What to look for in the coop financials?

this old column of mine will help a little:

http://moneywatch.bnet.com/saving-money/blog/ask-agent/are-my-co-ops-maintenance-charges-fair/589/

ali r.

Also make sure that a substantial majority of your fellow shareholders have sufficient wealth themselves comparative to you.

The operating budget versus revenue, history of maint. increases / assessments, common charges in arrears, size of reserve versus budget (miniumum is 3 months or so), outstanding liabilities - for example are there major improvements that have not been budgeted for....

how do you know if the reserve fund is adequate? i looked at apts at 16 park and the reserve fund in the building is only 118k...isnt that a big red flag?

Depends on how much the budget is. 118K is bad for a large full service building with a multi million budget.. not so for a smaller building with a budget of a few hundred a year.

Its a full service building on park and 35th....64 apts...75% sold....the building has approx $18k loss on p&l per year...with accumulated deficit of approx 8.2 million.....not sure if most buildings generate revenue on a yearly basis or if its common to have a loss with accumulated deficit......?

The accumulated deficit is mostly due to depreciation of the building. It's in the millions for most buildings I've seen.

What's important are the Statement of Income and Expenses and the Statement of Cash Flows, which'll show the Cash and Cash Equivalents at the end of each year. If 16 Park is spending $18K more than it's taking in, year after year, then it needs to jack up its maintenance a bit more.

they jack up mtce by 4% every year.......i think the big issue is that only 118k in reserve......so if something happens....either assessments...mtce increases...etc.to pay it off..but they have a $300k line of credit.....im just wondering for a full service building with 64 units....what should the average reserve be?

At 4% they're coddling themselves and spending down their cash instead of building it up. The costs to run a building have been going up more than that.

Some buildings, though, take the position that shareowners can take care of cash better than the co-op can, so run a low-ish reserve with the understanding that if a big cash drain comes up the co-op can borrow or assess. Doesn't help if you need the money right away, though.

i lived in a coop that had a somewhat low reserve, but had a credit line of $700K. their thinking was that they had a total of reserve of almost a million, counting the credit line. depending on the amount of work that has been done on the building already, the $418K available can be enough or not even close. the financials usually do not go into details of what work is expected to be done within the next year or 2. that info is in the board minutes.

pls explain how to do that, bgrfrank

i called the managing agent...they mentioned no planned work......and some recently finished projects...so unless a catastrophe strikes with a boiler, etc.....its probably ok for now

I don't know that I'd be worried if a building ran a net loss on its P&L.

Remember that you don't want your building to earn money each year, because then you'd have to pay taxes on it.

What I would do is to compare this year's P&L items to last year's to see how much the expenses changed -- that's of interest.

You could also look at income minus operating expenses minus mortgage interest and real estate taxes, and see if that number is positive (which IMHO, it should be).

ali r.
DG Neary Realty