Analyzing a Condo or Coop Building's Notes to the Financial Statement: https://www.hauseit.com/condo-coop-building-financial-statements-nyc/
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Analyzing the notes to the financial statements can also help you identify the risk of a future increase in common charges or maintenance fees beyond ordinary increases for inflation.
The Notes to the Financial Statement is a section that can be found at the end of the building’s annual financial statements. This section details and clarifies the information provided in the previous sections. Even though the entire section is important to read, it’s especially important to scrutinize the sections on legal issues, the building’s mortgage and the building’s land lease, if applicable.
Litigation
Litigation in a building isn’t always bad for a prospective purchaser. For example, what if the building initiated the lawsuit as the plaintiff and has already paid all expenses? If there is a settlement being decided, a purchaser could actually have upside if the settlement is favorable!
However, litigation can also be bad and most banks will need to know what’s going on with the case in order to approve a loan. For example, litigation against a sponsor for faulty construction, or the building next door suing the building for accidental damages isn’t great.
Fortunately, most of the time legal costs will be covered by the building’s various insurance policies if it is the defendant. However, if the building initiated the lawsuit and a settlement is pending, then there may be annual legal costs that can weigh down a building’s financials.
Mortgage
Your real estate attorney should investigate the maturity date, the monthly payment, and any special terms of the loan. For example, does the mortgage have a fixed or variable interest rate? Is it an interest only mortgage or are both principal and interest payments required?
Interestingly enough, a lot of coop building mortgages these days are of the interest only variety, and thus similar to a term loan issued by a for profit business corporation.
You should also evaluate concentration risk within the building. For example, how many units does the sponsor still own if any? In general, banks will raise a red flag if any single entity owns more than 10% of the outstanding shares in a coop corporation.
Calculate Your Buyer Closing Costs: https://www.hauseit.com/closing-cost-calculator-for-buyer-nyc/
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