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Would really appreciate feedback on this financial planning in a co-op (the below is from a 111 unit in upper Manhattan):
"We save up over 12 months and pay off the Real Estate Taxes all at one time in July. So in August, we start savings up for the following July’s annual real estate taxes. We got our bank to drop the escrow requirement for the mortgage (NCB) and they allow us to do this internally. There are three benefits: the co-op receives interest each month as we save up; we get the discount on the 2nd, 3rd and 4th quarters of early paid tax (the 1st quarter is considered paid ‘on-time’ and not eligible for the discount); and we have created a working capital reserve in case of emergency.
There is an additional benefit. This assists in creating a Board culture of saving up ahead of time for expenses and projects (fiscal discipline). For example, we are completing a $500k roof replacement project without assessment or loan as we already had funds on hand.
Finally, we also self-escrow the annual insurance charges. This allows us to pay off the annual worker’s compensation and building insurance policies fully when due to avoid paying the insurance premium finance fees. We used to self-escrow for the annual water/sewer bill (frontage) but since we switched to quarterly billing (meter), we save up for the quarterly bill.
The money comes from the budget. It is the same total amount of money as if you paid the bill broken down to several payments during the year or if you paid it all at once. The difference is that if you pay it by JULY - and all at once - you save thousands of dollars.
This can work in a 'rich' building where a substantial reserve fund exists or can be created if everyone deposits $$ into it. Our taxes are around $275k after STAR and coop credits this year, with a budget of about $850k and $200k in reserves. You try to collect an extra $250 per month per unit in a squeezed middle class neighborhood to save $2750. And with banks paying maybe 1/4 of 1% interest, you're not getting much there.
I think this is a great tip that many boards are unaware of, I believe we will be pushing for this next year.
Hi Larry,
I was reading the posts and I came across some of my own writing – what a hoot!
My co-op is not rich by any means. We are located near Dyckman Street in upper Manhattan in zip code 10040. Our maintenance fees are approximately $1.10 per square foot. With that, we are also paying off our mortgage in 10 years.
Most co-ops pay their property taxes each quarter (some through the mortgage escrow fund). What is needed to set this up is having the funds for the other three quarters worth of tax amounts. We initially had some good financial news, so in the first year, we paid all of the taxes off in July and gained the discount only. Then in August, the co-op decided to set aside approximate 1/12 of the next year’s payment and so on, earning interest along the way and also earning the discount when paid in year two. This one time change (really an investment in our co-op) has paid up four years now. And those monthly savings are available as working capital in case of extreme need. This is our way of making sure the annual expenses are kept as low as possible.
Well that worked so well that we started the insurance and water/sewer self escrows when more good new came (likely a small property tax refund or similar).
The culture of the Board is what really changed however. Initially, there was the realization that we could change and save up ahead of time.
Then more action: we are now in year two of a semi-permanent assessment equaling 5% of the maintenance to save up for future needs. It was 2.5% in year one. I envision this to increase to 7.5% of maintenance next year and finally to 10% for year four and ongoing. Let’s face it; there is always a need for capital funds. This type of semi-permanent assessment sets the expectation with the shareholders that things will eventually break and this is the Board’s estimate of an owner’s long term financial commitment above and beyond maintenance changes.
Finally, in 2023 when the mortgage is paid off, we can drop maintenance charges even more.
So please don’t tell yourselves that we are “rich” or “special”. We just decided to do it and you can too.
Thank you for sharing the original post,
Steve
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How is the money saved it has to come from somewhere
If they are doing it without assessments where does the money come from
How high is maintenance Is maintenance increased to build these funns
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