A co-op may look like a condo, but it is different. It comes down to the ownership. You must know the difference so you don’t mistakenly think you own the property. Read on to the all of the details about this type of home ownership.
What is a Co-Op?
First, let’s look at the definition of a co-op. It may look and sound like a condo. But, you don’t own it. A corporation owns it. The money you pay goes to the corporation that owns the building. You essentially own shares of the cooperative then.
Basically, you have an interest in the entire building. But, you also have a “lease” so to speak to live in the unit that is yours. You are more like a tenant, than you are an owner. If you bought a condo, you own the unit you live in. You also own a share of the commons areas.
How do you Buy a Co-Op?
Cooperatives have a distinct approval process. It’s run by a board. They decide who can and who cannot buy a share of the co-op. The board may set up an interview with you to discuss your ability to live there. It’s a lot like a job interview. In this case, the board controls whether or not you can live in their building.
The board generally determines your ability to live there on your financials and your willingness to follow rules. Just like a mortgage, they want to make sure you can afford your portion of the shares. Of course, if you have a reputation in society of not following rules, the board may not let you purchase a piece of the property.
Having a Say in the Process
Once you own shares of a co-op, you are responsible for your share of taxes and maintenance fees. The larger your apartment, the more you will owe. This is much the same as any other property. The larger your home, the more taxes you pay. Your maintenance fees are usually higher as well.
Your amount of shares in the cooperative, however, doesn’t give you more or less power than others. You don’t have a greater say than someone that owes fewer shares than you. Instead, you work as a team to make decisions for the greater good of the development.
The Tax Breaks of Co-Ops
Luckily, co-ops offer many tax breaks. Because a part of your maintenance fees covers real estate taxes ad mortgage interest, you are able to deduct both on your taxes. This is much the same as you would have for a condo. Even though you don’t technically own the property, you still get the tax benefits.
The amount you are able to deduct depends on the number of shareholders in the building. For example, if there are 10 shareholders, you would each get to deduct 1/10th of the taxes and 1/10th of the mortgage interest. The more shareholders there are, the less you can deduct.
Buying a co-op is popular in cities like New York City and Manhattan. In fact, they are more popular than condos in those areas. They are a perfectly acceptable way to own a property; you just have to know what you are getting into. Make sure you ask a lot of questions and understand how you own the property in order to ensure a successful process.