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Evaluating Co-op Financials
There are four important factors in evaluating the financial condition of a co-op:
- The Underlying Building Mortgage
This reflects the indebtedness of the building, which is applied on a per-share basis to each individual unit. For example, if there is a $100,000 mortgage on a 10-unit building and all the apartments hold an equal number of shares, then the debt per each apartment is $10,000. The size of the mortgage is what matters; the smaller the mortgage, the better the building is for the shareholders.
Another factor to consider is when the building mortgage is scheduled for refinancing. Before buying you should ask for the terms of the underlying mortgage. What is the amount of the mortgage? What is the term? Is it a balloon mortgage with the entire principal coming due at one time? What is that date?
If the terms of the mortgage call for full payment in four or five years, the co-op's board of directors will have to secure new financing without assurance that they can get favorable rates. If the building's payments are fixed for an extended period, there is greater certainty that your maintenance payments will not increase and therefore you will probably be able to make your agreed cooperative loan payments. - The Reserve Fund
A co-op's annual operating budget should include adequate provision for ongoing maintenance. However, major capital improvements, unexpected repairs, or replacement of building systems may need to be funded from the building's reserve fund. If the fund is large enough there may be no need for increased maintenance fees, assessments, or new loans. If there is a shortfall, shareholders might have to absorb maintenance increases to cover the cost of the installation or to pay the interest and principal on a loan. Some co-op boards pass on the expense to shareholders through assessments rather than maintenance fee increases. This can take the form of a one-time set amount or can be an addition to the monthly maintenance fee for a period of time or in any manner decided by the board.
In general, the lender looks for a reserve fund that is adequate to cover any major capital improvements. Typically a lender would like to see a reserve fund of at least $1,000 per unit with a minimum of $25,000 per building. - Building Repairs
Check the physical condition of the building. Are there any major repairs that need to be done to the building? This could easily cause the maintenance for the apartments to go up. - Real Estate Taxes
Does the building have any tax abatements that are keeping the real estate taxes artificially low? If so, when does the abatement expire? Has the building been careful about the assessed valuation? - Monthly Maintenance fees
In a co-op, monthly fees cover building services, property maintenance, and real estate taxes.
In general, they should fall within the following ranges:
Studios: $400 to $600, 1 Bedrooms: $500 to $750, 2 Bedrooms: $850 to $1200, 3 Bedrooms: $900 to $1500 Lower maintenance fees are more desirable, but higher fees should not automatically rule out an apartment. Maintenance fees are simply one factor in the value of the apartment.
Typical Closing Costs for Manhattan Co-op Apartments
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* Where applicable ** Flip tax is a term used for the fee a cooperative corporation charges its shareholders when they sell or transfer the shares associated with their unit. *** UCC filing fees are fees paid to the county clerk's office to register ownership of deeds or stock certificates connected to real property.
All information furnished herein is from sources deemed reliable. No representation is made as to the accuracy thereof and it is submitted subject to errors, omissions, and change without notice. We advise parties to transactions to consult their own counsel for verification of these costs.