You Want to Buy a Condo or a Co-op? Shop like a Lender Would.
If you are in the market for a condo or co-op here’s something you’ve probably never been told before- get a hold of the unit’s financial statements!
The First Commandment of buying a condo or co-op unit are the financial statements. Now, what are the financial statements you ask?
The financial statements are the audited or unaudited balance sheet, income statement and statement of cash flows of a homeowners’ association (HOA) or co-op board. You’re probably thinking “English, please?” In sum, these documents provide a picture of a development’s financial health. This is a key component in the prices of units in a development and, as a result, should be reviewed before making a good faith down payment to ensure you’re making a smart financial investment.
Although there are differences in condo’s and co-op’s, they both have common areas for which unit-owners and unit-occupants share the financial commitment for any maintenance, repair or replacement via the regular payment of HOA dues. HOA dues are a driving force in the development’s financial strength. Let me help break down a little bit about HOA dues.
The common areas that the HOA dues take care of are the maintenance or repair of elevators, lobbies, walkways, pools, etc. The condition of the common areas and the amount of the HOA dues impact how desirable the unit is to purchase and how desirable it is to stay living there.
The revenue from the dues should not only be enough to cover the costs of operating and maintaining the development, but it should also allow for money to be set-aside for a “rainy day”. Budget-shortfalls from unexpected repairs/replacements can force an HOA to not only defer current repairs, but also reduce reserves for future repairs. Any noticeable deterioration in the appearance or operation of the common areas are major red flags and is a clear indication of weak financials.
Reviewing the financial statements will help you to make the best investment in a condominium or co-operative development. If you are shopping for a condo or co-op, come up with a plan with your lender, realtor and attorney to get ahold of the financials and review with care before jumping into anything!