it back (plus interest, presumably). I’d have to email my stepfather for precise info; he still lives there.

The share value had nothing to do with the value of the building.

But then the whole requirement for new members to borrow hundreds of thousands of dollars seems doubly unnecessary.

In the co-op where we lived, the co-op corporation had a fifty-year mortgage for the whole townhouse complex: buildings, roads, and land. The members’ monthy charge included operating and reserve costs as you mentioned, plus a share of the costs of paying the collective mortgage. There was no need for members to get their own individual mortgages: it was already covered. (And the same would have held if the corporation held a commercial mortgage.)

Once the corporation’s mortgage is fully paid off, the costs of running the co-op will go down, just as the costs of an individual homeowner would go down when their house is paid for. Presumably the board will have the option of reducing the “rent” dramatically. :slight_smile:

If the co-op’s collective mortgage is already paid off, then monthly costs should be much lower than if the co-op is still paying for it.

Or are you saying that there is no collective mortgage, and the only financing is coming from the members’ individual mortgages? If so, that sounds almost indistinguishable from a condominium to me.

From the co-op’s perspective, there is no consideration of necessary or unnecessary. The co-op only needs the monthly operating fee to cover property taxes, utilities, etc.

But it is necessary to value a share in the co-op somehow, because the individual members have something of value (a share) and when they eventually leave the co-op, they want to walk away with cash that they can use, for example, to get another place to live.

There is no financing with regard to the property itself. The co-op owns the property outright. The financing is for the shares in the co-op. With this structure, the co-op members have an investment the same way that any other homeowner does, so that when they have to sell (and they will have to sell, because of the co-op’s residents only rule), they end up with a return just like someone who owns a condo unit or a house will, which they can apply, for example, to another residence.

In this situation, there are differences between a co-op and a condo, but they’re not huge differences. For example, the co-op gets to approve any new members and they generally have much stricter rules about what you can do with your unit than a condo does.

Ah, okay. I think I begin to understand.

You are saying that your co-op members want to build up equity as they live in the co-op, so that they can partake in the general rise of real-estate valuation that has taken place. They want to profit, in other words.

I guess that’s where the Canadian co-ops I have been in have differed: they were designed to give people a place to live at minimum cost. :slight_smile: They’re non-profit. There is no direct reference to equity at all, as far as the members are concerned; any rise in real-estate valuation is only reflected indirectly in the “rent” the members pay; the corporation retains all equity. Shares are a formality, part of the entry process only.

Whether this is a good thing or not depends partly on whether the rise in real-estate valuation is a good thing or not, I suppose. The co-op provides housing for lower cost, precisely because that internal profit is removed. Living there is also more affordable because you’re disconnected to some degree from the rise in real-estate values.

I suppose that it’s possible to invest the additional money you would have paid for a mortgage; would you make more than you would in rising real-estate equity? That’s an interesting question. It would certainly be more liquid.