Not a condo, but a co-op
If houseboating and RVing are too exotic for you, consider buying into a cooperative. In many parts of the country, except for elite properties in New York City, a co-op is cheaper to buy than a condominium, but offers the same sorts of amenities.
In a cooperative, each resident owns a share in a corporation that controls the building or complex in which they live. Each shareholder has a right to occupy a specific unit and has a vote in the corporation. Shareholders pay a monthly amount that covers their proportionate share of the expense of operating the entire cooperative, which typically includes underlying mortgage payments, property taxes, management, maintenance, insurance, utilities and contributions to reserve funds.
While most co-ops in New York City are market-rate condos selling at whatever the market will bear, in much of the rest of the country, co-ops limit the resale value of an owner's shares. The maximum resale value is predetermined by a formula established in the cooperative's bylaws. This keeps the property affordable, prevents speculation and tends to encourage people to live there for a long time.
In the last five years, as housing boomed, limited equity cooperatives didn't seem attractive to many people because they didn't represent an opportunity to get rich quick. But as the housing market has cooled, they are back on some radar screens.
Paul Solomon, board member of the Southeast Association of Housing Cooperatives, lives in a limited equity cooperative in Atlanta. Solomon says he chose the cooperative because, "I couldn't find any place of equal size and location for anywhere close to what I pay for my co-op. When I tell people what I pay, they can't believe it," Solomon says.
The community in which Solomon lives is ideally located in downtown Atlanta. There are 70 homes in the gated community with lush landscaping and a beautiful swimming pool. Owners of 1,400-square-foot, three-bedroom, two-bath units pay $833 per month. Owners of two-bedroom, one-and-a-half bath, 1,100-square-foot units pay $725 per month. These fees include building and lawn maintenance, water and sewer, insurance on the buildings and real estate taxes.
Owners are limited in what they can sell their homes for by a formula that takes into account its initial sales price and the length of time they've lived there. The value is also affected by how many other owners are selling and for how much. For example, one of the two-bedroom units is for sale at $63,000.
In many parts of the country, it is difficult to persuade a bank to give a buyer of a cooperative a loan because the borrower doesn't "own" an identifiable bit of property. So in Atlanta, the cooperative association has begun its own bank to lend money to potential buyers. Currently, buyers may borrow up to $30,000 for 10 years at a fixed rate of 9.5 percent.
Assuming that a potential buyer is able to put down cash for the remaining $33,000 on the unit that's currently for sale, their monthly carrying charges will be $388 plus the monthly fee of $725, plus gas ($75) and electric ($75) and insurance ($50) on the contents of their dwelling, for a total of about $1,300 per month. The percentage of the total that represents the co-op's mortgage interest payment and taxes is tax-deductible.