If you’ve listened to the news at all lately, or talked to any of your friends or family, you know that times are tough. Now, more then ever, Americans are re-evaluating the financial choices they make and looking into creative solutions on how to live both comfortably and frugally. During these difficult times, I find myself both thankful for and inspired by my own living situation, because I am a low-risk homeowner. Or, more specifically, I am a shareholder in a limited equity housing cooperative.
You may or may not have heard of a housing cooperative before. For many, the term conjures up images of a hippie commune nestled in the hills of Appalachia, or an overcrowded tenement building deep in the inner city. Most housing cooperatives bear little resemblance to these two scenarios, though, and have instead proven over time to be safe and comfortable places to live and raise a family. Most of all, housing cooperatives can offer a sound financial option to those looking for the stability of homeownership and community, without the high risk or steep financial commitment.
Technically speaking, a housing cooperative is a legal entity–usually a not-for-profit corporation–that owns real estate, consisting of one or more residential buildings. In order for a housing co-op to come into existence, a group of people have to first form the cooperative — with all the accompanying paperwork, including a set of bylaws — and then purchase the desired real estate. This happens in a similar fashion to buying a house, and usually includes taking out a loan from a bank and providing a down payment. One big difference, however, is that the founders of the corporation do not have any individual claim to the real estate. Instead, it is the corporation that owns the real estate, which means less direct individual risk. This does not mean that individuals involved in the co-op have free reign to come and go as they please when times get tough – if they did the co-op would dissolve. The co-op, like any business, is made up of people, and functions best and most reliably when it is made up of responsible people dedicated to its mission and willing stick around and problem-solve when challenges arise. The advantage of a co-op, however, is that when problems do arise, you are not facing them alone; you have the collective resources and creativity of other members of the co-op behind you.
Operating expenses usually include paying off a portion of the mortgage for the building each month as well as the cost of water, property taxes, city taxes and heat (if heat is included). What a member pays each month feels and looks just like rent. The difference is that, in a housing co-op, the member is also instrumental in deciding the cost of rent each month, along with fellow members. By joining, the member takes on responsibility for his or her investment and to the co-op. This means when they are ready to leave the co-op, they must give the other members fair warning.
This will look different from housing co-op to housing co-op, depending on the co-op’s bylaws. The member may be directly responsible for selling their share to a buyer with whom other members will feel comfortable living, or they could simply sell the share back to the co-op to resell. In limited equity housing cooperatives, which have a mission of creating more affordable housing, when a member sells their shares, they generally receive back only what they put in, plus the cost of inflation.
For me, so far, the benefits of being part of a housing co-op have far outweighed any of the added responsibilities. I am, in a sense, a homeowner without the liability or risk, but with many of the benefits. As a shareholder and a member of the Faire-Bande a Parte Housing Cooperative (Faire-Op) in Lewiston, Maine, I “own” a portion of a three-story apartment building. As such, I have the right to be part of the decision making process for the cost and distribution of rent, any improvements made to the building, and how to use the surrounding property. Being a member entitles me to live in a three bedroom apartment, which I can decorate and change however I like (major structural changes do require co-op approval, though), and allows me to be part of the small but vibrant community of people that live in the building.
If and when I decide to move, so long as I don’t break the terms of my lease, I receive back the amount of money I put toward my share, plus inflation. As long as the corporation that is my housing cooperative stays fiscally buoyant, I am guaranteed a return when I leave. At the Faire-Op, we decided to also pay back a portion of the money members have put towards the mortgage over time, as well as any money members have put towards co-op approved projects to improve the property. Because of the limited-equity structure of the Faire-Op, I’ve continued to earn equity on my investment in the property, despite the major mortgage crisis. My living situation not only makes me thankful, it also makes me feel motivated to pass on to others the creative possibilities of housing cooperatives, and to share the positives and challenges of day to day co-op life.
Stay tuned, and please ask questions! In subsequent articles, I’ll take a closer look at how the Faire- Op came to be and how it operates, and offer tips and strategies for starting your own housing cooperative.
For more information on housing cooperatives in general, visit www.coophousing.org. And check out this video by fellow Faire-Op member, Craig Saddlemire:
The members of Faire-Bande A Parte Housing Co-op (the Faire-Op) started their housing cooperative in 2008. They came together around a few common goals and interests: energy efficiency, affordability, and a downtown location of a multi-unit building. They were also very interested in being able to own and control their own property and investing and positively impacting their community. For more information on the Faire-Op, write to Sherie at firstname.lastname@example.org.