How to Evaluate a Senior Cooperative's Finances Before You Buy

Buying a share in a senior cooperative is a big financial step. Unlike buying a condo or a house, you're not just buying a home.

You're buying into a corporation. The financial health of that group affects your monthly costs and the value of your home.

It also affects your quality of life. A co-op with plenty of savings and stable fees is a safe bet. One with little money and many repairs waiting is much riskier.

The good news is that co-ops must share their money details with you. You just need to know what to ask for and what to look for when you read them.

1The Four Documents Every Buyer Should Request

Before you make an offer, ask for these four papers. You can get them from the co-op's office or the board. A well-run co-op will give them to you gladly.

The most recent audited financial statements show the co-op's income and spending for the past year. A professional accountant (CPA) prepares these.

They give you the clearest picture of the co-op's money. Look for the balance sheet and the auditor's notes. These notes often have the most important facts.

The current operating budget shows how the co-op plans to spend money this year. Compare it to what they spent last year. This helps you see if they're staying on track or spending too much.

The reserve fund study is a plan for big future repairs. It lists things like roof work, elevator updates, and parking lot repairs. It tells you if the co-op is saving enough today. This helps avoid "special assessments" (extra one-time bills for members).

The board meeting minutes from the past two years are very helpful. Minutes are notes from the co-op's meetings. They show what the board is talking about. You might find news about repairs, fee hikes, or legal issues here first.

2Understanding the Reserve Fund

The reserve fund is the co-op's savings account for big repairs. It's the most important thing to check. If there isn't enough money, you might get a "special assessment." This is a one-time charge for all members when the co-op needs money fast.

What to look for: The reserve study will show a "percent funded" number. This is how much they have compared to what they need.

• 70% or more: This is very healthy.
• Below 50%: This is a warning sign.
• Below 30%: This means they're very low on cash. Extra bills are likely.

Ask these questions:

• How much is in the reserve fund right now?
• When was the study last updated?
• Is the board saving the recommended amount each year?

If the study is more than three years old, it might be out of date.

Special assessments: Ask if there have been any extra bills in the last ten years. A history of these isn't always bad, but it shows how the co-op handles its money.

3Reading the Operating Budget

The budget shows where your monthly fees go. Here is how a typical senior co-op spends its money:

Every co-op is a bit different. What matters is that they're saving enough and staying within their budget.

Red flags:

• Saving less than 5% for reserves is a big warning.
• Very high utility costs may mean the building systems are old.
• Very low management fees may mean volunteers are doing all the work. This can be hard to keep up.

4Fee History and Trends

Monthly fees will go up over time because costs rise. This is normal. You just want to avoid a co-op that keeps fees too low for too long. They may be hiding a big hike for later.

Ask for the fee history for the last five years.

• Good sign: Fees go up by 2% to 4% each year.
• Warning sign: Fees stayed the same for years, then jumped by 15% in one year.

Also, ask if any new fee hikes are being talked about now.

5The Underlying Mortgage

Many co-ops have one big loan for the whole building. This is called a "blanket mortgage." This is different from any loan you get to buy your share. It's the co-op's debt, and your monthly fees help pay it off.

Ask about the balance, the interest rate, and when it's due. If the loan is large or the rate is about to go up, your fees might rise.

Some co-ops have no mortgage at all. This is a great sign. It means more of your money goes toward repairs and savings.

6Occupancy and Resales

A high occupancy rate (90% or more) is a good sign. it means people want to live there. If many units are empty, the co-op has less money. This can lead to more problems.

Ask these questions:

• How many units are empty right now?
• How long does it take for a unit to sell?
• Has the co-op had to lower prices to sell shares?

A healthy co-op will have shares that sell quickly.

7Questions to Ask the Management Company

Talk to the manager or the board treasurer. They can help you understand the details. Try asking:

• Has the co-op ever missed a bill or a savings payment?
• Are there any lawsuits against the co-op?
• Has the cost of building insurance gone up a lot?
• Are there any big repair projects coming soon?
• How does the co-op handle members who don't pay their fees?

Their answers will tell you a lot about how they run the building.

8Getting Professional Help

If you're not sure about the math, you can hire a pro. A CPA or a real estate lawyer can review the papers for you. It might cost a few hundred dollars, but it's worth it to be safe.

A real estate agent who knows senior co-ops can also help. They can compare one co-op's money to others in the area.

To learn more about co-op costs, see our guide on What Does a Senior Cooperative Cost in Minnesota?.

9The Bottom Line

A senior co-op with strong finances offers a safe, stable place to live. A co-op with money trouble can be a source of stress.

The papers are there for you to see. The questions are easy to ask. Taking the time to check the finances now will protect your future. We want you to feel sure and happy in your new home.

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