Co-ops 101

There are not a lot of co-ops in the LA area, but there are some. When searching listings, they will sometimes appear to be similar to condos, but it is important to know and understand the differences.

A condo is “real property.” Each unit owner owns an individual apartment in perpetuity and owns an undivided interest in the common element of the building, including the exterior walls, the room, and lobby. Ownership of a condo is more like a house, and the owner will have a deed a deed as evidence of that ownership.

Co-op buildings, on the other hand, are owned by a non-profit corporation. When one purchases a unit in a co-op building, they are really purchasing shares in the corporation, which come with a “proprietary lease” to the unit. Technically, the shareholder does not actually own the apartment, but a piece of the corporation. The larger the apartment, the more shares of the corporation are owned. Buying a co-op is generally thought to carry a higher degree of risk, because you are investing in a corporation. If the corporation is in poor financial condition, the shareholder could potentially lose the co-op apartment. As with condo purchases, the buyer will have the opportunity in escrow to review the financial statements of the co-op/HOA and satisfy himself that the entity is in acceptable financial condition.

Also, there are much fewer lenders who can do loans to purchase a co-op. It is almost certain that if the buyer has a preferred lender, their lender will NOT be able to do a loan to purchase a co-op. If you need a referral for a co-op lender, please let me know.

More important facts about co-ops:

  • Property taxes are generally lower in co-ops than in condos.
  • As a broad rule of thumb, co-ops tend to have lower purchase prices than condos, but lower resale value as well.
  • The co-op unit usually must be occupied by the owner of record. In this case, you cannot rent out your co-op unit as a landlord. if you need to move, you typically must sell your unit in the co-op.
  • Co-ops require that a prospective purchaser be approved by a membership committee composed of current co-op owners.

For more questions, or to find a co-op unit in Los Angeles, contact me.

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