real estate experts - limited equity co-op?

[mcj]

Hello! Long-time listener, first-time caller.

My current lease is up near the end of this year and I am looking into more mustachian options for living arrangements, so I occasionally browse the real estate listings in my area for rentals and houses for sale.  I saw a beautiful apartment for well-below market rate, but it was part of a limited equity co-op and I couldn't find many details on how exactly that arrangement works other than that there is an income limit (which I would qualify for). Any real estate moguls care to comment on whether these types of arrangements are beneficial or mustachian?

[DaveR]

The specifics of the deal may differ, but in general you are buying shares of the apartment building (not a specific unit) which also gives you the right to lease. Basically, you are a co-owner of the corporation that owns the building and also rent a unit from that corporation. Whether the setup is beneficial or not depends on the details.

[Gary123]

Mcj- my preference would be to not invest in a co-op for the simple reason you are not in control.  The board may decide to make an upgrade, hire a non-insured contractor or any number of things that could result in liability for the building owners (you included) and an assesment you cannot pay.

One example is a roof, many home inspectors or contractors may say it needs to be replaced ASAP when in-fact it can wait another year or three.  As a sole owner, you decide when to make the investment of capital improvements but in a co-op the board or members al large do depending on the organizing document rules.

In addition, in my experience they don't have the same resale value and most cities discourage them because if owners rent units it becomes a nightmare.  The city has to contact some 100 absentee owners instead of one when an issue arises.

[Gary123]

On the income limited - that means it was financed using some type of "affordable" housing scheme or other program for low-income housing.  A common form is federally subsidized loans in exchange for reserving the housing for low-income tenants or owners likely managed by a local housing "authority." 

Check and see if they don't have a covenant that also limits the rent you can charge or the total amount it can be sold for to another person who qualifies for the income limits.  Even if there are no such limits, how can you get a return on your investment if buyers need to be income limited?

Run don't walk from that "opportunity."  In a free market you benefit from real estate appreciation by selling it to anyone who is willing and able to pay you a higher price for the property.  It sounds like your upside would be forever restricted so why would you take the risk?

[mcj]

Thanks for the input.
My goal would not be to use it as an investment property, but to save money on my own housing, but I suppose that's still not a good idea as I would still have to put money down as in a regular purchase (much less than purchase price would be), but also pay a pretty large monthy fee (a little less than half of what market rate rent would be). I still think I would be better off renting and paying ~300/mo or so more without having to worry about the building or maintenance and having the freedom of renting.