The Cooperative Lifestyle
Cooperatives are not as common as condominiums, and they are run differently. In some states, a cooperative apartment is considered real estate, but in others, it is considered intangible personal property. It is intangible because stock certificates show you own shares in the corporation that owns the building. You do not own the building itself.
All of the unit owners in a cooperative building purchase shares in the corporation that owns and runs the co-op. How many shares you buy is likely to depend on the size of your apartment. When you buy a unit, you automatically become a co-owner and have a proprietary lease on that unit; the lease runs as long as you live there.
To buy a co-op apartment, you must be approved by the board of directors of that building. Accordingly, when you sell, your buyer has to be given a green light by that board.
There is a monthly maintenance fee that includes the same general charges that a condo owner pays, but co-op owners also pay their proportionate share of the building's mortgage, if there still is one. That part of the monthly maintenance is tax deductible for owners.
Financing is acquired through a co-op loan, secured by the certificates of your stock in the corporation. You can shop around for the best fixed- and adjustable-rate packages. The interest on a co-op loan is tax deductible.
Occasionally, you will come across a cooperative run on a not-for-profit basis, with government or private association backing. These are generally reserved for people or families with lower-than-average incomes. In these apartments, if you are approved for residency according to the income ceiling, you make a nominal down payment — perhaps several hundred dollars — and your monthly maintenance fee is reasonably low. When you are ready to sell, the down payment is returned to you, along with some fair market interest, and that is that.
The nonprofit co-op can be a step toward having your own home in that it does offer a sense of ownership. It could also allow you to save toward a down payment on your next place, including in that sum your co-op down payment plus interest. But by definition, nonprofit co-ops are not going to return you very much money on your investment, no matter how long you stay and no matter how popular these apartments are in your area.