Taking Your Building's Financial Temperature
Is Your Co-op or Condo Financially Healthy?
Co-ops and condos operate in basically the same manner: each unit owner contributes a certain amount of money each month for the purpose of paying the common expenses of running the building. With a co-op, these monthly payments are known as "maintenance" and with a condo the monthly payments are known as "common charges". Depending upon the operating costs of the building and the necessity for repairs, the amount of monthly maintenance or common charges can vary dramatically from building to building. Secondly, co-ops and condos also maintain cash reserves usually known as the "reserve fund" to handle unexpected repairs or anticipated capital improvements such as replacing a roof. As you might have guessed, it would serve your best interests to find a co-op or condo with the lowest possible monthly carrying charges and the highest possible cash reserves. Why?
First of all, low monthly carrying costs make good financial sense. Secondly, high cash reserves allow a co-op or condo to pay for repairs or improvements out of the reserve fund rather than by increasing monthly carrying costs or by imposing special financial assessments on unit owners to pay for all or a portion of the repairs or capital costs. Thirdly, buildings that have low monthly carrying charges and high cash reserves are more attractive to buyers. Finally, in the difficult lending environment we find ourselves in today, when a co-op or condo has inadequate reserves or other financial problems, it may be considerably more difficult to obtain financing in that building.
The mantra of real estate brokers was always “location, location, location”. But today, the mantra of the informed buyer should be “value, value, value.”
For more on judging a co-op or condo’s financial health, see “How to Avoid a Bad Building—Part I.”