Understanding Co-op or Condo Financial Statements
Understanding the financial statements of a co-op or condo is crucial when considering a purchase. It can be a daunting task, but with the right knowledge, you can evaluate the financial health and stability of a building effectively. In this guide, we will walk you through the key elements of co-op or condo financial statements and explain their significance.
what is the difference between a co-op and condo ownership?
When you buy a condo, you own the property in title and deed, but owning a co-op means that you own shares in a company that owns the property. The company holds most of the power, and the co-op board dictates most of the policies that you'll have to follow. As a shareholder, you have the right to live in the property based on your shares in the company.
Why Is Understanding Financial Statements Important?
Deciding to buy a co-op is very different than buying a condo or a house. In addition to assessing whether the property is right for you, you must review the financials and the co-op policies to decide whether it's a safe investment. If the co-op is poorly managed, it could go bankrupt, and you could lose your home.
Key elements to look for in co-op financial statements
Here are some key elements to focus on when reviewing co-op financial statements:
Income Statement, Balance Sheet, and Cash Flows: Every co-op should provide you with at least two years of financial statements. This allows you to compare the financials year to year and identify any trends or anomalies.
Reserves: A co-op should always have a reserve fund saved for a rainy day. If a co-op does not have the appropriate amount of reserves saved, it could spell trouble if something breaks and immediate repairs are needed.
Profit: A co-op that runs on a profit means that there is money left over to save in reserve after covering the expenses necessary in a year. Auditor’s Opinion: The auditor’s opinion provides an overall judgment as to the fairness and accuracy of the financial statements.
Operating Results: Operating results show whether your assets are covering your liabilities. You should look at your operating cash and reserve fund accounts on the balance sheet and compare year over year what's going on with these accounts[^25^]. Remember, the financial health of a co-op or condo is just as important as the physical condition of the building. So, take the time to understand the financial statements before making a purchase decision.
Understanding the financial statements of a co-op or condo is crucial when considering a purchase. It can be a daunting task, but with the right knowledge, you can evaluate the financial health and stability of a building effectively. In this guide, we will walk you through the key elements of co-op or condo financial statements and explain their significance.
What's the Difference Between Co-op and Condo Ownership?
When you buy a condo, you own the property in title and deed, but owning a co-op means that you own shares in a company which owns the property. The company holds most of the power, and the co-op board dictates most of the policies that you'll have to follow. As a shareholder, you have the right to live in the property based on your shares in the company[source].
Why Is Understanding Financial Statements Important?
Deciding to buy a co-op is very different than buying a condo or a house. In addition to assessing whether the property is right for you, you also need to review the financials and the co-op policies to decide whether it's a safe investment. If the co-op is poorly managed, it could go bankrupt, and you could lose your home[source].
Key Elements to Look For in Co-op Financial Statements
Here are some key elements to focus on when reviewing co-op financial statements:
Income Statement, Balance Sheet, and Cash Flows: Every co-op should provide you with at least 2 years of financial statements. This allows you to compare the financials year to year and identify any trends or anomalies[source].
Reserves: A co-op should always have a reserve fund saved for a rainy day. If a co-op does not have the appropriate amount of reserves saved, it could spell trouble if something breaks and immediate repairs are needed[source].
Profit: A co-op that runs on a profit means that there is money left over to save in reserve after covering the expenses necessary in a year[source].
Auditor’s Opinion: The auditor’s opinion provides an overall judgment as to the fairness and accuracy of the financial statements[source].
Operating Results: Operating results show whether your assets are covering your liabilities. You should look at your operating cash and reserve fund accounts on the balance sheet and compare year over year what's going on with these accounts.[source].
