Avoid landlords: form a coop
From LothWiki
This article is taken form the Free For All, August 6, 1980
(FFA) - - Landlords are scum. They prey on your insecurities, your wallet, and your rights. Not mine, though. I'm a member of an equity co-op, and we own our own house. You can, too. It's not hard, but it does take some time to pull it off. Your alternatives, however, are few: Either buy a house all by yourself, or keep searching for a good landlord. The former is an obscene waste of resources (yours and the earth's); the latter is an absurd contradiction in terms. The only good landlord is a dead landlord.
So, you ask, what's the difference between buying a house jointly with some friends and doing it co-operatively? The difference is small - - a corporate name versus individuals' names on all the legal documents - - but the ramifications are immense Your co-op house is not individually or even fractionally yours. It's the co-op's. Your rights to the property derive through your membership in it. You are not an owner, but you are both landlord and tenant. My god, that's socialism.
There are three main flavors of co-op: full-equity, limited-equity, and non-equity. Members' equity is the amount of ownership interest the co-op bestows upon the members. As the co-op bestows upon the members. As the co-op slowly pays off its financial obligations on the house, it begins, bit by bit, to own the property. It can divvy up this accrued investment (equity) as it wishes, cutting itself in for all of it (members' limited-equity), none of it (members' full-equity), or somewhere in between (members' limited-equity). You are the co-op, so you decide.
There are four principal tasks involved in setting up a co-p house: (1) Incorporating; (2) Finding members; (3) Finding money; (4) Finding a house. Legal affairs will proceed more cleanly if you incorporate early. You need at least five people, however, to form a co-op corporation. if you find all your members first you'll have the best idea of what kind of house you want and what your total resources are. Unfortunately, few groups larger than two can agree upon common times to meet, not to mention quick, expensive decisions.
Here' a little more on each of the tasks:
(1) Incorporating
Co-ops are a unique breed of corporation. They have played a leading role in the progressive tradition of this state for over 50 yours. Our state laws, chapter 185 in particular, make them easy to set up. To be a co-op you must file articles of incorporation with the secretary of state. It costs $30. A copy must also be filed with the county Register of Deeds for $2 plus $1 per additional page. Your articles need the notarized signatures of five initial incorporators.
Articles of incorporation set out your basic corporate structure: the kind of business you do and where you do it, whether stock is issued, provisions for officers and directors, and how the document may be amended. If you've never written articles of incorporation, you can get a nifty starter kit from Francis Hauge at the Department of Agriculture on Badger Rd, Visit the Madison Community Co-op (MCC), 254 W. Gilman, and independent housing co-ops. Peruse their articles for ideas. Don't white articles frivolously - - there will be a lot of money riding on them.
Articles of incorporation are not by-laws. Your corporate by_laws will spell out your internal process: membership requirements, making decisions, and equity arrangements. There is no legal requirement for co-ops to have by-laws, but they are very important. If push comes to shove in your house, the by-laws, are the referee.
(2) Finding membership
The people who become members of your co-op ought to be at least sympathetic with its goals. A unique advantage of living in a co-op, a structure which facilitates membership turnover while it remains rooted in the community, is the opportunity to interact intensively with different people. If you all decide to trust each other, many of the particulars of your internal workings will become refreshingly irrelevant. The co-op will work. Life will be more pleasant if you also like the people you decide to live with, but it is only necessary that you trust them.
(3) Finding money
in order to buy a house, you usually need 20% of the purchase price up front in cash. This will probably be between $6,000 and $10,000 or for a group of six people, about $1,000 to $2,000 apiece. If you don't have your equal share of the initial expenses lying around, you may have to borrow from friends and relations, sell that disgustingly wasteful car/stereo/furniture, or live like a spartan for a year. It may take a year to find the house you want anyway.
It often happens, however, that one or two of the members has a sizable stash to put toward the purchase. The co-op then has several options. Two are (a) issue bonds to these members, that is, borrow the money at agreed-on terms; or (b) sell them preferred stock, pieces of paper that co-op decide to sell the house or refinance it heavily at some future date, since the stock will be worthless until the investment is recouped.
Well, now all you have to do is find the other 80%. That's what banks are for. unfortunately, banks tend to look askance at legal figments like you co-op which don't have sizable, seizable assets. It's worth a try, though. Bankers are quite an experience. Another tack is to get the seller to finance you for a while, say five to 10 yours, before paying the balance due. You may not have built up that much equity at the end of that period, but the property should hove greatly appreciated in value. The proportion of the increased value which you still owe may be small enough to merit conventional financing. If the world ends before the balloon payment (that's what it's called) is due, you won't have to worry about it. This kind of deal is called a land contract. Getting one for under three yours is risky while 10 or more is a coup.
(4) Find a house
Buying a house is easy and fun. But for some strange reason, the concept strikes terror in the hearts of many fine, progressive people. The difference between buying a house, a car, or a pizza, is only one of degree. You ca buy anything in this country. This is America. Of course, to do it well you have to practice.
So, check the want ads. Visit a real estate broker and get chauffeured around. Get a feel for the market. If you see something you like, the city thinks it's worth. Call the utilities to find out what the bills have been. Draw up a budget. Then make a ridiculously low offer. You'll get a lot of practice, and you might get the deal of the year.
Look closely at the house construction, the utility systems, the grounds, the roof. Bring a flashlight and check dark crannies and floor joists for rot. Turn on all the water on one floor and see how much the pressure drops. Kick the tires. Check that the zoning is acceptable, bus route nearby if desired. Of course, the house will not pass all your tests. If it much more important that rooms and common spaces be of adequate size, number and design, and that the plaster be intact. You can do something about the latte, (Remember to budget enough money to do it though.)
It's cheaper all around to deal directly with the seller, but most properties are listed by real estate brokers. A broker will tell you what the property is listed for, but that doesn't mean you have to offer that much. If the broker won't write up the exact offer you want to submit, find another. Most brokers are members of the Multiple Listing Service (MLS), an inter-broker classified service which is updated weekly. Find one who lets you flip through the book.
Submitting "earnest money" with real of thumb is 1% of the total offer, but a couple of c-notes are usually enough to say you're serious, even if you're not. Money talks. If the offer is rejected, or falls through for reasons other than your reneging, of falls through for reasons other than your reneging, the earnest money will be returned.
If the seller agrees to your offer, you are obligated to pay the rest (purchase price minus earnest money). Now, financing a house is an iffy proposition, so offer routinely have a "contingencies" section, especially for financing. You should be vary specific about exactly how much you'll need at what rate for financing. You should be vary specific about exactly how much you'll need at what rate for how long. Be vary strict. You can always waive a contingency, but it is your one "out" if anything goes awry. You can stick in contingencies about zoning, removal of garage. Be creative. If the seller does not share your sense of humor, the offer will be returned, with your earnest money, and you haven't lost a dime. But maybe you'll get back a counter-offer. Bingo, you're in the suk in Damascus. Haggle like hell.
A note on real estate brokers; They are mortals who have passed a state exam. Members of MLS - - Realtors - - are brokers who paid a lot of money to the Board of Realtors and promised to be nice people. If you're serious about buying or selling other people's investigate an exciting career in real estate. Call the state Real Estate Examining Board for details. Most brokers are sleazy, so your enlightened services would be in some demand. Buying and selling brokers split a 7% commission.
Well, that should get you started. This whole process will demand much of your time, most of your money, and interminable hassles with greedy, narrow minded conservatives. You'll swear you're striking a deal with the devil itself. Indeed, for a large building the seller will probably be a landlord - - a slimy house pimp. Come the revolution, such absentee property will be righteously confiscated in the name of the people. But for now you'll just have to buy it.
- - F.W. Zaniah
(F.W. Zaniah has been active in the Madison co-op movement since, 1970, and two years before that in Ann Arbor. He co-founded four co-op houses right here in River City and ran MCC, though rather ineptly, in 1975 and 1976. A comprehensive how-to manual for starting co-ops will be available through MCC as soon as he writes it.)
