How to Read Financials

Look at the last three years. Look at unusual changes and compare to peers. See the accompanying board minutes and the reserve fund. Your lawyer may be able to help with more.

As Riversider said, check at least 2 to 3 years and your lawyer should have enough experience reading the financial to advice you on it. When I tried to buy a coop last year, my lawyer called me asking if I really really really want that apartment since he had GREAT concern about the financial of the coop. Here are some general items to check for red flags... (1) Make sure the financial had been Audit by a CPA firm and not just put together by the management company and/or the board. (2) Check the income of the building as well as the expense of the building, make sure its expense doesn't exceed the income as a trend. Most coop will not be making a lot of money since it is a corporation and must pay taxes. (3) Make sure the coop reserve has a healthy balance so it can withstand unexpected expenses. (4)Most of the coop carries a mortgage or uses the line of credit, make sure it is not excessive and check that it is not a balloon mortgage. (5) You may not be able to view the board meeting minutes, but your lawyer can. Check to see if they had completed any major renovations for the building (which is good) or they have many improvement projects coming up in the near future, which means assessment to each apartment according to the # of share, on top of the existing maintenance charges. (6) Review the % increase of the maintenance in the past few years and compared it with other buildings in the same neighborhood; this also give you the trend if the building reserve is healthy or not.

Good luck.

Great advice so far. But you want to make sure an attorney who is familiar with coops reviews the financials. Most coops already released their 2009 financials so you want to make you look at that. If its not out yet id ask when its coming out and see if there is at least a 2009 budget. Banks ask for a copy of the most recent budget as well. If the banks care about what the coop is budgeting then you should too. Afterall, they want to make sure there isn't any big risks. Although many coops don't release their budget. Banks have to review the financials as well so you may want to hear their take. sunny.hong@bankofamerica.com

lawsuits anticipated or pending is important too--do minutes indicate any problem tenants--tenants who might have noise/hygiene issues or those that go in arrears--beware lawyers who are in arrears

that you would ask such basic questions says you need a good lawyer

Thanks for your advice. I am concerned that there have have been two years of losses. My old co-op had losses every year too so I'm not sure it it's common.

i would expect the coop to break even or run at a slight loss in $ terms. the only time you have a profit is when the reserve is insufficient and the board is trying to raise it. also consider that there is depreciation that is put into the expenses that actually does not "cost" the building.

Your broker should be able to walk you through these. I wouldn't worry about a small loss, because it's probably being run for tax reasons, but you should check the co-ops current ratio -- the ratio of current assets to current liabilities -- that will let you know how the building is managing its cash flow and if it has enough cash in the short term.

ali r.
DG Neary Realty