If you’re considering getting a unit in a co-op, you are likely wondering if it is a wise investment. Co-ops have very specific rules in terms of what you own and what you can do with your unit. Unlike the more modern condo, you are fairly limited as an investor.
That doesn’t mean a co-op is a bad investment, though. If you intend to live in the co-op, it can be a great investment, with the value of co-ops rising significantly year on year.
Before we go into the value of a co-op as an investment, we need to define what a co-op is. This will impact your understanding of what you own, as well as what is covered by a co-op insurance policy. Then we can discuss how a co-op can even be considered an investment.
What is a co-op?
Not sure what a co-op is? You’re not alone. Many people are confused by the term, considering the concept seems a lot like a condo. However, there are significant differences between a co-op and a condo, with the main difference being in what you own.
A condo is a unit in a building that you can purchase. When you buy the unit, you own everything from your walls inwards. You can do what you want with it but you have to pay monthly condo fees, which give you use of the common areas of the building.
A co-op unit, on the other hand, cannot be purchased. Rather, you can purchase a share of the entire co-op. You own a percentage of the building that covers your unit and common areas. You are part of a group of investors rather than an owner of a unit.
This may not seem like much of a difference. After all, you still get access to the exact same things. However, the difference manifests in other ways.
What do co-op boards do?
The biggest manifestation of the status of a co-op as a shared investment is in the co-op board. Whereas condo units can be sold from one owner to another, selling your shares in a co-op is considered an action that impacts all the shareholders. It, therefore, has to be approved by the co-op board.
Co-op boards are generally very discerning in who is allowed to become a shareholder. They thereby keep the building fairly exclusive, with control over who can stay.
It is not just in selling your share in the co-op that you have to go through the board. Renting out your unit is not a decision. That is totally up to you.
Can you rent out a unit in a co-op?
You are allowed to rent out your space in a co-op. However, unlike other types of properties, you generally cannot buy them for this purpose. Co-op boards keep a tight grip on who comes to stay. If they approve your purchase, they usually expect you to live on the property.
You should be able to rent out your property after a year or two, but again, your co-op board will decide and will have to approve any renter. This makes it unattractive to people who are investing for the sake of rental income. Ultimately, this is not going to be a realistic investment in that sense.
Is a co-op an investment?
Before we answer whether a co-op is a wise investment, we need to ask whether it is an investment in the first place. After all, you cannot guarantee that you’ll earn income on it, especially not for the first couple of years.
However, it is an investment in that co-op values tend to grow at a higher rate than those of other types of properties. This is due to its exclusivity.
If you need a place to live and fall in love with a co-op, it is an excellent investment. You’re getting a great place to stay, and the value will grow. By the time you’re ready to move, you will be able to sell it at a high price.
If you don’t plan on living in the co-op, it is not a wise investment. You won’t be guaranteed the chance to make income from it, and you’ll have to own it for a couple of years before being able to sell it at a high price.