Question about senior apartment co-ops

[Hamlet]

My grandmother is planning to sell her house and is considering moving into a 55+ apartment co-op. I'm not very familiar with the terms of these things, but it sounded strange to me.

She would pay $70k upfront to buy "shares" of the co-op. She would then pay $1100/month for a very nice two bedroom apartment. If she wanted to move out later, she would get the $70k back assuming that someone down the road wanted to purchase her shares.

This isn't an assisted living facility. From her description, it just sounds like a nice apartment. I'm not clear on what she is getting for her $70k. I'm not clear on how it is different from paying someone $70k for the right to rent an apartment (which doesn't make sense to me).

Is anyone familiar with a similiar type of senior co-op? Am I missing something big here?

FYI, my uncle and his wife are local to her, and are helping her with this stuff, so she isn't without people looking out for her interests.

 

[MichaelB]

This is a common option for senior living. You / she needs to read the fine print to make sure the money is returned, but it is effectively an interest free loan to the association.

One thing she might want to do is look for a senior living facility has an option for assisted living. That way, if she does need some assistance done the road she doesn't have to relocate.

 

[Brat]

Actually the $70T represents the co-op's capital in the facility, a nice two bedroom apartment would cost at least $70T to construct.

The "rent" is her share of the co-op's expenses which typically include property taxes, maintenance and utilities. She needs to review their reserve study, and Board of Directors correspondence and minutes for the last couple years to make sure that they have managed the facility well. Also make sure that it is actually managed as a co-op where the residents own the shares.

She is lucky that the co-op will buy her out when she wants to move. In my co-op the shares are owned by the shareholder who must sell them as a form of real estate. Our apartments sell for much more than $70T but then we are in an expensive neighborhood, have huge secure storage rooms and parking spots large enough to accommodate a 1960s Caddy.

 

[braumeister]

Here's another thing to watch for regarding co-ops.
My parents lived in a nice co-op apartment in NYC for many years. The problem came when they wanted to move out. The rules were that you could only sell to someone who was approved by the co-op's board, who held private votes on approvals and were accountable to no one.

So you lined up a potential buyer, then they had to submit an application with all sorts of personal information to the board, who took several weeks before giving a thumbs up or down on the sale, no reasons provided.

My understanding is that this arrangement is still pretty common in NYC co-ops. I don't know if it exists elsewhere, but it's worth looking into. As MichaelB said, the important thing is to read the fine print -- all of it.

 

[haha]

My understanding is that this arrangement is still pretty common in NYC co-ops. I don't know if it exists elsewhere, but it's worth looking into. As MichaelB said, the important thing is to read the fine print -- all of it.

It exists here in Seattle, but I think it generally is applied leniently. Remember that former president Richard Nixon was famously turned down by some well known NYC co-op?

Ha

 

[RunningBum]

My parents just moved into this kind of place. While it's not assisted living, they do have some dining options and activities as well as other common areas, and there also is a weekly van trip for groceries and other events. so far they really like it.

When they looked at other senior places without the buy-in, the monthly charge was a lot higher. Just getting an apartment could've meant a rotating set of college kids as neighbors. The downside to this place is that there is no assisted living transition. But they didn't see any they liked that had this, so I guess they'll deal with that when the time comes. For a solo person this is easier as it's just a move, but for a couple it'd be nice to remain in the same facility.

When they sell (or we sell when they die), they get the current rate set by the board, which should be more than the $100K they put in. It's a little odd that the board sets the price rather than letting the market decide, but maybe there are reasons I haven't thought of for this, perhaps even just equality among the owners and no feeling that anyone was taken advantage of.

 

[FANOFJESUS]

Hamlet we have co op's in out town. They are around 10k to buy in but the payment or rent is less than renting other places. I don't know what town you live in but check the local rents and see if this is a good idea.

 

[Brat]

The reason that the board sets the price is that they are guaranteeing the re-payment. Our board does not buy out stockholders so one issue we have in our co-op is that no one lends on co-op shares, all sales must be for cash. A co-op that buys out the investment is taking the real estate market risk.

 

[Hamlet]

Yes, I think I was looking at it from my perspective, rather than someone in her position.

I would just rent an apartment, but as you said, the neighbors are less likely to be on her same page that way.

I thought that the $1100/month seemed high for her town, but I haven't seen the place or looked at the market. I'm also comparing it to regular apartments, which isn't apples to apples. It also may be worth paying more for some of the extra amenities you mentioned.

I mostly just wanted to confirm that this is a reasonable type of product, and not something fishy. It sounds like there isn't any reason to suspect that it will be a problem.

I'm confident that my uncle and his wife will help with regular due diligence.

Thanks!

My parents just moved into this kind of place. While it's not assisted living, they do have some dining options and activities as well as other common areas, and there also is a weekly van trip for groceries and other events. so far they really like it.

When they looked at other senior places without the buy-in, the monthly charge was a lot higher. Just getting an apartment could've meant a rotating set of college kids as neighbors. The downside to this place is that there is no assisted living transition. But they didn't see any they liked that had this, so I guess they'll deal with that when the time comes. For a solo person this is easier as it's just a move, but for a couple it'd be nice to remain in the same facility.

When they sell (or we sell when they die), they get the current rate set by the board, which should be more than the $100K they put in. It's a little odd that the board sets the price rather than letting the market decide, but maybe there are reasons I haven't thought of for this, perhaps even just equality among the owners and no feeling that anyone was taken advantage of.