The Basic Considerations Of Buying A Co-Op

The decision to purchase property can be made at any moment, even if you are not yet financially able to do so. This commitment may be the catalyst to revise your budget to align with your long-term goals. Those living in the Chicago area may also realize they can invest in several types of property outside a traditional single-family home. One such option is a “co-op,” which is a commonly used phrase to describe a housing cooperative. 

These unique homeownership opportunities separate from single-family homes and even condominiums. Because many people may need help understanding the difference between a co-op and a condo, we will examine their pros and cons while highlighting some legal components before investing in one. 

Understanding Co-ops

Co-ops are a form of collective ownership—and this is why so many people confuse them with condominiums. The fundamental difference is that a corporation typically owns the entire property, and the residents purchase shares of the corporation (which makes them part owners). This entitles them to occupy a unit or units within the building. Unlike condos, where buyers own their individual units, co-op owners are shareholders and maintain a proprietary lease.  

People may be attracted to co-ops because they can be more affordable when compared to condos or single-family homes. Those with a limited budget or first-time homebuyers may be excited about a lower purchase price. Additionally, the monthly maintenance fees can be lower. These are shared among the residents and may cover the following:

  • Operating costs
  • Property taxes
  • Utilities 
  • Maintenance 

Outside of financial reasons, they tend to create communities. There may be a screening process for prospective residents because of this. Each owner has a say in decision-making because they have voting rights in the co-op corporation. 

Potential Disadvantages

Like many things, some advantages may be viewed as disadvantages for others. Co-op ownership means that decisions are made collectively. If you own one, you may have limited control over certain aspects, such as making alterations to the unit or renting them out. Co-ops have boards and typically approval rights over these decisions, limiting the owners’ power and flexibility. 

Although we pointed out that the purchase price may be lower, securing financing for a co-op can be more challenging than other types of properties. Lenders may require a higher down payment of 20%-50% of the purchase price. Why? If you default on your payment, the lender cannot repossess and sell the unit. Lenders may mitigate this risk by demanding a higher down payment to ensure you have a substantial equity stake in the property. 

The co-op board also wants to verify you can meet their monthly fees and assessments. Additionally, some lenders may not offer co-op financing because co-ops speak to a different market than condos or single-family homes. The pool of potential buyers in the future will be smaller, and a higher down payment is a way for the board to ensure the community’s financial stability. 

Meet with a Chicago-land Real Estate Attorney Today

Those considering the unique legal and financial aspects of purchasing a co-op should seek guidance from an established real estate attorney. Auricchio Law Offices has a knowledge of the real estate laws in the Chicago area, and can provide you with the legal counsel to have a successful co-op purchase or sale. Contact our office today to set up a free initial consultation so that we can discuss your real estate needs.

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Auricchio Law Offices

Auricchio Law Offices in Chicago provides a complete range of real estate services. We facilitate residential and commercial real estate transactions, advise and represent condominium associations, and represent property owners in real estate litigation. Whatever your real estate issue, we will work diligently to achieve your goals in a timely and efficient manner.

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