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Spring’s Financial Reckoning: 8 Things Those Statements Should Tell You

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Spring is here, which means those financial statements can’t be far behind. Owners complain all the time that they’re left in the dark. So you’d think when they start arriving, everyone would rip them open. like those tulips that burst into bloom.Only lots of residents stuff them back into the brown envelopes they came in, complaining that reading them is like deciphering ancient Greek.

You don’t have to revive a dead language to make sense of the stuff. And what you can’t figure out (after reading this) you should ask your building’s accountant, whose salary you pay, at the annual meeting.

Here are 8 questions that should be answered:

  • Is the building operating in the black? (Look at the line: excess (deficiency) of income over expenses from operations.) Don’t get exercised if the deficit is de minimus because the numbers are in constant flux so on any one day the net could be plus or minus.  But if the shortfall is significant, especially if it’s year over year, you’d better start asking questions because it means the Board is borrowing Peter to pay Paul, which can’t go on indefinitely without real consequences.
  • How much does your building have in cash reserves?  From this total you can derive the average amount per unit.  In this economic environment, assuming it is in the $3,000 range you’re in the safety zone, particularly if most of the building’s capital work already has been done.
  • How is the building’s money invested, and did those investments go South along with the rest of the market?  If your Board is taking undue risks with your money, owners might want to consider adopting a policy limiting the Board to purchase of vehicles that do not put principal at risk.
  • For co-ops: what are the amount and terms of the building’s underlying mortgage, and how much did the collective you pay in interest? Average debt per unit, under $50,000 should mean your building is not over leveraged.
  • How large a percentage of unsold apartments does the sponsor still own? Equally important, is that percent decreasing each year or remaining unchanged. The latter is an indication that vacated apartments are not being sold, a potential problem for which the law now provides a remedy. (See, Legal Roundup.)
  • How much did the building collect in monthly charges and other revenue-raising activities, and how much did it spend to operate the building, and for what? And how do those numbers compare with those of the prior year.
  • Does any expense item stand out like a sore thumb because it’s way higher (or lower) than last year?  Numbers don’t lie, at least they shouldn’t, so whether it’s real estate taxes or plumbing or whatever, you want to know why there’s such a discrepancy, and whether it’s a one-time or recurring occurrence.
  • Is there any rebate expiring in the coming year? This could mean a significant increase in real estate taxes —  for co-op owners passed along as part of maintenance. Buildings can get big offsets from new construction or capital improvements, but they don’t last forever, and when they’re done either your building has to find cash from somewhere to fill the gap — or you’ll be making up the shortfall.

Sorry to rain on your parade.  Happy Spring!

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