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What Is a Co-Op Apartment? Your Complete Guide

what is a co-op apartment - living room with white walls, big window, and armchair

Design: Michael Keck for EHD, Photo: Sara Tramp

In major, densely-populated cities like New York and San Francisco, one-family houses are hard to come by. And, because of their prime location, relative scarcity, and high-demand, buying a house in a big city costs (and this is a conservative estimate) a small fortune. Whether you’re looking to live in the center of the action, or if buying a stand-alone house is out of your budget, there’s a good chance your path to home ownership ends in a co-op apartment of your very own. What is a co-op, exactly? Read on to find out. 

What Is a Co-Op?

The term “ co-op” is short for “cooperative” housing; a type of real estate where the residents of a building or community are shareholders in the entire property. 

In co-op apartment buildings, residents don’t technically own their individual units, nor do they technically own the land it sits on. Instead, the building and lot are owned by a non-profit corporation that is cooperatively owned by its residents, and when people purchase a co-op apartment — much like stocks — they’re buying shares in that corporation. 

As a shareholder, co-op members are entitled to use one of the building’s housing units, and receive a lease for the specific apartment they’ve purchased the rights to. Each apartment in the building has a certain number of shares allotted to it, based on its location in the building, the amenities it contains and, primarily, how large it is. The more square footage an apartment has, the more co-op shares a potential owner will have to purchase in order to live in it. 

All co-op apartment buildings follow their own set of rules and guidelines, so before you purchase, make sure you’re fully acquainted with the structure of the co-op, and how it’s governed.

What Is a Co-Op Board?

All co-op apartment buildings are governed by a co-op board which is democratically elected by its shareholders. Some co-ops might have strict rules about who can buy into the building, particularly regarding a prospective buyer’s income and financial holdings, so that it can protect all its residents by ensuring the building’s financial health. Some co-ops boards may require a background check, references, an interview, or other criteria before a person is allowed to buy shares in the building. 

What Are the Types of Co-Op Apartments?

Market-Rate Co-Op

In a  market-rate co-op, residents are allowed to sell their apartment (or, more accurately, their shares) at a fair, market-rate price whenever they want, making them ideal for young homebuyers who see themselves upgrading to a larger home somewhere down the line, and for people  who want the freedom to be able to move wherever they want, whenever they want. Market-rate co-ops are also ideal for anyone viewing their co-op as a long-term investment; because the real-estate market sets the price this kind of co-op apartment lists for, there are looser restrictions around how much profit its shareholders can make when it’s time to sell. 

Limited-Equity Co-Op

In a limited-equity co-op, the amount of profit shareholders can make when selling their co-op apartment is, as the name suggests, limited. The benefit of this sort of co-op structure is that it keeps housing affordable, and sets a cap on how much equity its shareholders can own. Limited-equity co-ops are ideal for apartment buyers that don’t care as much about making a profit down the line as they do about settling into an affordable place of their very own, especially if it’s a place where they’d like to  set down permanent roots.

Group-Equity and Zero-Equity Co-Ops

In group-equity, or zero-equity co-op buildings, shareholders are not permitted to sell their apartments for more than they bought them for which, just as with limited equity co-ops, keeps housing affordable, and keeps the building out of the hands of real estate developers or property flippers. The structure of a group/zero-equity building can feel more like living in an apartment building where you pay monthly rent, with the caveat being the “rent” is typically far, far, cheaper than rental market rates. 

What Are Co-Op Maintenance Fees?

All co-op members are required to pay monthly maintenance fees, which are used for upkeep of the building as a whole, property taxes, and other expenses tied to the building's maintenance. These payments can be monthly, or quarterly. 

When figuring out your budget, unless you intend to buy your apartment in an all-cash deal, remember that you’ll need to pay your co-ops maintenance fees in addition to your monthly mortgage payment, and will more than likely need to pay for your own utilities as well. Some co-op buildings have low monthly maintenance fees, but others have fees in the thousands, meaning owning an apartment have be far more expensive than renting. 

What’s the Difference Between Co-Op and Condo Apartments?

The difference between co-ops and condo apartments is all about the ownership structure of the building. Unlike the cooperative nature of co-ops, in a condo building, the apartments are privately owned by residents, and common areas like the lobby and hallways are owned and maintained by a condo association.