Co-Ops And Condominiums

Posted by John Sabia on Tuesday, April 26th, 2016 at 3:36pm.

When searching for the property of your dreams, several options lay before you. Do you want to live in a single-family home, condominium, townhouse or co-operative? Do you want to mow the lawn and do general maintenance, or would you rather — with the help of your fellow homeowners — share this responsibility?

The last question can be answered in the affirmative if you decide a condominium or a co-operative residence is right for you. What is the difference between condominium co-operative, though? There are many differences other than just the legal definitions. {Of course, you should consult with a real estate attorney for legal advice or for questions on whether a condo or cooperative is right for you.}

In a housing cooperative (co-op, for short), a corporation owns the property/properties in question. Residents buy into the co-op, effectively turning each one into a shareholder with all the rights and privileges which come as being a co-op resident, including the right to live in a unit within the co-op property. Instead of receiving a deed as ownership, co-op owners receive a “Proprietary Lease” which allows them exclusive rights to the unit and their shares in the corporation. Co-ops strive to be as self-sufficient as possible, with the shareholders outsourcing certain functions (electrical maintenance, plumbing et al) if needed.

New housing co-op sales are typically cash transactions with very few options for financing (with a large downpayment), as the units owned by the corporation are not considered real property by law. Instead, they use “share loans” to purchase shares of the co-op in question; the loans function similarly to mortgages. Outside of loan payments, co-op residents pay what is called a pro-rata (proportion allocation) share of the maintenance costs involved with the property; such shares are billed at-cost. This is handled via a monthly fee paid to the partnership, which can also include part of the property’s mortgage; the share loan and mortgage — the latter held by the corporation — are two separate items which do not affect each other. As a benefit for paying the monthly fee, however, buyers receive all of the tax benefits homeowners enjoy, including interest and real estate tax deductions.

The organizational structure of housing co-ops can be broken down to five types. According to the Northcountry Cooperative Development Fund in Minneapolis, Minnesota, the five types are:

  • Market Rate: The co-op sells shares at full market value in both original and future unit sales. The price of each unit is determined by the market, “allowing for potential accumulation (or loss) of equity by the members.”
  • Limited Equity: The co-op places restrictions on the sale price of a given unit, aimed at maintaining long-term housing affordability. A limited equity co-op can offer benefits linked to the shares held by the residents forever.
  • Leasehold: The co-op leases its property or properties from an investor with, if stated in the terms of the agreement, an option to buy. Residents manage the leased property/properties as a co-op, but do not own it.
  • Senior Housing: A market rate or limited equity co-op designed around the needs and wants of its older shareholders.
  • Mutual Housing Association: A non-profit co-op established to “develop, own, and operate housing… owned and controlled” by the co-op’s residents.

Like all other forms of real estate, housing cooperatives must abide by federal, state, and local fair housing laws. However, housing co-ops are often more restrictive about who is allowed to become a resident shareholder. The shareholders (either as a whole in smaller co-ops, or through an elected board of directors in larger co-op properties) are responsible for setting such rules, meant to establish a sense of exclusivity and security. Restrictions could include requiring potential resident shareholders to have a higher debt-to-income ratio and/or possess a high net income, disallowing subleasing of units owned by shareholders, passing a rigorous background check, and meeting specific requirements related to the overall desired composition of the community.

Many co-ops in South Florida like Coral Ridge Towers, Coral Ridge Towers East, Coral Ridge Towers North, Coral Ridge Towers South, Atlantic Towers and Breakwater Tower claim to be adult communities; whereby, one person purchasing must be at least 55 years and older. Palm & Yacht Club in Pompano Beach is a gated adult community cooperative comprised of single-family homes with a beach front clubhouse.

Overall, housing cooperatives serve as an alternative to more traditional means of home ownership. Co-ops are designed to foster a strong sense of community among the shareholders of a given property, while providing a lower cost of entry to would-be homeowners.

One downside to Co-Operatives is the potential should one or more shareholders have an outstanding real estate tax lien, the entire cooperative shareholders could potentially be liable.

For some, however, the prospect of intense involvement in the day-to-day operation of a co-op property, even if the guidelines established are successful in promoting a secure, exclusive environment in both the short and long term, may not be what they seek. The thought of cooperative living may strike such potential homeowners as an echo of the ideals of the 1960s and early 1970s. For this group, a more traditional ownership structure — one steeply rooted in ancient history, no less — is where happiness may lay: the Condominium.

Properties like AubergeL’Hermitage, Jackson Tower, Point of Americas, Las Olas River House and Las Olas Beach Club for example are Fort Lauderdale Condominiums, (condos, for short) and are defined as properties where each residents owns an individual piece of a given property (conveyed by deed), with common areas, amenities, and exterior areas are collectively handled by an association jointly representing ownership of the entire property; think of condos as apartments one can own instead of rent.

Such arrangements can be traced back as early as a record of a sale of a portion of a building in Babylon during the First Dynasty — two centuries before the birth of Jesus Christ — with the condominium arrangement known today — defined as the ownership of airspace within the boundary walls of a given unit — established in the 1950s with legislation passed in Puerto Rico to address both shortages in housing and land along with high real estate costs, which was called the Horizontal Property Act of 1958.

Condominiums are located in areas where the prospect of owning a single-family dwelling is hindered by both the lack of developable land, and prohibitively high real estate costs (think places like New York City, San Francisco, or Fort Lauderdale). Condos are also built to a higher standard than rental properties, despite both types of housing appearing identical to each other, whether as a complex or single skyscraper. And like shareholders in housing cooperatives, condo residents (through the owners association) can hire-out contractors for certain functions and projects.

New residents can take out a mortgage to buy a unit within a condo, as said units are legally treated as individual real estate properties (especially at tax time, when property taxes are due; shared areas are not counted on the tax bills of each unit, however). Residents also pay a monthly, quarterly, or yearly fee to the condominium owners association to help with property maintenance, taxes, insurance, and building upon a reserve fund for special projects and improvements. Finally, the spectre of assessments can appear on a condo resident’s monthly bill now and again. Assessments cover repairs and other needs which cannot be deferred, but cannot also be paid in full with the reserve fund or when reserves are earmarked for other items.

Like housing cooperatives, the cost of ownership is much lower for a unit within a condominium than in other types of real estate. According to The Real Estate Journal, condo prices generally appreciate more slowly than single-family homes, making the barrier to homeownership easier to overcome, whether the unit is a first home, a vacation getaway, an investment property, or a place for retirees to spend their golden years.

Unlike housing co-ops, however, there are less restrictions as to who is allowed to own a unit within a given condominium property. While this may make it easier to purchase a home, this also makes it easier for others whose financial and personal backgrounds don’t necessarily match up with the ideal condo owner one may have in mind, especially if only a wall separates one from a neighbor whose idea of a good time — loud music, parties into the break of dawn, and general mayhem — would be better suited to a nightclub near the beach than a quiet residence. As a result of the real estate market crash, many condominiums have amended their association documents to require new applicant buyers meet minimum financial standards, such as minimum yearly income, minimum credit score as well as requiring one or two years worth of association fees upfront for a specific period of time.

A small negative to condominium ownership, is the potential difficulty in selling the unit. Usually, this occurs when a large number of owners decide sell at the same time, increasing the competition of similar real estate. Some owners may chose to lease their condo unit as an investment property and wait until a more opportune time to sell. Condominiums have restrictions on whether or not owners may lease their condo. If leasing is permitted, there may be restrictions on minimum lease periods and the number of leases allowed in a calendar year. Condominiums in general maintain higher property values than a similar sized Cooperative.

Townhouses can be part of a Condominium Association or Fee Simple.

Another from of condominium ownership is the Condominium-Hotel. Properties like Atlantic Condo Hotel, The Ritz Carlton and The W Fort Lauderdale, for example, are Condominium-Hotels in Fort Lauderdale. Legally a condominium, however, these properties operate as a hotel, offering short term rentals whereby owners may or may not choose to participate in a rental program allowing them an opportunity for income when they are not using their unit.

Whether you choose a housing cooperative or a condominium as your next primary residence, latest investment, or a vacation property, let us help you find and obtain your dream in Fort Lauderdale. Our area offers several options for your consideration, whether you want to touch the turquoise sky, bathe in the golden sun, or drift away upon the shimmering sapphire ocean.

John Sabia

1 Response to "Co-Ops And Condominiums"

Scott wrote: Thanks for this very informative post. Sharing!

Posted on Tuesday, June 21st, 2016 at 2:38pm.

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