Dear PoP – Anyone Familiar with Limited Equity Cooperatives?

“Dear PoP,

Anyone ever heard of a limited equity cooperative? This looks like you “buy” for $6,000.00, pay $750.00 a month, then get your $6,000 back when you “sell?”

The Craigslist ad says:

1489 Newton Street Cooperative

Our Cooperative has 3 one-bedroom units available for sale. We are located in Columbia Heights on Newton Street, NW, between 14th and 16th Streets, just a three blocks from the Columbia Heights Metro Station, around the corner from the new DC USA shopping center.

The buying price is $6000 and the monthly carrying charge is approx $750.

You get the buying price back when you move out and sell your apartment, and the monthly charge covers your proportional share of the building’s expenses.

The apartments are about 650 sq ft., arranged in a suite style, in which the living room and bedroom are in opposing haves of the unit, and the kitchen and bathroom are clustered in between. All units have gas stoves, refrigerators, new carpet, and new paint. The building features a laundry room on site, in the basement.

Sounds pretty cool – anyone ever heard of a deal like this before?

20 Comment

  • Might be an income limit, almost sure of it.

  • I have a friend who bought into one of these. She has liked living there as it feels like a community. But w/ that being said since it is small and has very little money, they do EVERYTHING! They recently went through a whole lot of work to get refinanced and get a management company.

    It’s a deal if you don’t mind that your $6K won’t acrue interest and you won’t ever make money out of your purchase.

    Income limit is usually a factor as Slick mentioned.

    • mca, can you explain the “suite style” aspect. Do all apartments have their own livingroom/kitchens? Or is that all public/shared space?

  • Apartnment with a 6k deposit.. or am I missing something?

    • Yes, but you have the security of ownership for the long term and your monthly costs are significantly less than a similar market-rate rental apartment. I also assume like other co-ops you could decorate/paint or one day renovate if you want (?).

      I’m curious about never getting more than your $6K deposit back. As the building increases in value, who benefits? It seems like nothing is really bought/sold so while the building increases in value I’m not sure any of the tenants would benefit from that.

      • I think this is the point – to insulate the prices from market rates. Interesting model. If at some point the building were sold there are probably by-laws that show each resident owning a share.

  • Where is your equity? You pay 6K, you get 6K back when you sell. Where is your opportunity to earn equity. Am I missing something?

  • Does your 6K at least earn 10 cents in interest each year? (Similar to earning interest on your apartment’s security deposit)

  • Not quite. A limited equity coop limits your equity gains so that people in the future can continue to purchase in the future. Typically there is growth on your money in but limited by the Bylaws. There is actually a pretty decent wiki page on this:

    Bottom line is really that they cannot guarantee your money back to you at $6,000 unless someone else comes in to buy your shares or unless there are sufficient reserves.

    I’m sorry to see that they are trying to do on Craigslist what will in reality take pages and pages to fully explain.

    There should be an opportunity to earn — just limited!

  • I think there is a similar coop near Eastern Market, the Townhomes on Capitol Hill.

    A friend live in these units and loved it. He got first-time home buyer credits and a cheap monthly rent. I think he even earned a little bit of interest on his large deposit. Only downside was that the management company was hard to deal with, but that seems to be the case with most properties in DC.

  • The tenants at the Norwood Apartments in Logan Circle are working on creating a limited equity cooperative. After the tenants association buys the building, with public and private financing, they will rehab the building. The main benefit is that the building stays affordable while being brought up to better standards of living.

    There are many forms of cooperative, some look more like condos (like at the Watergate), some more like rental (as the case with limited-equity). The common theme is shared ownership, which for older buildings can be a good model because of increased maintenance costs. Income requirements will vary from building to building.

  • Is there a downside to this? I mean, I obviously get that the $6000 won’t be earning a ton of equity, but the cheap rent would in some ways make up for that, yes? I’m trying to figure out if I think this would be a good way to save money for potentially making a larger home purchase in a few years…am I just missing something?

    • downside: the co-op fee could go up (but I guess then you can move).

      bigger downside: they usually have income guidelines. You might not qualify.

  • I’d look at it as paying rent of $750 – which is about half the market price for a small one-bedroom apt. in that location, while the $6000 buy-in insures a certain level of quality concerned tenants with a strong stake in maintaining the property.

  • Sounds like a rental with really big security deposit.

    • Yeah, an insanely CHEAP rental with a 6K security deposit. I live in the building exactly opposite this one, on Meridian pl. The buildings look almost identical on the front, so I’m assuming the inside units are pretty similar. Mine is a condo, but we’re renting from the owners at $1650/month for a 1 BR. So if we were paying $750 a month instead, we’d be saving $900 every single month. After 7 months, you’ve made back your $6K deposit and then you continue to pay the cheap rent AND have the possibility of getting your $6K back whenever you leave? Sounds like a pretty great deal actually.

      The only downfall- I could almost guarantee there is a low-income level to be accepted there. We looked into a cooperative type housing set-up in Capitol Hill a few years back and the woman practically laughed at me when I said our dual income was $90K and wondered if we would qualify… you had to make almost nothing to qualify for those units.

  • What would be smart – to get it, pay the 6k deposit at $750 a month.

    Then rent it out to a tenant for say 1300-1400$

  • 1489 Newton is an example of a limited equity, transitional housing cooperative aimed at low-income residents at risk of displacement. Several housing cooperatives like this exist in Columbia Heights, for instance at the 1340 Fairmont St Cooperative.

    Renting out the unit to a tenant is not an option as most limited equity transitional cooperatives require the owner to live on-site. Your initial buy-in and monthly carrying charge can often depend on your income at the time of purchase, but these types of co-ops have income ceilings and the cooperative usually screens applicants to make sure they’re not just wealthy people looking for an opportunity to cash in on below-market rent (although some people can get lucky).

    Limited equity cooperatives tend to limit the rates of return for owners, and the rates of return are not particularly high (usually far less than 10%).

    In addition, the apartments in this particular building are set up suite style, like college dorms.

  • New York City used to have a lot of these — many of them in the Lower East Side. After some period of time, the residents voted to convert them to “normal” housing — and proceeded to enjoy very large windfall profits from selling their units for market rates.

    There’s still a large limited equity co-op in Chelsea — Penn South. For whatever reason, these folks voted a while ago NOT to convert away from limited equity, despite sitting on massive potential gains:

    Be interesting to see whether it survives when it next comes up for a vote in 2022. By that point the potential gains will be gargantuan, assuming nothing bad has happened to Chelsea in the meantime.

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