Honolulu’s “Kooky” Cooperatives!
July 15th, 2008 categories: The Market
Honolulu as a type of apartment, which is a throwback to by gone days. Before condominiums, the only way to own an apartment was through the purchase of a cooperative (Co-op). I am told that cooperatives are legally real estate (if leasehold, the lease must be greater than 30 years). Even though they are considered real estate, these apartments can have unusual rules. Before completing the purchase of cooperative, be sure to carefully read all of the documents pertaining to living in the building and the governance of the Association. The following are a few of the more unusual rules that I have run into (note that not every Co-op has all of these rules).
-Units may not be rented for one year after a sale has closed.
-Minimum rental lease terms of 3-6 months or longer.
-A first right of refusal by the association on any units wishing to sell.
-Potential new owners must apply to and be approved by the board of directors (applications may include detailed personal financial information and a copy of the purchase contract).
-Board of Directors that will not allow the purchase of a unit via a 1031 Tax-Deferred Exchange.
- A rule that will allow a unit to be rented for two consecutive years, after which, the unit must then be owner occupied for the next year. If this is done, the unit could then be rented for another two years.
-Very few lenders will make mortgage loans on cooperatives. Therefore, minimum down payments of 25- 30% are required. This down payment requirement limits the market that can afford to buy these units and, in my opinion, places a limit in their potential equity appreciation.
Cooperative units are fine to purchase, just be perfectly clear that they are not condominiums and you may run into more than a few unusual rules.
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