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Co-ops Financial Statement

When performing your due-diligence prior to making a coop purchase or when the annual board meeting of your co-op is approaching, you get a rather thick document. This is your co-op financial statement. While you may be tempted to dump it in the trash, it is actually a pretty important document. It lets you know where your investment is, and that should be a priority to you, especially with how much money New Yorker's invest in their apartments. If you are looking for a new home, you can use this information to analyze whether or not the co-op would be a sound investment. There are several things that you need to look for.

First, look at the page that shows results for the past two years. There should be two columns, one for this year and one for the previous year. Compare the two columns carefully. If there are any significant changes that you can't explain, this could be a concern.

740 Park Avenue Cooperative
Building Profile: 740 Park Avenue
Next take a look at the profit and loss statement. Obviously, you want to see the co-op make a profit. This means that they have a balanced budget, and income is meeting expenses. If you see a loss, be concerned unless you know of some justification for it. If you see a loss year after year, you definitely need to consider getting some different board members that will balance the budget. Find in the statements the pages that should show assessments. Assessments are used to pay for capital improvements or expenses for which the co-op is unprepared, such as replacing a boiler unit. Try to see what the assessments are being used for, if it is something responsible and necessary. You should also know how long the assessment continues, and if it is to be repaid in a lump sum or in smaller payments.

The next thing you want to look at is the mortgage statements. The size of the mortgage is not necessarily a concern, because the goal is not to pay off the mortgage like with other types of real estate. If that were to happen, current shareholders would be paying for the benefit of future shareholders. But the interest rate and date of maturity is important to note. When looking at the interest rate, take the current economy into consideration. If we are in a low interest economy, you should worry if the mortgage has a high interest rate that cannot be refinanced. You should also know about the maturity date, because this can effect your payments. If the mortgage is about to mature, it could mean legal fees and other expenses related to refinancing. However, refinancing at a lower interest rate could also mean a lowering in your payments. Another thing that is important to note is the reserve fund. The reserve fund is used to pay for capital expenses like a new roof or other improvements that need to be made to the co-op. If the reserve fund is too low, it could mean more assessments down the road. On the other hand, some co-ops use a line of credit to pay for those expenses, so you should take that into consideration.

Finally, you want to look at the footnotes. The footnotes hold some very important information, and should not be skipped over because it is the fine print. Footnotes may tell you some valuable information, such as if the co-op is paying legal fees for some reason. It may also tell you if there is a tax abatement that is going to expire soon, making your payments higher. You'll also learn here whether the real estate and land is owned or leased for the co-op building, and you'll find more details about the mortgage and assessments.

There should, at the last, be a page that describes the person who prepared the financial statements, and whether or not the statements have been audited. It should also state whether or not the real estate documents were audited according to current practices and standards. Smaller co-ops may not have audited statements because they cost more to prepare. Regardless, your treasurer or the accountant who prepared the documents should be available at the annual meeting to answer any questions you may have about the real estate statements.