What’s a Co-op Home?
Updated January 1, 1 . AmFam Team
Short for “cooperative,” a co-op is a concept that borrows from the ideal that teamwork makes a community whole. And purchasing a home that’s part of a co-op is different from the traditional way real estate is bought as well.
So, what is a co-op home? By definition, a co-op, or a “cooperative home,” is usually a multi-family piece of real estate in which a business holds the title to the property. The residents gain equity in the building by buying shares in that business. Co-op residents own a share of the property, but not the deed to the property itself.
This relationship is akin to holding stock in a company, more than owning a piece of real estate. Co-ops are popular for a number of reasons, and come with a unique set of benefits and drawbacks. We’ll explore the tax implications for co-ops to get an understanding of the long-term financial implications of co-op housing.
Co-op Housing Pros and Cons
When co-ops succeed, it’s usually because their business decisions are tightly controlled by the resident members, who act as shareholders. This approach tends to protect the overall financial health of the entire building in contrast to condo ownership, where a resident’s stake is more focused on their own parcel of property.
What Are the Co-op Housing Pros?
One of the benefits of buying into a co-op is that there are more of them than there are condos in certain markets. If you’re shopping for real estate in those areas, your purchasing options are greatly increased when you include co-ops into the mix. Here are other benefits to buying into a co-op:
Co-op owners have property rights. Although each co-op’s bylaws and resident agreements differ, they usually provide shareholders with a voice that extends beyond their unit.
Co-ops offer tax options. Depending on state laws, tax rules for co-ops offer members flexibility in how assessors determine property values for tax assessment. Members may opt to be taxed singularly, or they can vote to have the entire value of the building assessed, where each member then pays their portion of that tax.
Co-ops deliver strong tenant protections. Co-op residents enjoy housing rights more akin to homeownership when compared to renters. Democratically operated, living in co-operative housing gives residents more of a voice on business decisions as well, assuming that their financial obligations are met and actions conform to bylaws.
Co-ops hold tax-sheltered financial reserves. With the IRS treating a co-op’s tax reserves as “patronage income,” financing projects in co-ops can be less costly when compared to similar ventures in commercially operated buildings.
Co-ops are less likely to rent out their unit. When compared to condo owners, co-op residents can prohibit absentee ownership more strictly.
What Are the Co-op Housing Cons?
With a board of directors steering major purchase decisions and other financial matters, residents may be left to pay out large sums to finance certain ventures — which is sometimes viewed as a drawback. For instance, when a new roof is needed, the entire co-op will be required to fund the project. If the total cost is $120,000 for the roof, and there are 12 members in the co-op, they’ll each be responsible for coming up with $10,000.
Other key disadvantages to co-op housing are worth noting as well include:
Closing costs when selling are typically higher. Co-op sales-related closing costs average about 8 to 10 percent of the total sale price. This is higher than what you’d expect to pay for a traditional closing — like selling a condo.
Residents are required to handle property management chores. Many co-ops require resident cooperation — in monthly volunteer hours — for routine co-op building maintenance tasks. This can be a lot to ask if you’ve got a busy schedule, or are unwilling to lend a hand. But they do offer alternatives. You can pay an individual monthly fee instead — and that money helps to cover overhead costs. But it will be money out of your pocket each month if you elect to pay instead of donating your time.
Subletting is limited. Some groups only allow a small number of individual units to be sublet, and may force multi-year leases on those that do. If your plans change after you’ve purchased, and you’d like to rent out the space, you may not be able to do so if all the available rental slots are taken.
Types of housing are limited. Given that most co-ops are multi-unit buildings, your co-op purchase options are restricted when opting for this type of housing.
Co-op Housing and Taxes
Given that co-op boards vary, it’s important that their bylaws are fully understood before purchasing a living space. You’ll also want to get details on the ratio of residents to sublets in order to ensure you’ll qualify for certain tax benefits. Here are other important co-op tax considerations:
Tax deductions are handled differently. Considered a common interest development, co-ops may benefit from mortgage interest deductions — but only when certain criteria are met. Unlike buying a house, you’ll need to be sure these criteria are satisfied before purchasing, if you want to leverage that deduction.
Co-ops may see higher charges each month. Compared to condo HOA fees, co-op monthly charges — some of which are used to pay state and federal taxes — can be significantly greater. However, it’s also likely that some of those monies will be tax deductible, and that can help offset the cost.
Sellers of co-op property may be subject to a “flip tax.” When weighing out the cooperative housing advantages and disadvantages, this one’s key. Totaling 1 – 2 percent of the total sales cost, flip taxes are imposed only on co-ops.
Although not technically a “tax”, the flip tax is really a co-op-imposed transfer fee which is payable to the co-op at closing. This fee helps the co-op manage and offset overhead costs without impacting the current residents.
Property taxes can be tricky. Do you pay property taxes on a co-op the same way you do on a normal home? In short, no. Depending more on the unit’s size and location in the building, property taxes for co-ops can vary from space to space.
While you’re shopping for homes, check in with your American Family Insurance agent (Opens in a new tab) to find out how purchasing a co-op can impact your insurance premiums and coverage options. You’ll get great coverage that suits your unique needs, whether you’re purchasing a condo, co-op or a new single family home.
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- 20 Questions to Ask When Renting an Apartment
Choosing your new apartment isn’t an impulse decision. The choice you make will have an impact for a long time. There are many different things to consider as you tour one possible home after another. On top of that, landlords and management companies work hard to make them all seem perfect.
How can you tell which one’s the right fit for you? Here are 20 key questions to ask when renting an apartment. The answers can give you a better idea of what you’d get from each one.
How Much is Rent & the Security Deposit?
Any apartment hunter should ask themself this crucial question: “How much should I spend on rent?” Setting a budget ahead of the search helps narrow the possibilities. You’ll save time by eliminating options that are too expensive.
Still, relying on online listings alone may not be enough. It’s better to personally ask the landlord, whether by calling, emailing, or visiting. Make sure to also bring up the security deposit, as well as any other upfront costs they may ask of you. This will save you from unpleasant surprises before you sign anything.
How Much are Utilities and What Do I Cover?
Every apartment complex handles utilities differently. Water, electricity, air conditioning, heating, gas, and more may be split between landlord and tenant. Then there is the matter of which ones you’ll need to get yourself. Your apartment may come with cable and wi-fi, but you may be responsible for them on your own.
Only your landlord will know for sure, and they should be clear about what’s expected of you. Before leasing an apartment, you should ask what utilities are available and which ones are covered. Record the answers, factor the costs into your budget, and look for the place that offers the most for the least.
How Does Parking Work?
Some apartment complexes have their own parking lots, with many spaces reserved for tenants and a few set aside for guests. Others may give residents access to a dedicated structure, providing greater security — but possibly at a higher cost. Others still may only offer street parking, which can be expensive to maintain.
In short, parking may be a complex situation involving specific locations and extra costs. If you have a car, don’t just ask if parking is available. Get the details. As you weigh your options, consider what’s best for your car as well.
What’s the Pet Policy & Is There a Deposit or Fee?
The pet policy won’t matter to every apartment hunter. If you have a furry friend or might want one someday, make this one of their first questions to ask when touring an apartment. A “no” answer is no deal, no matter how great the other perks may be.
Some landlords may allow pets if you pay a one-time deposit or additional monthly fees. Make sure to keep that in mind during your search.
What Amenities are Included?
Utilities cover the most vital parts of a home — the things that make living there comfortable. Amenities are the complex’s welcome bonuses — the things that make living there enjoyable. Common examples include clubhouses, swimming pools, public kitchens, communal laundry machines, and fitness rooms.
Amenities are great for those who use them, but their presence can justify higher rent. As your landlord takes you through each selling point on your tour, ask them whether these perks are included with your price. Also, make sure to consider if you’ll even use them.
Do I Need Renters Insurance?
Home insurance is for houses. If you live in an apartment, you look for renters insurance instead. In fact, some places make it mandatory for all residents. Be sure to ask your landlord in advance so you can make any arrangements you need.
This practice is all about liability. Landlords have their own insurance, but it’s based on their duties and would only cover their share of the damages. Renters insurance offers protection for your living space and your belongings. Even if it’s not required, getting your own policy could bring you peace of mind.
Can You Describe the Application Process?
Applying for an apartment can be complicated and time-consuming. You might have to pay fees, undergo background checks and other screenings, and more just to see if you qualify. This may be preferable to the alternative: apartment listings that promise no credit check may be scams.
You could always learn about each step of the application process as you go. Still, it never hurts to know ahead of time, especially if there are any fees and risks. If anything is unclear, the landlord should explain it to you.
What Should I Know About Rent Increases?
A variety of factors can change the value of an apartment. Examples include market shifts, new installations, repairs and replacements of fixtures. Your rent will likely not change for the duration of your lease. Once the time comes to sign again, though, your monthly payments may very well go up.
This may not seem like a pertinent question when starting a lease. Still, making it one of your questions to ask when touring an apartment could be useful. How your potential future landlord approaches the matter can tell you what to expect. At the very least, it can help you choose whether to look for a new place well before your lease ends.
What are the Lease Length Options?
How long are you looking to stay at your next apartment? One year, two years, longer, less? Not everyone has a plan in mind, which means the apartment’s available options may give you an idea of what to expect in the future.
Landlords always inform apartment hunters about the duration of their lease. However, you might need to probe them for other available options. Be sure to make this one of your questions to ask before leasing an apartment, even if they only mention one length that sounds good. They might have something better.
Can I Make Changes to the Rental Unit?
Your apartment may come pre-furnished, but it’s unlikely to be pre-decorated. Few people are content with blank walls and sparse spaces. Most prefer to personalize and beautify their home with art, decorations and other belongings.
Unlike houses, apartments usually only have temporary residents. The building’s owner may not allow certain kinds of changes, believing they may hurt the unit’s future value. Take the time to go over policies. That way, you can get a better idea of how you’ll make your space feel like a home.
How Do Maintenance Requests Work?
Besides rent, tenants might only interact with their landlord through maintenance requests. After all, it’s the complex owner’s duty to keep everything in their apartments running smoothly. If your shower stops pumping heated water or your lock gets sticky, maintenance will get it fixed.
Asking about the process of filing maintenance requests can give insights to how landlords view this responsibility. Does the process seem straightforward or complicated? Are approvals easy, or do they require a great deal of evidence and demonstration? The answers may reveal how long this landlord will let you live with inconvenience. Few questions to ask about apartments are more revealing than this.
What’s the Guest Policy?
In most cases, a guest policy doesn’t apply to someone who’s just visiting for a few hours. It covers situations where someone might want to stay at a tenant’s apartment for a few days or longer. Depending on the terms of the policy, you might even need permission for someone to spend the night.
Don’t just assume that any landlord would be okay with your best friend crashing on your couch for a while. Get the details on the guest policy before moving in. They’ll tell you what permissions they’d grant and how you can get them granted.
What’s the Neighborhood Like?
The oldest real estate myth holds that three factors must guide where you choose to live: “location, location, location.” There’s more to it than that, as this list of questions to ask when renting an apartment should make clear. Still, the area around the complex is important to consider.
Getting info on the neighborhood is valuable to any apartment hunt. Try to get your landlord’s perspective about any areas of concern. We also recommend exploring on your own, both by car and on foot. See if any useful places are close by, such as grocery stores.
How Soon are You Looking to Fill the Unit?
In most cases, you won’t be the only person viewing an apartment. Others have likely received a grand tour, and others may be waiting in line to see the place as well. Landlords might be screening you as much as you’re screening them.
Landlords are also usually interested in starting a new lease as soon as the current one ends. One way to get noticed is to strike quickly: ask when they’d want you to move in. You should still weigh your options, but don’t procrastinate.
Do I Need a Cosigner?
People with rental history have a record that landlords can review. If this is your first time paying rent, they won’t know if they can trust you to make payments on time and consistently. Adding a cosigner to the contract can make it easier. Their signature promises that even if you can’t pay rent, someone else can pay for you.
Many renters with no history may worry about background checks and credit checks. However, there are some landlords who won’t ask for them. While the answer will likely be a yes, it doesn’t hurt to have it on a list of first-time renter questions.
What Payment Methods are Accepted?
Rent payments can take a variety of forms. Before you make any assumptions, though, you should double-check what’s allowed. Each place will have its own policies. Some offer more payment method options than others.
You might be able to set up a regular automatic withdrawal from your bank account. You might have to do it online. The landlord might accept checks or cards (warning: anyone who only takes cash is likely a scammer). There’s only one way to know for sure.
What Furnishings & Appliances are Included?
Preparing for the big move is a big task. It’s not just deciding what to take, but also figuring out what you need to get. Each apartment is different: some come fully furnished with appliances, while others only have a bed.
Asking this question is important because the answer can impact your budget. It can even make or break your apartment options. Ask about beds and bedding, chairs, sofas, tables, kitchen appliances, TV sets and anything else that matters to you in a home.
How Much Notice Do You Give Before You or a Representative Shows Up at the Property?
An interesting agreement comes with living in an apartment. It’s your home, and you pay to stay there. But someone else owns it and covers many responsibilities related to it. Technically, they have at least some right to enter at any time for any reason.
Even so, many building owners respect their tenants by giving them advance notice. Depending on the person and situation, you may have days or hours or minutes to prepare. We recommend asking how much notice they usually give. It could save you some major headaches.
What’s Your Late Fee Policy?
Accidents can happen. Paychecks can come late. You might have temporary money problems. Most apartment contracts provide some leeway for late rent payments. But they might charge a late fee.
Given that it’s so common, there’s no problem with asking about late fee policies. You’ll want to know the terms just in case anything happens. You’ll also want to know the limits according to state law, so you can see if the fee is fair. Just try not to seem too eager, and don’t count on being able to do it often.
What’s Your Subletting Policy?
Subletting is when a renter temporarily moves out and lets someone else cover their lease. A landlord may refuse to rent to your candidate if they don’t meet their requirements.
Even if you don’t plan to leave during your lease, you may still want to know your apartment’s subletting policy. Life may surprise you. Being aware can save you some time and trouble in looking for someone to take over.
Know the Best Questions to Ask When Renting an Apartment
Any of these questions to ask when renting an apartment can help decide your future home. Having so many factors to consider may seem intimidating at first. As you gather information, though, you may find that each new detail narrows down the options. Soon enough, a few apartments will rise above the rest. No matter which of them you pick, you benefit. Ask away.
Renters Insurance from American Family Insurance
Even while you’re still apartment-hunting, it’s never too early to start thinking about renters insurance. If you have any questions about that, feel free to contact an American Family Insurance agent. Once you’ve learned what we have to offer, you can get a quote online and get protection for your next home.
- 9 Steps to Create a Home Inventory for Insurance Claims
Your home is more than a roof over your head. It’s where your dreams grow, your family thrives and memories are made. But the possessions you keep inside are important, too.
Whether you’re renting an apartment or own your home, you’ve most likely got an insurance policy designed to protect your dwelling and the things inside. Should the unthinkable happen and you have to use that insurance policy, it’s important to have a plan in place. And a home inventory list is a great way to get started!
We’ll walk you through how to create a home inventory so — in the event of the unexpected — you’ll be more prepared and have a streamlined recovery.
What Is a Home Inventory?
Quite simply, a home inventory is a complete list of all the items, especially valuables, in and around your home. The best home inventories include photos, descriptions and dollar values of each of your belongings. The more detail, the better! It’ll help you provide a comprehensive list to your agent of items lost in the event your home is damaged or destroyed, allowing you to get the most out of your coverage.
When your describing the items in your list, remember that the more information, the better. Here’s a quick reference list of the type of information you should include in your home inventory list:
- An in-depth description of the items. For example, rather than writing down “diamond ring,” be more descriptive, such as: “an emerald cut diamond ring, with white gold shank, accent stones and initials inscribed below the bridge.”
- Make, model, and/or serial number of the items.
- Date of purchase, receipts and photos.
- Estimated replacement cost if you bought it today. Do note that the value of the items might be different today than it was when you first bought them. This is especially true with jewelry, and other valuables.
- Appraisals at time of purchase. Especially if your items were appraised for insurance purposes.
Why Do I Need a Home Inventory?
Whether you’re a homeowner or a renter, everyone can benefit from a home inventory!
If you ever have to make a claim, a home inventory is a great asset to have, especially after stressful events like theft, storm damage or a fire (take a look at how one renter used their home inventory after facing an apartment fire).
When you make a claim, you typically submit information on everything that was lost — which can be difficult to do off the top of your head for all your possessions. Remembering to replace your TV or computer are no-brainers, but when it comes to remembering each piece of jewelry in your jewelry box, things tend to get overlooked. Having a personal property inventory will help, along with knowing how to properly insure your jewelry.
When you have your home inventory checklist, you know exactly what needs to be replaced, and you’ll have peace of mind knowing your entire household is protected.
- Reasons Why a Roof Leaks
You’re admiring the rain from the comfort of your home when you notice a sound — the unmistakable drip of water dropping onto your floor. The first and hardest step is figuring out why your roof is leaking. And with these tips, you’ll find the culprit in no time!
Here’s Why Your Roof Is Leaking
The list of reasons why your roof is leaking may seem long, but don’t worry — when it comes to finding the leak and fixing it, the finding is the hardest part. And the good thing about these problems? They can all be fixed. Check out the list and see what’s troubling your roof:
Your roof is old
Roofs don’t last forever. Protecting your home and everything inside it from the elements comes with a cost. And with all that rain, snow, ice, wind and even sunlight wearing down your roof, it becomes more susceptible to leaks. Every roof will eventually need to be replaced, so learn more about how long your roof should last based on what it’s made of.
