The down-low on co-ops.

August 31, 2006 6:05 PM

Help my younger sister decide whether or not to buy a co-op apartment. There's some

My sister is in her mid-twenties and is thinking about buying a relatively inexpensive apartment in a co-op building near Rock Creek Park in Washington, D.C. This would be the first place she's owned, and she's attracted to the idea foremost because she's not wildly enthusiastic about the prospect of throwing money at a rental apartment.

Neither she nor I know much about co-ops. How hard is it to sell a share in such a building relative to selling an apartment in a condominium? How well do such places hold their value relative to similar dwellings with more traditional ownership schemes?

What else should she be aware of as she contemplates the purchase? What should she know about co-ops and co-op living?

posted by killdevil to work & money (4 answers total)

I just sold a co-op near Rock Creek Park in Washington, DC.

I sold the co-op because I got a job in a different city. I loved the place. That being said, I was happy to sell.

I am not an economist or a real-estate expert, but I think that the DC market is overpriced, and I think it's heading for a fall. (Real estate bubble, yadda yadda, but also because I've heard that there are a lot of condos being built.) A lot of the prices I was seeing were downright irrational.

Living in a co-op was more or less the same as living in a condo. You got more for the same purchase price with a co-op, but you have to pay a half point or so more on the mortgage because there are fewer lenders who finance co-ops than condos. You have to make sure that the co-op board is financially responsible, because you're owning a share in the corporation and their screw-up is your screw-up.

All in all, I'd say that if I were in your sister's shoes, I wouldn't buy right now. If she decides to buy (and to get out of the clutches of EJ Flynn or the other evil DC property management agencies) then I would think she should definitely consider a co-op as well as a condo.
posted by cgs06 at 7:35 PM on August 31, 2006

you may find some useful info here, inculding this little nugget:

"All that makes co-ops bad as investment properties, but good as places to live (more space for the money, the building is owner-occupied so often better maintained, etc.)"
posted by blind.wombat at 7:37 PM on August 31, 2006

Would her mortgage payment be more than 20 percent above what she's paying in rent? If so, she's not throwing money away. She's smartly avoiding buying in an area where renting is considerably cheaper than owning.

Heck, even if the mortgage payment isn't that high she's not throwing money away. She's using it to buy a roof over her head. If she stopped "throwing it away" she'd be out on the street.
posted by croutonsupafreak at 8:13 PM on August 31, 2006

In the late '80s and early '90s I owned two co-op apartments in a small building near Rock Creek Park in Adams-Morgan, DC. I had a great experience. Our building had only 20 units. We were a self-managed building. I was on the co-op board and also served as building treasurer.

In many ways, the co-op experience is not much different from the condo experience. However, in a building as small as ours, with our arrangements, we had to be more self-reliant. For example, although we employed a part-time janitor/handyman, many of the tasks that needed to be done in the building were done by us, the residents -- in most cases, by board members, but we encouraged members at large to pitch in.

My experience is not recent, of course, but I'd agree with the last couple comments. It's true there are fewer lenders, for example.

Another point to think about is that in DC, at the time, property tax treatment of co-ops was much more favorable than condos. Co-ops were assessed on the value of the building of a whole, and the association paid the tax. Condos, by contrast, were assessed per unit, and the effect was that condo owners paid more. (In case you're wondering, property tax paid by the co-op is still deductible for the members on a pro-rata basis; your treasurer will give you an annual statement with the amount of your tax deduction.)

In our setting, there were none of the horror stories that you sometimes hear of from New York about co-op boards being especially stringent on the buyer's financial qualifications or personal qualifications or what-have-you. Basically, we just asked the prospective buyer to attend a board meeting so that we could get to know him/her, and we could answer any questions she/he had or vice versa. I can't recall a single instance in the seven years I lived in the co-op where we rejected anyone.
posted by Robert Angelo at 8:22 PM on August 31, 2006