Limited Equity Cooperative Frequently Asked Questions (FAQs)
What is a Limited Equity Housing cooperative?
A housing cooperative is a legal entity where residents jointly own and democratically manage a residential property. A Limited Equity Housing Cooperative means that part of the equity is owned by individual residents and the remainder is owned by the cooperative as a whole. This ensures that the homes remain permanently affordable to future residents.
Benefits of Limited Equity Cooperative Housing include
• Housing security and stability
• Democratic decision making by the resident-owners about monthly housing cost, investments in the building, and policies
• Maintenance-free living arrangement
• Ability to gain equity
• Tax benefits
• Ability to live among peers and grow community and mutual support
• Social and recreational amenities
• Cap on equity intended to preserve affordability for future residents
COMPARISON OF BENEFITS OF DIFFERENT HOUSING OWNERSHIP MODELS
What is a Limited Equity Housing cooperative?
A housing cooperative is a legal entity where residents jointly own and democratically manage a residential property. A Limited Equity Housing Cooperative means that part of the equity is owned by individual residents and the remainder is owned by the cooperative as a whole. This ensures that the homes remain permanently affordable to future residents.
Benefits of Limited Equity Cooperative Housing include
• Housing security and stability
• Democratic decision making by the resident-owners about monthly housing cost, investments in the building, and policies
• Maintenance-free living arrangement
• Ability to gain equity
• Tax benefits
• Ability to live among peers and grow community and mutual support
• Social and recreational amenities
• Cap on equity intended to preserve affordability for future residents
COMPARISON OF BENEFITS OF DIFFERENT HOUSING OWNERSHIP MODELS
Will I have my own apartment or townhome?
Yes, each resident household has their own apartment or townhome.
Why should I buy into a cooperative instead of renting?
When you buy into a cooperative, you are a partial owner of the housing development. You get to participate democratically in the management of your housing, you have long-term stability, and your monthly expenses only pay for the actual expenses of the building—there is no outside landlord earning a profit.
Why should I buy into a cooperative instead of buying my own home?
Some co-op residents who could afford to buy a home choose to live in a co-op to be closer to their work and community, to put money into other investments, to live in a place where they can know their neighbors, and to support a more just economic system. Cooperative homeownership can be a more affordable and accessible way to own your home, especially given the high cost of homeownership in Portland. Co-op owners need to put down much less money up-front than a traditional downpayment and households with poor credit who wouldn’t qualify for a mortgage can still become owners. Additionally, some residents may use their experience as a co-op owner as a stepping stone for future individual homeownership.
Can I live in the Housing Co-op permanently?
Yes! We are creating intergenerational living and by having a diversity of housing sizes we hope that people will stay in the co-op and change housing as their family changes. Co-op ownership gives greater flexibility for people to move to different units.
Will I have to attend meetings all the time to be a member of the co-op?
Co-op members elect a board of directors that represent them. The whole membership may meet a few times a year (and at least once a year) to make major decisions and to elect board members. The Board would meet regularly to make decisions and oversee management of the co-op. The Co-op could hire outside property management or do its own property management. Members may also join committees that support different aspects of community living (such as Maintenance, Gardens, Policies etc.)
How much does it cost?
We are still figuring the specifics, but our current estimates for Douglass and Lambert projects are for residents to pay an up-front share price ranging from $5,000 to $30,000 and a monthly amount including utilities ranging from roughly $1,000 to $2,500. Units would be priced based on the size of the unit, the income of the household, and how many people are in that household.
By state law, the expenses of all the homes must be affordable to households making 100% of the Area Median Income (AMI) for Cumberland County, which is adjusted each year and is currently $70,000 for one person and $100,000 for a four person household. Ideally, each development will be able to have a mix of affordability by providing homes for amounts less than the 100% AMI limit. Barring any other restrictions from the City or other funding sources, the co-op may decide to change the mix over time to accommodate its goals of affordability and financial solvency.
Will my monthly payment change over time?
Monthly payments to operate a unit will adjust each year according to the co-op's operating needs, including debt service, taxes, and inflation. Unlike a rental, where a landlord makes the decisions about how much rent they will charge and can inflate those rents any year, in a co-op the resident-owners and the Board make decisions together about any increases to monthly payments based on the actual expenses of the co-op. The co-op is required by law to keep monthly payments to a level that are affordable to households making 100% of the Area Median Income.
What happens if someone’s income changes after they get a given unit?
The Lambert/Douglass Street Co-ops are set up so that the income band for a given unit is set when a household first moves in. Over time the monthly amount may go up or down somewhat as the co-op board incurs expenses or pays off its mortgage. The household must still pay the assigned rent for their unit, no matter the changes to their income.
What happens if someone defaults on their rent?
By-laws and lease define the course of action for unpaid rent. The Co-op will have its own accountability process for people who are unable to pay rent, which could include payment plans, rent forgiveness, etc. The Co-op does have the authority to terminate a person's membership and pursue eviction actions.
What happens if there is an expensive unintended expense?
The Co-op budgets for unintended expenses through an annual operating contingency, and regularly funded capital and operating reserves. If the budget cannot support such an expense, the coop will either need to borrow money for it or charge a special assessment to members (depending on who benefits from the improvement and whether the expense was caused by someone in particular).
Can someone borrow against the equity they own?
State statute provides that a member's share is real interest that banks may lend against, similar to other forms of collateral for debt. The Co-op specifies in its bylaws what to do if a member defaults on a loan and a bank obtains a member's share.
What is a TIF? Will our monthly payment go up when the TIF ends?
Maine allows municipalities to create Affordable Housing Tax Increment FInancing (AHTIF) districts to encourage the development of affordable housing. The AHTIF allows 75% of the new tax revenue to stay with the Co-op to help keep it affordable to households of diverse incomes and protects the City from having to share the non-collected tax revenue with other municipalities. Part of the primary mortgage for the Co-op is timed to end when the AHTIF ends so that there will be no significant change in monthly costs.
Isn’t earning equity in real estate essential to becoming middle class?
Many Co-op residents may never be able own their own home, or would buy in a location far from their work and community. The system that boosted homeownership after WW-II created wealth for property owners but higher rents and fewer affordable purchase opportunities for everyone else. Limited Equity Co-ops provides a lower equity return on housing investment in exchange for permanently affordable mixed income housing. Residents still earn equity in addition to experiencing the other benefits of owning real estate, such as housing stability, decision making power, and improving their credit and financial stability.
Yes, each resident household has their own apartment or townhome.
Why should I buy into a cooperative instead of renting?
When you buy into a cooperative, you are a partial owner of the housing development. You get to participate democratically in the management of your housing, you have long-term stability, and your monthly expenses only pay for the actual expenses of the building—there is no outside landlord earning a profit.
Why should I buy into a cooperative instead of buying my own home?
Some co-op residents who could afford to buy a home choose to live in a co-op to be closer to their work and community, to put money into other investments, to live in a place where they can know their neighbors, and to support a more just economic system. Cooperative homeownership can be a more affordable and accessible way to own your home, especially given the high cost of homeownership in Portland. Co-op owners need to put down much less money up-front than a traditional downpayment and households with poor credit who wouldn’t qualify for a mortgage can still become owners. Additionally, some residents may use their experience as a co-op owner as a stepping stone for future individual homeownership.
Can I live in the Housing Co-op permanently?
Yes! We are creating intergenerational living and by having a diversity of housing sizes we hope that people will stay in the co-op and change housing as their family changes. Co-op ownership gives greater flexibility for people to move to different units.
Will I have to attend meetings all the time to be a member of the co-op?
Co-op members elect a board of directors that represent them. The whole membership may meet a few times a year (and at least once a year) to make major decisions and to elect board members. The Board would meet regularly to make decisions and oversee management of the co-op. The Co-op could hire outside property management or do its own property management. Members may also join committees that support different aspects of community living (such as Maintenance, Gardens, Policies etc.)
How much does it cost?
We are still figuring the specifics, but our current estimates for Douglass and Lambert projects are for residents to pay an up-front share price ranging from $5,000 to $30,000 and a monthly amount including utilities ranging from roughly $1,000 to $2,500. Units would be priced based on the size of the unit, the income of the household, and how many people are in that household.
By state law, the expenses of all the homes must be affordable to households making 100% of the Area Median Income (AMI) for Cumberland County, which is adjusted each year and is currently $70,000 for one person and $100,000 for a four person household. Ideally, each development will be able to have a mix of affordability by providing homes for amounts less than the 100% AMI limit. Barring any other restrictions from the City or other funding sources, the co-op may decide to change the mix over time to accommodate its goals of affordability and financial solvency.
Will my monthly payment change over time?
Monthly payments to operate a unit will adjust each year according to the co-op's operating needs, including debt service, taxes, and inflation. Unlike a rental, where a landlord makes the decisions about how much rent they will charge and can inflate those rents any year, in a co-op the resident-owners and the Board make decisions together about any increases to monthly payments based on the actual expenses of the co-op. The co-op is required by law to keep monthly payments to a level that are affordable to households making 100% of the Area Median Income.
What happens if someone’s income changes after they get a given unit?
The Lambert/Douglass Street Co-ops are set up so that the income band for a given unit is set when a household first moves in. Over time the monthly amount may go up or down somewhat as the co-op board incurs expenses or pays off its mortgage. The household must still pay the assigned rent for their unit, no matter the changes to their income.
What happens if someone defaults on their rent?
By-laws and lease define the course of action for unpaid rent. The Co-op will have its own accountability process for people who are unable to pay rent, which could include payment plans, rent forgiveness, etc. The Co-op does have the authority to terminate a person's membership and pursue eviction actions.
What happens if there is an expensive unintended expense?
The Co-op budgets for unintended expenses through an annual operating contingency, and regularly funded capital and operating reserves. If the budget cannot support such an expense, the coop will either need to borrow money for it or charge a special assessment to members (depending on who benefits from the improvement and whether the expense was caused by someone in particular).
Can someone borrow against the equity they own?
State statute provides that a member's share is real interest that banks may lend against, similar to other forms of collateral for debt. The Co-op specifies in its bylaws what to do if a member defaults on a loan and a bank obtains a member's share.
What is a TIF? Will our monthly payment go up when the TIF ends?
Maine allows municipalities to create Affordable Housing Tax Increment FInancing (AHTIF) districts to encourage the development of affordable housing. The AHTIF allows 75% of the new tax revenue to stay with the Co-op to help keep it affordable to households of diverse incomes and protects the City from having to share the non-collected tax revenue with other municipalities. Part of the primary mortgage for the Co-op is timed to end when the AHTIF ends so that there will be no significant change in monthly costs.
Isn’t earning equity in real estate essential to becoming middle class?
Many Co-op residents may never be able own their own home, or would buy in a location far from their work and community. The system that boosted homeownership after WW-II created wealth for property owners but higher rents and fewer affordable purchase opportunities for everyone else. Limited Equity Co-ops provides a lower equity return on housing investment in exchange for permanently affordable mixed income housing. Residents still earn equity in addition to experiencing the other benefits of owning real estate, such as housing stability, decision making power, and improving their credit and financial stability.