Coop Financials - Negative Net Worth

Many or most co-ops have negative book value due to accounting depreciation of the land/building.

Most people focus on cash flow measures - do they make a little money on a cash basis (before depreciation) each year. Assuming they do, are the expenses as shown (since they look backward) a reasonable basis for future ones (i.e. will there be a jump in expenses for facade work or labor or mortgage interest).

Then you look at cash on hand to see what the old owner is leaving you in case there are unforeseen expenses.

Simple. They can raise those money from existing share holder, or prospective share holders like you.

they boosted sec 179 bonus dep as well.. land/building is straight line dep at 27.5 years, property ie boilers/ac systems/etc usually qualify for macrs and/or bonus.. hence most co/op retained earnings are negative..

a good CPA (i find re lawyers generally don't understand books vs tax concepts) can explain this.. as always cash (reserves) is king

Right, the accumulated deficit due to depreciation of the building (land isn't depreciated) can be ignored.

Look at the statement of cash flow to be sure that operations are funded from income, and improvements are funded from the reserves. I.e., maintenance is sufficient to run the building without dipping into reserves.

Then look at reserves and mortgage as they impact the shares you're thinking of buying.

E.g., take http://streeteasy.com/nyc/sale/634547-coop-41-central-park-west-lincoln-square-new-york. The co-op's 2008-2010 financials are at http://97.74.35.99/1w64amendments%2024-26.pdf

That apartment carries 966 shares of the 46,977, so think of all the numbers in terms of your 2%.

At the end of 2010, the co-op had a $7M mortgage and a $2M reserve fund, so $140K and $40K. Those are trivial numbers relative to the $6.2M you're paying for the shares, but here's what they tell you:

1. You're really paying $6.3M ($6.2M + $0.14M - $0.04M)

2. The co-op can finish paying for ongoing projects (here, new elevators) and any unexpected disaster without any annoying assessments.

3. If the apocalypse comes and the co-op can't re-fi its mortgage in 2017, then your share won't kill you.