Investing in real estate is a great way to make an additional side income. You might consider buying into cooperative housing, often called co-op apartments. Essentially, it’s a building full of apartment units or condominiums, each owned by individual residents. These units are especially popular in large cities like Washington, D.C. and New York, where homes within the city are sparse.
Once you’ve purchased a co-op, you’ll want to fill it with buyers. While you’ll be selling units to autonomous individuals rather than renters, it doesn’t hurt to run a tenant background check free of charge. Whether or not they pay their mortgage is the bank’s problem, but you want to avoid criminal activities or disputes between neighbors as much as possible. You’ll also need co-op insurance. This is an essential component of buying a condo building that landlords should understand fully before taking out a policy.
Co-op insurance meets your unique needs
As the landlord of cooperative housing, you have specific needs that typical property insurance won’t cover. You’ll need insurance on the building and its common areas, as well as liability protection. You might foot the entire bill for this policy yourself or work with the shareholders or condo owners to cover the costs. The latter is more common when you own your own unit with your own condo insurance policy.
Because you own the building itself and the common areas, but you don’t own the individual units, you don’t need coverage of those areas. Co-op insurance is designed to cover only the parts of the building that you own, with certain exclusions to protect you from liability and damages within individual areas.
You’ll take out a master policy
As the building owner, you’ll need a master policy. It covers your investment and provides liability coverage for things like the building exterior, yard, sidewalk, structure, and common areas. As a general rule, master policies include coverage of damage to:
- The exterior structure.
- Basement, roof, elevator, walkways, lobbies, sidewalks, and other common areas.
- Walls, floors, and ceilings of units not owned by a shareholder.
- Parts of individual units such as original fixtures.
It also offers liability coverage to any of these areas in case someone gets hurt while on your property. You might also consider umbrella liability, earthquake, flood, home business, and floater insurance to supplement your policy.
Policies may differ based on location, so co-op insurance in New Jersey will have different stipulations than one taken out in New York. Do thorough research to make sure your policy meets landlord requirements in your state.
You should require condo owners to buy it
Individual condo owners or shareholders should purchase a co-op insurance policy that covers their personal property, structural improvements, additional living expenses, liability, water-related losses, and other damages as stipulated by the policy. They may also take out supplemental coverage like fire or flood insurance. Most condo owners will be required by their lender to purchase co-op insurance for their individual units. However, if a condo owner presents their own cash or alternative funding to finalize the sale of their unit, they may not have such motivations to take out a policy.
As a landlord of cooperative housing, require that shareholders purchase co-op insurance before moving into the apartment. This protects both you and the other co-op members from damages and liabilities. Unless you’ve been through the process of co-op landlording before, you probably have a lot of questions about co-op insurance. You’ll learn as you go, but it’s a good idea to call around and get quotes from insurance holders to compare and contrast prices. You can ask the agents providing the quotes any questions regarding your policy.
You might also network with other cooperative housing landlords. They’ve been around the block before and will have tips and insights to help you successfully navigate the process.
