I’ve been researching various models of ownership for a community, and the one that makes the most sense to me is that of a housing cooperative (co-op). The article below, from the Midwest Association of Cooperative Housing, does a really great job of explaining how a cooperative works, as well as the advantages.
What is a Cooperative
A cooperative is a group of people working together in a joint economic activity that is owned and operated by its members for their mutual benefit.
In a housing cooperative (or co-op), a housing development is jointly operated by its members. They own membership certificates in the corporation, giving them the right to occupy a dwelling unit and participate in the operations of the corporation. The cooperative housing corporation owns the total property. A not-for-profit corporation.
A cooperative is a business controlled by the people who use it. It is a democratic organization whose earnings and assets belong to its members. By patronizing and becoming an active member of a co-op, you invest yourself with the power to shape that business. You control the politics and economics of what is truly your organization.
Cooperative housing gives you the opportunity to share in owning your dwelling. You, as an individual, do not own the unit you are occupying; instead, you and the other members own the entire assets (property) of the cooperative. Joining the cooperative will allow you to build a limited equity, that is, to establish some value in the property
Lower down payment, much lower closing costs, economies of scale, longer mortgage term all make co-ops more affordable than other ownership housing. Members have no reason to substantially increase monthly charges, unless taxes or operating costs go up, so monthly charges remain reasonable.
For income tax purposes, the co-op member is usually considered a homeowner and, as such, can deduct his or her share of the real estate taxes and mortgage interest paid by the cooperative.
Members have no personal liability on the co-op mortgage. The cooperative association is responsible for paying off any mortgage loans. This can often make it possible for persons whose income might not qualify them for an individual mortgage to buy a membership in a limited equity co-op.
Through their cooperative association, members can jointly exert influence in order to change tax rates and utility prices and obtain improved services from local governments. The co-op, as consumer advocate, can also join with other organizations.
Co-op members can benefit from economy of scale in co-op operating costs as well as from not-for-profit operation. Also, when there are “transfers”, only the outgoing member’s equity must be financed by the incoming member. Transfers of shares are subject to fewer settlement costs.
Elimination of Outside Landlord
Co-ops offer control of one’s living environment and a security of tenure not available in rental housing.
As mutual owners, member residents participate at various levels in the decision-making process. This is not true of tenants who usually do not have the opportunity to exercise responsibility. Members own the cooperative together and have the security of being able to remain in their homes for as long as they wish, as long as they meet their monthly obligations, and abide by the co-op bylaws, rules, and regulations.
Many co-op members indicate that the possibility for interaction with people from different backgrounds, cultures, and income levels is a positive factor in their decision to become a member.
Co-ops are communities within larger communities. Members share common goals and a sense of identity and pride from working together. Co-ops make good neighbors, and can revitalize decaying neighborhoods. Many set up recreational, social, educational and mutual help programs.
Co-ops accommodate all kinds of people. In some, units are reserved for householders with special needs. For seniors and many families, co-ops are often just the right combination of security and affordability.
Each member has one vote in making decisions on important matters such as housing charges, the election of directors and the regulations members will be expected to follow.
Shared Maintenance Responsibilities
Co-op members usually have limited direct maintenance responsibilities. The cooperative association is responsible for major repairs, insurance, replacement of worn-out equipment, and upkeep of common grounds and facilities.
Vandalism and Security
Co-op members vigorously protect their association’s property. An important benefit of converting rental properties to co-op ownership is reduction in vandalism and abuse of property and improved and shared security arrangements. And recent studies show that the co-ops presence in the neighborhood brings neighborhood crime down.
Freedom and Mobility
The co-op member owns a share in the housing development, not a particular dwelling unit. A co-op membership can usually be more readily resold than other real estate, for it cost considerable less and involves a simpler transaction.
Good Quality, Modest Housing
Co-ops seek to provide the highest quality housing possible within cost guidelines, both in initial construction and through continuing maintenance. Most are newly constructed but many groups have restored and updated existing housing and other buildings.