Creating a Road Map for Your Co-op or Condo
Oct. 8, 2015 — Okay, so a discussion about balancing budgets may not win any Most Exciting Topic awards, but knowing how to do it can translate to good financial health for your co-op or condo building.
I Was Told There Would Be No Math
Hey, being on a board can't be all glitz and glamour! You're going to have to crunch some numbers. But don't worry! We're here to help break it down for you. So, first things first: a good budget covers the building's annual income and expenses and attempts to maintain a strong reserve fund for future capital projects. And you'll need to differentiate between "operating" and "non-operating."
Operating items generally refer to regular income and expense costs. The funds to cover these items come from the monthly owner fees — we're talking common charges in a condominium and maintenance in a cooperative. Still with us, right? Non-operating items, on the other hand, generally refer to revenue and costs that occur once every few years or are enhancements to the building that last for an extended period of time and do not relate to the everyday operations. The funds to cover the non-operating expenses usually come from an assessment paid by owners or from a reserve fund.
Wait… Back Up
So the point of a budget is to determine how much owners will be required to pay to operate the building. Items that contribute to the regular operations of the building are called "operating costs." An operating budget includes income and expenses.
Your expenses are going to be, well, expensive — that's life in the Big City, after all. These include taxes; the underlying mortgage for the building; payments on plumbing repairs; boiler repairs; staff salaries; insurance for the building; professional fees; and utility costs. It can add up, so you offset those expenses with other sources of income.
Show Me the Money
How can you make some moolah? You can get cash from your commercial tenant, and there are other sources such as move-in/move-out charges, sublet income, and storage fees. If the total income doesn't cover the anticipated costs, you may need to increase monthly owner fees. Not popular, but sometimes a necessary evil.
How do you sell an increase in monthly fees to owners and maintain their confidence in you as board member? The more notice you can provide to owners with a clear explanation the better. Transparency is the name of the game.
Next, is the non-operating portion of the budget. It's a much smaller budget but still very important. It includes items that occur only every few years or that are not regular costs or income items. These can include proceeds from a mortgage refinance, as well as costs from a façade repair, roof replacement, lobby renovation, or elevator modernization.
Generally, non-operating items determine whether an assessment is required. We know, we know. Nobody likes the A-word, either. If you have a really, really healthy reserve fund, you may be able to avoid imposing an assessment. Just keep in mind that you want to keep replenishing that reserve.
Monitor, Monitor, Monitor
You have to keep track of all the spending to ensure that the building is operating according to the budget. Say you were planning on painting the hallway, but the boiler breaks. Well, depending on the building's financial position, you may have to put the hallway paint job on hold. It's all about common sense.