Diana Hill
Online Trading Academy
Question: I have started looking for a small rental property and came across a “housing cooperative.” What are the differences between this and a condo? Can they both make good rentals?
The biggest differences between a Housing Cooperative and condo are the ways ownership is held, legality and financing.
Ownership
Housing cooperatives are not considered “real” property. When you buy into a Co-op you are buying into a corporation and becoming a shareholder. As a shareholder, you will have rights to a particular apartment or unit within the building. This right is formalized by a lease with the tenant (shareholder) and the corporation. The size of the apartment/unit determines the proportion of the shareholder’s stock.
How is the ownership of a condominium held? A condo is considered “real” property; you own not only your unit but also a percentage of the common areas. As an owner of a condominium you have all legal rights of ownership, including the right to sell and restrictive covenant of use (that means there are rules that have to be followed). The owner also receives a deed for the property.
Financing
A co-op can have a mortgage on the building that the corporation manages – this means that each shareholder will have a monthly assessment based on their proportionate share of the corporation which covers the following costs: mortgage if there is one, taxes, insurance and general upkeep of the building. Financing for a Co-op as a shareholder was difficult until the 1980s, but now it is more freely available, though nothing like a traditional mortgage. It is not a mortgage, instead it is called “share loan financing”. It can be more difficult for an investor to get a “share loan” because Fannie Mae will only purchase these loans if the borrower is the occupant and it is their principal residence (sometimes they will consider a second home).
For a condo, because the unit has a deed there can be a traditional mortgage which makes financing for an investor easier.
Taxes
From a tax perspective they are treated the same as any real estate transaction. If there is a “share loan” secured by the stock and lease then all interest from that loan can be deducted. Also, if the Co-op has a blanket mortgage on the property the shareholders will be able to deduct their proportional share of the real estate taxes and interest.
Approval
One of the other big differences I want to point out about Co-ops is that “ANY” prospective buyer has to be approved by the membership committee which is made up of current owners. This process allows the committee to accept a new buyer or reject them. The guidelines under which they can reject a buyer are limited to: financial where-with-all and/or unwillingness to abide by the terms of the association’s rules and regulations.
Under no circumstances can the applicant be rejected for reasons such as: age, sex, sexual preference or religion. In recent years however, there has been an added factor of “celebrity”. The concern is that they will bring things like “paparazzi” or tourist disruptions to their homes. Here are a few names of celebrities that have been rejected: Barbara Streisand, Diane Keaton and Gloria Vanderbilt.
So there are opportunities with Co-op’s but be aware of the limitations.
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Editors’ Picks
EUR/USD hits two-day highs near 1.1820
EUR/USD picks up pace and reaches two-day tops around 1.1820 at the end of the week. The pair’s move higher comes on the back of renewed weakness in the US Dollar amid growing talk that the Fed could deliver an interest rate cut as early as March. On the docket, the flash US Consumer Sentiment improves to 57.3 in February.
GBP/USD reclaims 1.3600 and above
GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.
USD/JPY drops back below 157.00, as focus shifts to Japan snap election
USD/JPY is back in the red below 157.00 in the Asian session on Friday. The Japanese Yen recovers ground against the US Dollar amid some profit-taking ahead of Japan's snap general election on Sunday. The preliminary reading of the Michigan Consumer Sentiment Index report for February will be released later on Friday.
Editors’ Picks
EUR/USD: US Dollar to remain pressured until uncertainty fog dissipates Premium
The EUR/USD pair lost additional ground in the first week of February, settling at around 1.1820. The reversal lost momentum after the pair peaked at 1.2082 in January, its highest since mid-2021.
Gold: Volatility persists in commodity space Premium
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The Pound Sterling (GBP) changed course against the US Dollar (USD), with GBP/USD giving up nearly 200 pips in a dramatic correction.
Bitcoin: The worst may be behind us
Bitcoin (BTC) price recovers slightly, trading at $65,000 at the time of writing on Friday, after reaching a low of $60,000 during the early Asian trading session. The Crypto King remained under pressure so far this week, posting three consecutive weeks of losses exceeding 30%.
Three scenarios for Japanese Yen ahead of snap election Premium
The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans.
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