What is an equity co-op?
A condo, to put it simply, is a unit in a larger building that you own freehold. That is, the little box in the sky is totally yours. As for the rest of the building, everyone who lives in it owns it together. The residents of the building then create a strata board, who manage the shared public areas, the shared maintenance and other collective responsibilities (like the roof, exterior walls, etc). Inside your unit, it’s up to you, but you still need to apply for permission to make major renovations or changes to your unit from the strata board.
Equity co-operatives, a.k.a. market co-ops or just co-ops, work a little differently. Instead of owning your unit freehold, buying into an equity co-op consists of buying shares in a corporation, which then entitles you to live in a unit. The corporation owns the building you live in, and all shareholders are also residents. Much like with a strata corporation, the common areas are the collective responsibility of everyone. The key difference between condos and equity co-ops is that you do not have freehold ownership of your own unit.
“In a co-op, you [buy] shares and then it is managed by a board of directors. So, there's only one title for the building, as opposed to different titles for different units,” explains Mustafa Akhtar, an agent at Blu Realty. “If you were to go to BC Assessment and look at the building, you wouldn't see assessments for each unit. You would see an assessment for the whole building.”
To clarify, we’re not covering non-profit affordability co-ops in this article. These work differently by offering lower housing charges to their residents, usually through public land ownership or subsidies and other means. In contrast, shares in a market co-operative can be bought and sold on the MLS like any other sort of listing.
Why choose a co-op?
With those basics in mind, let’s examine why you might consider co-op living over condos. One of the major reasons people consider co-ops is location. “They're in very well-established neighbourhoods, such as the West End, which has a ton of co-op buildings. Fairview, Kits will also have some, Kerrisdale too,” says Mustafa. Often, these co-ops are situated so that their residences get views of the surrounding areas unavailable to condos built later. This makes them highly desirable.
Co-ops also offer unique architecture and character features not found in strata buildings. “Most of these buildings were built in the fifties and the sixties before the Strata Corporation came into effect. So they tend to be older buildings, [they] tend to be period buildings,” Mustafa says. That means you can find aesthetic touches and design elements that you wouldn't find in a condo in the same area.
Yves and Donna, are a couple specifically looking for a co-op in the West End. They found that the building they chose was not only ideally located for their lifestyle, but offered architectural beauty they couldn’t find elsewhere. “This is right by the ocean… It's just right there,” says Donna. “Plus the history. I'm not going to go into all the history of this building, but this building has a fantastic history. It was built in 1949. It was one of the first apartment buildings, really, even built in this whole area. So there's a huge history around it. [And] I think proportionally, it's very pleasing to the eye.”
Co-ops also pride themselves on community and accountability, with all residents expected to pitch in and contribute. “Co-ops tend to have a very tight-knit community. Just like the name, people want to be there,” Mustafa says. The management board of a co-op is made up of residents, and new residents have to interview with the board before they’re approved to live there. Co-ops tend to rank high in resident satisfaction compared to other housing arrangements because of this community spirit.
Yves and Donna intentionally chose a co-op after trying out condo living and finding themselves disconnected from their neighbours. They also appreciate the fact that residents look out for other residents in their co-op building.
“[It’s] very warm, very welcoming. Also very quick to sort of try to get us involved. Like they hit Yves up to be the treasurer because the [previous] treasurer moved on,” says Donna. “And I've been watering the plants up on the deck. So, I mean, you know, we're doing like our little part. And that's nice because you really meet a lot of people by doing that,” she elaborates further.
They also appreciate the open, honest and transparent process of governance in a co-op. “[The] transparency is really welcome, not only in terms of people seeing each other, but also across the board,” says Yves. He finds that co-op living is more equitable and democratic, as well, saying, “You know what's going on – who's doing what in terms of volunteering, what the expenses are – it all is discussed. Are we really going to spend all that money on this? Well, let's talk about it. And then a vote goes through.”
Equity co-ops can also have unique rules compared to condos. For example, they can mandate all residents be above a certain age. For those currently without children and planning on not having any, this could be an attractive option. Yves and Donna acknowledge this, but find that the rules in their co-op work well for their retired lifestyles.
Since they don’t have children living with them, age limits aren’t a concern for Yves and Donna. “It's always the same predicate that what we want is a place that's relatively quiet, not too noisy, and if somebody says you have the same apartment, counterfactual, and there's a yapping dog and a crying baby, which one are you going to choose?” says Yves. “I'm going to go probably the one that's quiet.”
Funding your purchase of shares in a co-op.
If you decide that co-op living is right for you, you’ll need to find funding for your purchase of shares in a co-operative. Of course, you could hand over cash, but if you don’t have that much cash on hand, what are your options? It turns out that securing a loan for a co-op is a bit different than taking a mortgage out on a condo.
To begin with, while you can turn to any number of public and private lenders to secure a mortgage on a strata condo, there is only one option in BC when you’d like a loan for an equity co-op: Vancity. Traditional banks do not offer loans on equity co-ops. This is for various historical reasons, but this both simplifies and complicates your co-op financing journey.
On the one hand, it’s easy to know where to go when you’d like a loan on a co-op. On the other hand, you’ll have to accept the conditions Vancity offers. Thankfully, the overall process of securing a loan isn’t entirely divorced from standard mortgage financing.
“From a Vancity member's point of view, applying for an equity co-op loan would look pretty much exactly the same as applying for a mortgage. All the same information would be required,” says Ryan Mckinley, a Mortgage Specialist at Vancity. But co-op loans are not technically mortgages, at the end of the day.
Plus, it is important to note that there is an upper limit on how much you can borrow when looking at co-ops. Vancity lets you borrow up to 65% of the first $690,000 property value, and 50% of the remainder to a maximum property value of $943,000. That effectively means your down payment will be 35% of the value of the co-op unit you are considering. Furthermore, currently Vancity only offers fixed-rate loans, not variable-rate loans on co-ops. These specifics may change in the future, as the policies are being reviewed, but for now that’s how they stand.
And remember, you can only apply for loans on equity co-ops incorporated under the Business Corporations Act, not the Cooperative Association Act.
“The one caveat there is that we kind of have a list of co-ops that we've dealt with,” says Ryan. “So if it's a co-op that we haven't dealt with yet, then we will likely need a bit more information from the co-op board. We have a form to fill out – just an information certificate for us to review.”
And with a co-op loan, rather than the property itself being collateral, the physical paper shares themselves are the collateral Vancity will hold, instead of the unit itself, unlike with a condo. “I know it sounds – it's almost quaint, doesn't it? That the security are physical shares, but they are. And so we actually physically hold the shares as security,” says Ryan.
This also has implications if you’re not buying the property yourself but considering helping your child buy a co-op. Ryan notes that you should review this with the co-op board before taking out a loan. While Vancity has no qualms about a parent helping a child buy shares in a co-op, some co-ops may not permit someone who won’t be living in the unit to put their name on the shares.
It is also important to consider that depending on the way a co-op is incorporated, you may or may not qualify for certain policies aimed at first-time buyers, like the property transfer tax (PPT) exemption in BC. In fact, some co-ops may not require payment of PPT at all, while others may still. Likewise, the empty homes tax (EHT) may not apply to you either, allowing you to be out of the province or country for long periods of time.
Overall, getting a loan for shares in a co-op from Vancity will still require everything a mortgage on a strata condo would: proof of income, bank statements, credit checks, etc. But because all co-ops have their own rules, there can be nuances the everyday person would be unfamiliar with. Ryan recommends “having a real estate agent that is aware of the nuances of co-ops, as well as a real estate lawyer or notary that is well-versed, because not all lawyers really know the ins and outs of them. So it's really an important question to ask both your agent and anyone you're going to [use as a] notary.”
And though most people tend to stay in co-ops for a long time, if you are wondering about building equity, Mustafa notes that market co-op shares tend to appreciate like strata condos over the years. “You actually appreciate quite well. It's all market dependent, as well. So prices do fluctuate in co-ops as much as they do in stratas. You would do your regular comparable sales. And usually people will do quite well over the years,” he says.
Co-op living is a unique option for people looking to live a different sort of lifestyle than the one a standard strata condo offers. If you want to live in unique buildings in coveted locations, they could be a great option for you. But before you embark down this path, remember to work with a real estate agent who has experience with co-ops.
