Coop Reserve Funds
i know more is always better, but what seems to be an average/decent amount to have in a reserve fund for a small 4 unit coop? thanks!
i know more is always better, but what seems to be an average/decent amount to have in a reserve fund for a small 4 unit coop? thanks!
I’m thinking operating expenses are irrelevant to reserves in a brownstone. Operating expenses should be covered by maintenance. Reserve is for repair projects…so the amount needed depends on how much repair is needed and how the owners decide to pay for stuff…whether via assessment, or by building up reserves through setting maintenance above operating expenses. If they choose the third way, a mortgage, then that would make for a big reserve for many years while they spend it down on repairs.
There is no general rule, as is appropriate for larger buildings…as 4-units are managed only by the owners, and they are free to do whatever they jointly can decide.
Our 40 unit apartment building advised to have a reserve fund equal to 3-5 months of operating expenses. In our building, that’s approx. 50K.
hah, if a small building had a reserve fund that large (like $1 mil) i’d do a buyout of all the units to get at the cash then re-sell them with a smaller reserve.
Operating expenses have risen sharply in recent years. This has hit owners in small buildings harder, as there are fewer shareholders to spread expenses around to. Many have likely reduced reserves spending on repairs without sharply raising the maintenance enough to replenish them. It is a balancing act. It used to be a way to own fairly inexpensively…but not so much now.
Agree $10,000 is more likely. Barely enough even if a building is in good repair. A bit more is nicer. Also, make sure maintenance is high enough to cover yearly operating expenses, and then some. A poorly maintained building should be a red flag. Even if you find it is filled with stingy people or financially-stretched people who want to live without repairs with no thought of resale, and you are also one of these, you may face problems if someone has financial problems or moves and needs to sell if the place is a turn-off to potential buyers – the shareholder who is having trouble selling may stop paying maintenance.
please ignore typos above..hit ‘post’ by mistake.
When buying into a four-unit, you need to compare the existing reserve with the work that needs to be done in the next few years. This is where a good inspector comes in (and why I have never understood buyers who don’t get an inspection.) If it looks like you will be assessed to keep the place in good enough repair for you, you can judge whether you can afford to pay assessments, or else look for a building in better repair.
What is harder to judge is whether others in the building can pay, or are willing to pay even if they are well able to. Though that can be true even when there is a reserve. There are some who have issues and prefer to live with building in disrepair, even with unsafe conditions, rather than vote to spend what reserve there is to fix stuff, or to ever raise the maintenance to do so. What works best if all owners are of the same mind on these things, but that only happens sometimes. Other people are a pain…would you logically buy a building with three people you’d never met? It is a leap of faith that things will work out. Having done it, I’m clear that I won’t do it again.
mopar- it is a completely different dynamic. In a big building, you have way more expenses…managment agent, elevators, staff, cleaning, landscaping, etc. A four unit brownstone coop is like owning a brownstone with three partners (though it can be like with three crazy strangers). And a project or repair, like gettting a new roof, or a parapet repairm costs way more in a big building, involving scaffolding and architects.
In a brownstone coop, you aren’t planning a complete renovation, like a single owner might renovate a brownstone, so there isn’t any need for a huge reserve like the $100,0pp you mention. You just do projects as they are needed, or desired by the owners. If you want to increase the reserve to avoid assessments, you raise the maintenance to do so, or get or refinance a mortgage.
Also, in a big building, the board is managing for the others shareholders, with the assistance of the managing agent they hire. In a four unit, you self-manage, and everybody who wants to be on the board is, and anybody who isn’t still attends board meetings. It is fairly informal management. You decide among youurselves how to raise the funds for repairs you want to do, and sometimes you put them off.
I suppose you could have a luxury four-unit coop who hired a managing agent instead of doing the work themselves, and totally spiffing up the building. But even iif you did so and hired people to do everything like put out the garbage, common area cleaning, and leaf raking, as some self-managed 4-units do, if generally costs less to maintain than a large building. High maintenances is small buildings are generally the result of a large underlying mortgaage…perhaps undertaken to do needed repairs.
I agree with mopar, $20,000 would be great. I’d imagine $10,000 range is more realistic.
we did walk away from coops with puny reserve funds when we were buying but some buildings run with no reserve and just do assessments when big items come up.
Brokelin, doesn’t a small, four-unit coop basically mean a building the size of a rowhouse? When I lived in a coop in a 1930s apartment buildingwe had a reserve fund of $1 million.