Advise Needed - Co-Op

What seems shady about raising the maintenance to meet the increased costs? If they showed a 2 year loss, then they raise the maintenance. The timing is not suspect because they probably just got the taxes from the accountant and found out about the loss. I don't know any coop board that meets monthly. We have a hard time getting everyone to agree on a meeting time 2x/yr.

All that said, there should be some meeting minutes. You should check on the breakdown of the expenses to see what has increased so much. You really can't blame the building if the insurance company has hiked the rates. Gas, water, and electric are all up. Look for a record of capital improvements and see if there is sufficient reserve for major expenses that may be coming up such as roof repair or need for a new boiler.

Also ask yourself what you are bringing to the mix. Are you willing and able to become secretary for the coop and start taking good meeting minutes? Are you skilled enough to be the treasurer? Are you responsible and politic enough to be coop president?

Posted by: guest at May 9, 2008 11:41 AM

Without monthly meeting minutes, you basically have no idea what you're walking into. The tax returns aren't going to tell you much, but have you seen any annual financial statements? Those might help you, particularly the footnotes thereto.

From what to what was the maintenance jacked?

Posted by: guest at May 9, 2008 11:43 AM

Maintenance has been going up everywhere (heat, water, taxes all way up)

And a poorly run co-op isn't the end of the world. But you need to know what the reserve fund looks like and the condition of the building. To that end:

Your lawyer needs to get two-three years of taxes and year end financials.

You need to do an independent inspection to figure out what kind of expenses the building may be facing in upcoming years.

If it all checks out, buy the place and get on the board pronto.

Posted by: guest at May 9, 2008 11:48 AM

It's a corporation. They have to have financial reports in addition to the tax filings. Are you sure they aren't attached to the tax statements?

Posted by: guest at May 9, 2008 12:09 PM

Why did you hire a lawyer that you didn't trust?

Posted by: guest at May 9, 2008 12:15 PM

if they have a huge reserve fund, running at a loss is fine.

do they have 400k in the bank? if so, all your problems are solved!

Posted by: guest at May 9, 2008 12:42 PM

how big a building are we talking about?

Posted by: guest at May 9, 2008 12:43 PM

Are you at all thinking about this from their perspective? If I'd been there since '79 I'd obviously have a very low or no mortgage payment to make. I'd also have a clear commitment to my home and keeping it in good shape. You are coming in with an enormous debt load comparatively. I'd want to be sure you were going to be able to make all your payments. I'd wonder if you were going to be able to handle any assessments necessary for the long-term health of the building. Have you handed over all your financials?

Posted by: guest at May 9, 2008 1:05 PM

With a 40% tax deduction, you are clearly paying off a mortage as well as real estate taxes. You need to know what the mortgage is -- terms, possibility to refi at higher amount to cover possible capital expenditures. What is the policy for capital expenditures -- probably an assessment that none of the others wants to pay either -- which means these things get deferred. With the prospect of $200/bbl oil in a few years, mainteanance will go up. If you are not prepared you should not be buying.

Posted by: guest at May 9, 2008 1:09 PM

Actually, if the coops been in existence since 79 they are probably on their second mortgage. It was probably refi'd at a relatively good rate in the past 5 years and/or they took out some cash to create a healthy reserve.

Your comment that they need to replace the boiler is curious. Is it just old or do they really need to replace it? Who told you that. It definitely does take years to decide to replace a boiler if it is still working and the building is suffering losses.

I also don't understand why you think all apts would pay the same maintenance. They pay according to the number of shares they hold. If you are paying more maintenance than others then you also hold more shares and more power.

Posted by: guest at May 9, 2008 1:24 PM

Questions to ask/things to ask for:

detailed financials and meeting minutes for 2+yrs.

expense contracts in place (do they have a rate locked in for fuel oil? do they have a multiyear insurance plan)

history of building repairs (you need more than 2 year. you need to know when the roof was done, when waterproofing was done, etc).

assessment vs use of maintenance vs use of reserve fund policies.

policies on board and whole coop meetings. policies on how often board is voted in/out.

distribution of shares across the 5 units, mortgage balance on each unit, voting based on 1 unit=1vote or on shares if difft.

You need all this stuff, but don't be so suspicious. In a 5 unit self managed coop things are not oing to be so regimented. If that's what you want this is probably not the place for you.

Posted by: guest at May 9, 2008 1:43 PM

Income can be uneven due to late fees and interest income on the reserve fund.

Posted by: guest at May 9, 2008 1:48 PM

Steve37,

You're right to want to know all of this stuff and although there may not be anything nefarious going on, the fact that they have no meeting minutes, can't provide financials, repair records, etc. should make you wary. When we were in the market we briefly looked at co-ops in Clinton Hill -- for both of the properties we were interested in, the agent handed over a complete book of financials, minutes, repairs etc. upon request, and this was before we bid on either place. Perhaps this is irregular (I don't know), but how can a buyer evaluate a co-op in absence of this information? The health of the building (both financially and mechanically) can make a big difference in your quality of life as well as in resale value, if you ever chose to sell. Not telling you to walk away from this but do as others above have said and make sure you get all the info you need to feel comfortable about this purchase.

Posted by: guest at May 9, 2008 2:14 PM

You need your lawyer explain to you the basic co-op 101 stuff (and give you all the back-up):

When the co-op was converted from rental (or whatever) to co-op, there would have been a whole bunch of legal matter produced resulting in a "book". You need to have a copy of this original book and any amendments that have been made over the years. In it, there will be the original offering plan and you'll see how many shares each apartment was allocated -- maintenance is figured per share and I am 99.9% sure than noone is getting a free rise (there may be a host of other issues, but not this one). Also in the book will the orginal mortgage, building rules, and the proprietary lease to your apartment. You need all this shit. Your lawyer is an absolute zero if he's not getting it from the seller. You need this to sell the place when the time comes. I'm sure it's more a matter of sloppy paperwork than anything, but someone needs to get you a copy of all this.

Regarding the recent financials -- you need to look at the year-end financials from the last 3 years and gauge for yourself how it looks. With that and your inspection and your attorney, you have all the info you need on that end.

And boilers are tricky -- I live in a building with a really old boiler. It's not efficient, but it works and we probably won't change it for a few more years.

Posted by: guest at May 9, 2008 3:31 PM

Find out how long ago any bank loaned them money. Any loans would have to be backed up by sound finances.

Posted by: guest at May 9, 2008 3:36 PM

3:31 if this coop dates back to the 70's likely there was no offering plan book, was not req'd at the time

Posted by: guest at May 9, 2008 3:41 PM

I'd stay away, unless the place is your dream apartment.

I live in a very small, "self-managed" co-op in brooklyn and its a nightmare. We can never get any agreement on ANYTHING, or its one or two folks who try to mandate some BS or other down our throats. Rather than a co-operative, our building is an un-cooperative, because people act with their egos, rather than with a fiduciary responsibility.

I'm guessing there aren't meeting notes because either (a) they are too lazy or (b) someone is shady and doesn't want a record of what they agreed or didn't agree to do.

You should also find out if they have an underlying mortgage, and if so, how much. Find out about tax abatement (if they have it, when will it end), and how the bills are split. And check on the building insurance, to ensure that it is appropriate to over everything in terms of rebuiding costs, sewer backup and flood.

A prior poster raised the question about votes. In our building, and most co-ops, shares are distributed based on the size of the apartment, so its not one apartment, one vote, but rather one apartment, XXX shares based on a number of factors.

Good luck! May the force be with you

Posted by: guest at May 9, 2008 3:42 PM

Get the block and lot # and check the building on ACRIS. That will tell you how many of your fellow shareholders have mortgages or home equity loans and also the building's mortgage; if any of the mortgages were taken out in the past few years (and with the huge drop in rates in 2003-2005 the building *should* have refinanced their mortgage, unless they're about to pay it off). ACRIS will show the total face value of the building's mortgage, as well as the face value of recent sales in the building.

Also get your lawyer to check to see if there has been any litigation about the building (again, only the legal name of the co-op is needed). You can find out a lot of info about the building from public sources, but let me echo the comments above about getting the original offering book (please don't meditate on the prices).

I wouldn't worry about the absence of a hot water tank. Tankless hot water is supposed to burn less fuel, although I don't know about that.

But most of all be prepared to get on the board and start handling all the affairs of the building itself. Any small building you're really doing to have to consider yourself an owner.

Posted by: guest at May 9, 2008 4:00 PM

don't disagree with any of the above. one addendum: try to find out why this place is (seems to be) mismanaged. are your business partners -- that's who the other shareholders are -- just not up to self-management, or are there 'trouble-makers' like 3:42 describes who are causing the problem (perhaps unconsciously)?

Posted by: guest at May 9, 2008 4:01 PM

Our small co-op is in sort of the same boat. Good reserve fund, but heating oil is killing us. We've run a deficit last 2 years and jacked maintenance 15% (to $1 psf). Also, we keep lousy minutes, mostly because there are only 5 of us and we've agreed to do things on consensus/ad-hoc basis. (Except for maint. increases and capital improvements).

I wouldn't be too concerned. If the underlying mort. is as low as you say, and the reserve is around $100k, you should be fine. But, if you're uncomfortable with the lack of info., you should walk away or demand to have your lawyer review a few years' audited financial statements. Those are required and a skilled lawyer can read between the lines to find any red flags.

Posted by: guest at May 9, 2008 4:26 PM

If the reserve fund is 10K, and all the building's debt is 10K, if you paid off the mortgage with the reserve fund you'd have condo financing. Condos function witout reserve funds, after all.

Isn't there a budget prepared by an accountant? co-ops are NY corporations, they have to have at least one annual meeting a year at which financial reports are presented.

Posted by: guest at May 9, 2008 5:41 PM

If the building has only 10,000 mortgaged, where is the 46, 000 that is coming in going to? Heat doesn't cost THAT much. I don't see how the building could be running at a loss. Check ACRIS.

Posted by: guest at May 9, 2008 7:01 PM

Run dude. Only $10k in the bank? What if you need a roof. $10k doesn't cover that. What if the boiler busts? $10k will not cover that.

The building can't be THAT great that you'd still be talking on this blog about it. Get the fuck out of there.

Posted by: guest at May 9, 2008 10:53 PM

Like I said before. Run. If you are a smart business person and you're putting this much thought into it. Get out. Another one will come along.

Posted by: guest at May 10, 2008 12:29 PM

OP, the place is cheap for a "dream place" for a reason. Nobody else wants it.

You can't buy a coop when they don't give you the financials for the building! I don't even see where the debate is on that. You really need to not be so emotional about this. This is your money.

Tell them you love the place but call you when they get their sh*t together and have all the financials to show you. But that you're withdrawing your offer and you won't buy it without that information.

If the seller thinks they can make a deal without doing the work all coop sellers have to do, which is ride the board to make sure all the financials are provided, why on earth do you think it's going to happen? Give the seller financial incentive to get it done by telling them bye, you're walking away with your money.

Posted by: guest at May 10, 2008 3:34 PM

Well it's good you love the place and want to stay there forever because you'll never be able to sell it. Not with financials so bad the building won't even show them to buyers. It's not laziness. That's naive to think that.

Posted by: guest at May 10, 2008 3:57 PM

I'm in contract at a small self-managed co-op in PH. Here's my advice: It seems that your co-op is basically dead-even. 10k in reserve, 10k in debt. It's taking in good money in monthlies (according to your estimated payments x 5), and the base value for the building is likely high (I'm assuming a PS Brownstone here).

That said, you are in the perfect position to close on you apt, get on the board, and make sure things run more smoothly moving forward. It's not like the building is going to go bankrupt or anything.. it's dead even. Start taking those meeting minutes, make smart decisions, push for modest upgrades, and in 2 years any potential buyer will think this is a greatly run building.

Plus, it sounds like you really love the place. The good thing about a small co-op is that you have so much more power to implement change. So, do it. :)

Posted by: guest at May 10, 2008 11:16 PM

I used to be treasurer of an 8-unit coop building in Park Slope, so I understand your concerns. However, what you'll find with small co-ops is that not much is really done by the book unless you've got at least one person (usually the treasurer) with a financial/legal background who is on top of things and wants to run a tight ship. Most of the time, things like minutes are a joke and financial statements get filed very late (not on my watch of course). Also, as far as planning capital improvements, most buildings simply don't plan ahead too far or have a capital budget: When something breaks they fix it, if there is no money in the reserve, they borrow it, if they can't borrow (i.e. refinance or line of credit), then a big assessment is due.

I know it seems like a really haphazard way of doing things, but that's how most small co-ops are run. They are run very very casually by people who are not professionals at it. I'm a finance guy, so when I got in there, I cleaned things up, raised maintenance, and started beefing up the reserve fund. But, some people don't want to see a lot funds tied up in the reserve and want things run more "organically," so I got some resistance.

Different buildings will have different approaches. The thing to keep in mind is that you are not just buying an apartment, you are going into a long-term, inter-dependent business arrangement with a group of people you've never met before. And those 4 owners will change over time, as people sell, move out, and new buyers come in. It is not a stable population (though you have some control once you're in).

By the way, losses are typical on a co-op financial statement. What you need to do is add back any non-cash depreciation and amortization expenses to net income to get at a true representation of cash flow. They should be at least break-even on cash flow. I suggest you show the financials to an accountant or somebody who is used to reading statements (which from the comments above sounds like not a lot of posters on bstoner). Also, have the owner put you in direct contact with the building's treasurer and get a copy of their 2008 budget and capital plan if they have one. This will give you a pretty good feel for the cash flow, maintenance, and potential for future assessments. The more you have contact with people in the building, the better you will get a feel for how things work.

Good luck with your purchase. Do your home work and you should be fine.

Posted by: guest at May 12, 2008 8:35 AM

FYI, to add to the above, my 8-unit building usually had less than $10K in reserve. I would have liked more, and raised maintenance to improve our fund, but my point is that we got by fine. We'd already done most of the major projects, with the only remaining issue being that our boiler was +30 years old. It was working fine, but could go at any moment (though its now pushing 40). A new boiler would be around $10K if I recall correctly, but we figured out that there were ways to finance a new one, especially if we converted to gas.

Anyhow, my point is that for a 5-unit building with no immediate capital improvements required, $10K sounds like plenty. Again, you must take a look at the 2008 budget to truly understand the financial situation.

And please be careful about listening to advice on this board. Verify everything you read with a professional. From what I can tell, there are more than a few trolls that enjoy screwing with people like you and posting advice on matters they know absolutely nothing about.

- anon @8:35am

Posted by: guest at May 12, 2008 8:53 AM

Steve,

Sorry to hear that one fell through. If it helps you feel any better, I can tell you that we had numerous false starts and probably looked at over 100 apts before buying a co-op. Each failed attempt led to a greater understanding of the process, so that once the stars really did align and we saw the perfect deal, we knew what we were doing and could move on it very quickly.

The co-op thing is tough, especially small co-ops. Much more complex IMO than buying a brownstone (I should know because we bought a bstone a few years after the co-op). Which should tell you that living in a co-op can also be complex, especially the politics of getting along with others and getting things done. Some people like it, some don't. Either way, its a way to started with owning something in NYC. If we'd never bought our PS co-op, it would have been much harder to subsequently afford our PS bstone.

Good luck with your search.

- anon @8:35

P.S. A troll is a malicious poster who posts for the sole purpose of either getting a rise out others, starting controversy, and/or deliberately spreading misinformation.

Posted by: guest at May 13, 2008 3:10 PM