Building Financials Checklist
Audited Financial Statements
Larger buildings should always include fully audited financials
Smaller buildings (10 units or less) may not spend the money on an audit so their CPA will be responsible for preparing the statements
Fair Representation: "Clean" Audit Opinion
Simple statement should appear before any numbers and calculations
States that the financial position and cash flows are fairly presented
Has it significantly changed from previous years?
Compare it to the building's monthly expenses. It should be able to cover a month's expenses and still have a substantial amount as a reserve fund.
You as an owner (and your neighbors) owe this amount to the building in the form of common charges (condos) or maintenance (co-ops).
Amount the building owes for taxes, employees, etc.
This is the mortgage of the building, not the mortgage you have on your unit. This is reflected in your monthly charges.
Negative retained earnings can lead to increased common charges and maintenance; this can also lead to special assessments. Note that healthy buildings can still have a very small negative retained earnings.
If the building has commercial units, the income should be substantial in order to lower the maintenance fees for the residential units.
Cash Flow Statement
Is the building cash positive?
Is the building taking in as much or more money than it is paying out? If not, your monthly fees will be prone to increase.
Are there any unusual items compared to previous years? Commonly there are expenses for capital improvements such as elevators, roofs, lobby, etc. Luckily these are one time expenses that you would not be responsible for.
Strong buildings will have enough in its reserve fund to cover 3-6 months worth of expenses.
Some buildings will keep its monthly charges low, but will include special assessments when something important needs to be repaired or get done.
In the end, if the building does not have a large reserve fund, you as an owner may need to have one to protect yourself against increased monthly charges and special assessments.
Notes to the Financial statements
This will need to be thoroughly read by multiple parties to ensure they are interpreted properly.
Any potential nuances in the buildings financials will be buried here.
Important things to look out for include taxation issues, litigation, upcoming major repairs, commercial leases, etc.
Prior to purchasing a new home or investment property please consult with both your mortgage broker and your attorney. In addition to your licensed real estate broker, they will be able to do their due diligence prior to going into contract.
Please contact us for more information regarding your apartment search.