Co-Ops – A blast from the past

Like all other unique forms of real estate ownership, Co-Op Housing presents some interesting difficulties for those in the real estate market.

The end of World War II marked the beginning of an acute housing shortage in the United States. Returning servicemen and woman, many of whom had lived with their parents before the war, returned home looking to live independently and to begin raising families. Unfortunately, major cities like Chicago, had little to offer.

The Federal Government recognized the need and opportunity to provide service members with affordable housing while stimulating the building trades. As part of the Serviceman’s Readjustment Act, federally approved builders were given the green light to construct 4-unit apartment style buildings to house veterans and their families. The veterans would obtain a mortgage subsidized by the Veteran’s Administration and enter into an agreement to manage the property.

Ownership of a Co-Op property was originally represented by beneficial interest in a land trust which, like the Co-Op itself, have become far less common over time. Co-Op housing has largely passed out of the hands of veterans, and the Co-Op concept that had worked so well for veterans returning from war has really shown its age.

In Chicago, Co-Op housing is concentrated on the North Side of Chicago, Evanston and Skokie but Co-Op housing can also be found near the University of Chicago and Oak Park. Co-Op housing can seem like an attractive option to frugal home buyers because prices tend to be well below market value for the space, location and amenities.

Unfortunately there are some big tradeoffs. First, Co-Op association rules typically prevent an owner from turning their property into a rental unit. Also, the ownership interest in a Co-Op is considered personal property and not an interest in real estate so lenders are not as willing to provide financing for the purchase of a Co-Op. Because there is no property to foreclose against, lenders feel they have little security in the event the owner cannot make their payments.

For seniors that have the cash to finance the purchase, Co-Ops offer an inexpensive housing option in areas of the Chicagoland area that would otherwise be cost prohibitive. With the cooperation of all of the Co-Op owners, Co-Op housing can be converted into condominiums, a change that typically comes with a large increase in the value of the investment.