A housing cooperative is formed when people join with each other on a democratic basis to own or control the housing and/or related community facilities in which they live.
According to the National Association of Housing Cooperatives (NAHC), there are three types of housing cooperatives as far as equity is concerned:
1. Market-rate housing cooperatives
In a market-rate cooperative you can buy or sell a membership or shares at whatever price the market will bear. Purchase prices and equity accumulation are very similar to condominium or single-family ownership.
2. Limited-equity housing cooperatives
In a limited-equity housing cooperative (LEC) there are restrictions on what outgoing members can get from sale of their shares. These are usually imposed because the co-op’s members benefit from below-market interest rate mortgage loans, grants, real estate tax abatement, or other features that make the housing
more “affordable” to both the initial and future residents for a specified period of time. In some co-ops these limitations are voluntarily imposed by the members.
3. Leasing cooperatives (or zero-equity)
In a leasing cooperative, the cooperative corporation leases the property from an outside investor (often a nonprofit corporation that is set up specifically for this purpose). Since the cooperative corporation does not own any real estate, the cooperative is not in a position to build up any equity (just as a renter doesn’t build
any equity). However, as a corporation, the cooperative is often in a position to buy the property if it comes up for sale later and convert to a market rate or limited-equity cooperative. And some leasing cooperatives allow outgoing members to take with them at least part of their share of the cash reserves built up by the
cooperative corporation while they were in occupancy.
