Three Keys to a Co-op's Success: Plan, Plan, Plan

Josephine Bachman, treasurer of the 144-unit Kings Wood co-op on the North Shore of Long Island, hates surprises. She hates them almost as much as she hates special assessments and spikes in monthly maintenance charges. This is why she works diligently on a sophisticated spreadsheet to estimate every dollar the co-op might have to spend in the course of the next 10 years.

The Kings Wood board decided to run their co-op without a managing company 17 years ago, a challenging setup. “We are managed by owners,” says Bachman. “We just hired one person, Helena Chaves. She oversees our day-to-day management and is our property manager.”

Every year Chaves and Bachman work together on a sophisticated spreadsheet for their 10-year budget without the help of outside experts. “We’re a real team,” says Bachman. “Our property is running fabulous, we have one of lowest maintenance in the area, we never had any spikes in maintenance, and we never had and never will have any assessments.”

Bachman is a financial planner by profession and she brings that expertise to her work on the co-op’s finances. Her four fellow board members are knowledgeable about engineering and such things as boilers, pipes and other building systems. Each year in the fall the complete board walks every inch of the campus, inspects every roof, gutter and pipe to identify items that might need to be repaired or replaced.

“I keep a list of all the risk items,” says Chaves. “ I always get the numbers and several quotes. We know how long the warranty is and the projected longevity, so we have at least an educated guess and an estimate what the numbers are going to be. Also, I communicate daily with maintenance and residents to pinpoint what needs to be done.”

Once all the numbers and risk items are identified, Chaves and Bachman sit down and develop their 10-year budget plan. “Our 10-year plan also helps us to understand if we need to increase our maintenance,” says Bachman. “We have nine buildings, that means nine boilers, nine roofs and so forth. It is also important to think of inflation. Something, which costs $20,000 today, might cost $23,000 in a few years. In addition we have a contingency fund within the plan, so if something pops up which is not on the list, we can dip into that fund. We do this every year, so we constantly have a rolling 10-year plan.” She adds that the co-op has a “huge” reserve fund, without specifying a number.

Once the spreadsheet is complete, the entire board goes through every line of the budget and agrees on what will be done in the following year.
In a few years, Kings Wood will face a major capital challenge. The co-op still uses septic tanks, and the hope is that the township of Kings Park will hook the property up to the town’s sewer system as soon as 2019. Chaves estimates that this might cost the co-op about $1 million. Since there are no concrete numbers yet, Bachman refuses to speculate, but she believes the board will have to take out a loan. “But we will not do any assessments,” she insists. “When we procure a loan from the bank it can run over 15 years, which will mean only a small increase in maintenance for the owners.” The board took out a 20-year, self-liquidating mortgage in 2012.

Once a month an accountant and an attorney join a board meeting, but Bachman insists that Kings Wood is truly self-managed by owners who care, who have educated themselves over the years, and who have proven that it pays to plan ahead. Year after year after year.