What Are Co-Op Apartments & Should You Invest?

Written By Alla Levin
May 13, 2020
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What Are Co-Op Apartments & Should You Invest?

What are co-op apartments?

When you purchase a co-op apartment you are not technically purchasing the property itself, but rather you are buying shares in a corporation that owns the property, along with the other co-op apartments in the building.

On becoming a shareholder, you gain the exclusive use of the apartment as part of a formalized contract between yourself and the corporation.

Co-ops are less expensive when compared with investing in condos or other kinds of apartments.

Due to this reason, many individuals or investors look for co-ops for sale in expensive cities such as New York.

The different types of co-ops

  1. Leasing: with a leasing co-op, the corporation in question will be leasing the building as opposed to owning it, and so they built no equity.
  2. Limited Equity: these types of co-ops have certain restrictions that determine the prices of buying and selling shares.
  3. Market Rate: in this option, you may purchase and sell shares according to the current market rate.

What is the process of buying a co-op apartment?What is the process of buying a co-op apartment

Throughout the process of purchasing a co-op, you’ll need to provide documents that outline your finances and your income, including your debts, net worth, and your tax returns.

You will also be asked for references and a background check. As part of the procedure, you’ll be required to attend an interview.

If you are considering buying a co-op, the best thing to do is to work together with your real estate broker to assemble all of your documents and get prepared.

If you are approved to invest in the co-op, you will generally have to put down a down payment of between 20 and 25%.

You might need to work with a certain lender to acquire a share loan, (these work in a similar way to a traditional mortgage).

If you want to rent out your co-op, there is usually a rule that you have to live there for a designated amount of time first.

What are the expenses of co-op apartments?

Apart from the share loan payments, you will also need to contribute to the maintenance and running expenses of the property building.

You will pay these costs monthly to the corporation, just like any other bill. In the case that there is a mortgage on the entire property, you will pay a proportion appropriate to your share.

For example, those with the studio co-ops pay the smallest share, and those with the largest apartments pay a bigger share.

You are also responsible for paying for your insurance and for your utility costs.

Should you invest in a co-op apartment? Should you invest in a co-op apartment 

From an investment perspective, co-ops are a wise choice, as you will be able to acquire these cheaper than you can buy a condo or another apartment.

For this reason, buying a co-op is an excellent way into real estate, which is especially within an expensive city.

As mentioned above, you will usually need to have lived in your co-op for a set amount of time before you rent it out.

However, this needn’t be an issue if you are in real estate for the long-gain.

By investing in a co-op, you can get yourself somewhere great to live, which then turns into a nice little cash cow.

Real estate investment is one of the most sought after passive income streams, helping you to make money- while you sleep!

When you are approaching the application process, it’s advisable to look into the process of renting out your co-op in the future.

Some corporations will have stricter and more completed guidelines than others.

If you wish to rent out your co-op, it’s best to choose a cooperative who can offer simple guidelines.

When you know exactly what you’re getting yourself into, it’s far easier to plan for a successful future.

The takeawayconsidered buying a condo

You may have considered buying a condo and like the idea of straightforward ownership.

Just bear in mind that you’ll pay considerably more to buy a condo.

This could mean you end up going for something smaller and in a less desirable part of town.

Of course, it depends on your budget, but if you’re looking to invest at a less expensive rate, it’s well worth weighing up your options.

It’s an easier process to purchase a condo, yet with a good real estate broker, you should be able to gain success with the co-op purchase process.

Ensure that you determine your budget before you get started.

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