A cooperative is an apartment just like a condominium but owned as personal property rather than real property. With this type of ownership, come some differences. A major caveat is that coops may not be owned as investment properties and rented out to tenants. Most coop corporations will not allow you to rent out your apartment, even if there is severe financial hardship caused by this.

     The reason being is that coops want the highest percentage of units owned and occupied by the same person. The thought behind this is that if you live there you will be more responsible. So, they would rather you sell it then rent it.

     In turn, most lenders will NOT lend on an investment coop. The rare ones that do will typically offer low loan to value-high interest rate loans. I only know of 2 lenders that will do investor coops in the metropolitan area. The rates are 1 to 2 percent higher than owner occupied and they will charge upwards of 2 points in closing costs. Why the high cost? The higher the risk the more you pay. So, think twice about buying investor coops even if the board allows it. If you think you will live in your coop for a few years and then tell the board your “cousin” Ernie is going to stay there a while—they are wise to that too.