What is a Co-Op Apartment? The Definition, Pros, and Cons

Cooperative housing, co-op for short (also styled as coop), is a unique kind of housing option — existing in the in between of renting and owning a home. Though often confused with a condo building, the two are completely different — and each come with their own sets of pros and cons. In this article, we’ll explore what a co-op apartment is, how it works, how it’s different from renting or purchasing property, and what the pros and cons of buying into a co-op building are.

A co-op apartment is a unit that exists in a housing cooperative. A housing corporation owns this cooperative (which could be as small as a townhouse or two-story apartment building or as large as an entire apartment complex), and all tenants are “shareholders” of this corporation. Yes — instead of buying the unit outright, tenants buy shares of this corporation, often based on the size of the unit. So, instead of getting a deed to the apartment, tenants get a stock certificate. Tenants enjoy the use of common spaces and, in addition to paying for their apartment, help pay for the building’s maintenance.

The housing corporation that owns the entire building acts as the landlord, though there are different ways a co-op can be structured. In some instances, a professional property management company is hired to run the building. In others, the tenants will split the responsibilities of handling maintenance and upkeep themselves. In some buildings, residents will create a co-op board of directors amongst themselves who will make decisions about how to run the building.

Cooperative housing gained popularity in large cities during the 19th and 20th centuries — especially in New York City. The Big Apple went through a co-op boom in the mid-to-late 20th century. In the ‘70s, there was a sharp increase in number of buildings converting into co-ops and the prices of co-ops tripled. Initially, it was more popular in higher-income neighborhoods but eventually spread to the rest of the city. Co-op housing also gained popularity in cities like Chicago, Philadelphia, Washington DC, and Seattle during a similar period.

Buying into a co-op building is slightly different from buying a house or a condo. For one, you can’t take out a traditional mortgage for a co-op since you aren’t technically buying the property outright. Instead, you take out a co-op share loan, which is similar to a mortgage and will allow you to purchase shares into the corporation. Note: Not all lenders offer co-op loans, so you may need to shop around.

Most co-op buildings have strict rules around accepting to residents, so there will also likely be a rigorous application process for any potential buyers. Each co-op will have different requirements. For example, some may not allow pets, while others — like in retirement communities — may have age restrictions. Before buying into a co-op, you need to ensure that you can follow all the rules, keep up with the maintenance fees, and live harmoniously with the other co-op shareholders.

Once your application and share loan is approved, you can purchase your shares in the co-op. From there, you may or may not be able to sell some of your shares at market rate, depending on the type of co-op you bought into. If you bought shares in a co-op but want to move out and sell them, it may be a lengthy process to do so depending on your co-op’s rules and regulations for its residents.

The short answer is yes — but, as is often the case with co-ops, there’s rules. As a renter who is not looking to buy into the co-op, you are technically subletting from the shareholder who currently lives there. You will need to go through an approval process with both the shareholder and the rest of the building (or its board) before you are allowed to move in. Typically, the shareholder who wants to rent out the space needs to have lived there for a certain number of years before they can sublease it. If you own stock in a co-op and want to leave, just know that not all co-op buildings allow subleasing to other renters.

While they may look similar from the outside — as they are both apartment communities made up of individual owners — condos and co-ops operate quite differently.

Most importantly, in a condominium building, owners take out a traditional mortgage and purchase their unit outright. There’s also often less rules about what alterations they can make to their unit. A board either hires a property management company to handle the building maintenance, or condo owners chip in to take care of operating the building. Monthly home owners association (HOA) fees or condo association fees help cover these costs.

Meanwhile, in a co-op, residents purchase shares in the corporation that owns building — so they don’t take out a mortgage, they don’t actually own their unit outright, and they have much less say in what changes they can make to the unit.

Unfortunately, yes. If you fail to make maintenance payments or to follow all the co-op’s rules, the board may be able to remove you from the property. The terms of your agreement with the co-op will outline what happens to the remainder of your shares after this occurs. 

Cooperative living can be great, but it isn’t for everyone — and buying into or getting out of a co-op can be a lengthy process, so it’s important to know if it’ll be the right fit for you before you get started. Below, we outline some pros and cons.

There are a lot of benefits of living in a co-op, such as: 

It’s important to factor these cons into your decision-making process before committing to co-op living:

Living in a co-op is unlike any other housing situation, since it is like owning and renting a unit at the same time. However, if you are looking to build some level of equity rather than pay rent to a landlord, then it can be an easier way to start your property ownership journey in an expensive real estate market like NYC.