In 1920, ten rental apartment buildings in Washington, D.C. converted to cooperative ownership, and over the years many more did so or were built as co-ops. Housing co-ops are in every part of the city and take many architectural and organizational forms.
There are more than a million co-op units in the U.S. Washington has one of the largest concentrations, though New York City has the largest. In the metropolitan area there are about 15,000 cooperative units, most of which are in the District of Columbia.
Just as neighborhoods have distinct personalities, so do co-ops. Choose one that suits your lifestyle. Review the house rules and by-laws and assess the level of services and amenities available. A real estate agent familiar with co-ops can provide the information you need to make an educated decision.
What is a Co-Op?
A housing cooperative is a form of ownership in which a person purchases shares (or membership) in a cooperative corporation that was formed for the purpose of providing its members a place in which to live. The cooperative corporation owns the building, land, apartments and all common elements. The owners/ members, in turn, own the corporation.
The instrument of ownership is called different things in different associations. Some issue “shares of stock,” some a “proprietary lease” and others a “perpetual use and equity contract.” Regardless of what the ownership document is called, the effect is the same. It conveys the perpetual use of a specified unit – usually an apartment, sometimes a townhouse – together with the right to sell it subject to the co-op’s approval and the obligation to support the co-op by paying fees.
Why a Co-Op and Not a Condominium?
Here are several reasons why cooperatives continue to be a preferred form of ownership for personal residences. Benefits for market-rate housing cooperatives include (in no particular order of importance):
1. Lower real estate taxes (especially true for older complexes). Cooperatives are assessed on a smaller percentage of its appraised value– legislation the DCCHC was able to get passed in the City Council in the late 1980s. A unit in a condominium pays substantially more in taxes than does a comparable cooperative unit.
2. The ability to obtain a master, blanket mortgage to make major repairs and upgrades. Condominiums typically must apply special assessments for major work requiring owners to find their own method to pay the assessment. For those who are eligible, co-op owners can deduct the interest of their share of the blanket mortgage while only those condo owners who can refinance their units can; otherwise, the condo owner may have to take out a personal loan that typically is not tax-deductible.
3. Ability to control/limit rentals. Over time, many condos shift from majority owner-occupied units to majority renter-occupied as owners convert their units to investment rentals; owners of investment units may not necessarily have the same interest in upgrading the condominium. Because of increased investment property, values may become stagnant and obtaining federally insured mortgages becomes more difficult or impossible. Co-ops are intended to be majority owner-occupied properties in which owners may be more inclined to invest in improvements.
4. Ability to interview prospective owners/residents and to underscore house rules. Condos typically do not interview prospective owners and renters and may not even be aware of who is moving in. Most co-ops have an interview process during which expectations can be set, questions raised and answered and a greater sense of involvement and community established.
5. Ownership is not public knowledge. For many would-be co-op owners, personal privacy is paramount for security or other legitimate reasons. Many cooperatives are home to high-profile people including businessmen, federal appointees and Members of Congress and their staff. Since there is no public record of ownership for cooperatives, these individuals enjoy a greater level of privacy. For many District cooperatives, this is seen as a major plus to their exclusivity, reputation and resales.