What is a Cooperative?What are the Tax Advantages?
In most cases, members of housing co-ops are considered homeowners for income tax purposes, and therefore receive the same tax benefits that homeowners receive. Individual members of housing co-ops can accumulate equity on their shares over time. The amount of equity earned varies between a market rate and a limited equity cooperative.
Why is being a cooperative member better than renting?
Seven advantages make cooperative membership more attractive than renting:
1. Ownership: The members own the cooperative. The landlord owns a rental.
2. Control: The residents govern the cooperative. The landlord governs a rental.
3. Operating at Cost: In a cooperative, occupancy charges are equal to the actual cost of owning and operating the
property. In a rental, rents go up far faster than actual costs because the landlord is in business to make a profit.
Cooperative members keep the profit that a landlord would pocket.
4. Individuality: The cooperative allows members to customize their dwelling units. A landlord controls everything in a
5. Homeowner Tax Advantages: The cooperative passes income tax deductions through to its members. All of the
income tax benefits of rental properties go to the landlord.
6. Equity Growth Potential: The cooperative passes equity growth potential to its members. A rental passes equity
growth to the landlord.
7. Overall Value: A cooperative maximizes benefits to its members. A rental maximizes profits to the landlord.
How much does a share cost? Do I get the share back when I sell my unit?
Shares range in price among cooperatives. In a limited equity cooperative, each year your share increases by a predetermined value. When you resell your share, you receive the initial amount you paid plus a predetermined value for each year you live in the cooperative.
Is this equity increase prorated?
No. The increase occurs on the anniversary date of the start of construction of the cooperative.
What paper work do I need to complete and how much? How do I qualify?
You will need to complete a financial form to be turned into HUD to make sure you are spending no more than 46 percent of your annual gross income on monthly housing expenses. HUD uses this financial information to make sure the initial members of the cooperative are able to support the requested mortgage. There is an income minimum but there is not a maximum. Every cooperative member, initial members and future members, must go through the subscription (also known as the application for membership) process.
Will my personal financial information be private?
Yes. Only Realife, Inc. and HUD will see your financial form.
Will the building ever be refinanced?
Maybe. It is up to the Board of Directors. There is usually a penalty period in which it does not make financial sense for a cooperative to refinance.
Can I pay more than my share amount and buy down my monthly payment?
No. One of the reasons is because there is only one mortgage on the building (also known as a blanket mortgage). The initial operating budget of the cooperative is based on the initial shares/carrying charges.
Why do the share prices and monthly charges vary at different cooperatives?
Variables such as land cost, special city assessments, construction cost fluctuations, building requirements and interest rates all contribute to the final share and monthly prices.
What is covered in the monthly charge?
Mortgage principal and interest, operation, real estate taxes, required reserves, utilities (gas and common area electricity) and fire/ common area liability insurance all make up the monthly charges.
Will I have any additional charges other than my monthly charge?
Residents are responsible for their own electricity, telephone and parking. Everything else is included in the monthly charge. (The heat is gas so it is included in the monthly.)
Will my monthly charge ever change?
It can. Only the resident-elected Board of Directors may vote to change the monthly fees. Factors causing potential increases may include fluctuating utility rates and real estate taxes. A benefit of a cooperative’s operation is the fees members pay only go to the actual cost of operation. There is no equity investor.
Who owns the building?
The not-for-profit cooperative corporation owns the building and holds title to the mortgage, of which there is only one. It is also called a blanket mortgage. And in turn the shareholders of the cooperative corporation do. Realife never owns the building and there is not an equity investor.
What is involved in the resale of my share?
You must notify the resident services coordinator in writing of your desire to sell your share. The cooperative has the first option to sell your share for 60 days from the 1st day of the next month after you give writing. She/he will call people on the internal and external waitlist to see if they are interested in the unit available.
What is HUD's role in Realife cooperatives?
HUD provides insurance on the cooperative's mortgage. HUD’s involvement also allows us to tie construction and permanent financing loans together in one mortgage.