May
27

‘Tis the Season: Many Manhattan Coop Financial Statements Are Released In May

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When you buy a house or a condominium, you are getting real property. When you buy a co-op you are not actually purchasing the physical apartment. You’re buying shares in the cooperative corporation which owns the building in which the apartment is located.  Here’s  more information on coop buying and mortgage process.

Like investing in shares of any corporation you should consider the financial viability of that corporation.  As always, I suggest that before buying any real estate you create your team of trusted advisors which should include a broker, attorney/financial advisor and mortgage banker or broker.

General Principles of a Coop Corporation

  • A coop is a “not for profit” corporation.
  • The coop’s board of directors has a fiduciary responsibility to operate the building in a responsible manner.
  • The coop board of directors generally appoints a managing agent to attend to the day to day operation of the building.
  • Coop corporations, regardless of size, are mandated to publish an annual financial statement that details the nature of their financial affairs. Included in these statements are the following: assets, liabilities, income, expenses

Telltale Signs of a GOOD Building

  • A building that is in obvious good repair and in immaculate condition.
  • A condition where maintenance is commensurate with services and sustains a cash reserve commensurate with the impending need of such a fund.
  • Tax deductibility of maintenance that is under 58%.
  • Cash flow variance within 5% above or below expenses.
  • Assessments dedicated to ongoing capital improvements.
  • A reserve fund equal to two to three months’ maintenance charges.
  • Low or no instance of shareholder or sponsor default.
  • A building that owns their land.
  • A defined land lease escalation as opposed to one based upon an appraisal.
  • An actual income / expense statement that reflects the budget projection.
  • Stable or reduced fixed costs.
  • Exhibits a net loss after calculating depreciation.

Next time we’ll discuss what to look at in a Coop’s Financial Statements.

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