Homeownership can feel out of reach when you don't have a lot of money. While one of the most common paths to buying a home is to finance a five or six-figure purchase through a bank mortgage, there are alternative ways to get a place of your own that doesn't require as much cash. One of those options is to buy into a limited equity co-op. Here's more information about this type of purchase to help you decide if it's the right opportunity for you.
Co-Ownership of Housing
A limited equity co-op is essentially a group of units owned by a corporation which, in turn, is owned by all the residents who live on the property. For instance, one common way co-ops come about is tenants in an apartment building will form a corporation to purchase the building from the landlord. The tenants then purchase stock shares in that company, which entitles them to lease one unit for as long as they own those shares.
A primary benefit of a limited equity co-op is you don't need to get a mortgage to purchase a home in one. The cost of buying shares is purposefully kept low to ensure the units remain affordable to potential buyers. Additionally, once you make the initial purchase, you aren't required to make mortgage payments or pay rent, though there is typically a maintenance fee all residents must pay to help maintain the public areas.
You can remain in the co-op for as long as you own shares in the corporation and adhere to the terms of your lease. Although the most common type of co-op housing are apartments, you can find this type of setup with townhomes and single-family properties.
Limited equity co-ops typically have eligibility requirements buyers must meet before they can purchase shares. For instance, you can't make over $60,839 ($69,530 for a two-person household) to buy a place in one D.C. co-op. You may also be required to pay for your shares with cash rather than finance them with a mortgage loan. Since these types of co-ops are geared towards low-income people, the amount you have to pay will likely be something you can save up for with a little time and planning.
Other Issues to Consider
While investing in this type of housing is a great way to become a homeowner without having to put up a lot of cash, there are few issues you need to take into consideration before you start shopping around for a limited equity co-op in your preferred location.
First, it's important to note that you don't actually own the unit you live in. Co-ops are not like condos where you own the individual space. Instead, you only own the shares in the corporation that owns the home. This means you typically won't be eligible for any of the tax write offs available to homeowners, though you may receive other tax benefits for owning shares in a corporation.
Second, the value of the shares is purposefully kept low to ensure the co-op remains affordable to buyers. This means that when you're ready to move out and sell your stake in the facility, you probably won't earn as much as you would if you were selling a home at market price, even if you had lived in the place for ten years.
Lastly, while the home may be cheap, it may be located in a less-than-desirable neighborhood. Therefore, you need to carefully consider the pros and cons of the area before signing the sales contract.
For more information about limited equity co-ops or to find one in your area, contact a real estate agent.