When you buy a Manhattan co-op or condo, you are also buying into the building’s finances. The building’s financial statements show whether it can pay its bills, fund repairs and keep monthly charges steady. Read them for four things: a healthy reserve, positive cash flow, a manageable underlying mortgage (co-ops) and no surprises in the notes. We walk through each below.

Most pages on this topic explain a company’s financials for investors. This one is for a different reader: someone with an apartment under contract, or about to make an offer, who has just been handed a 30-page PDF.

Michael Carroll NYC
Understand the Building Behind the Numbers
Michael J. Carroll brings Manhattan market knowledge and first-hand board experience to help buyers assess co-op and condo details.
Explore Manhattan real estate

TL;DR

  • A building’s financial statements are an audit or review of the co-op or condo corporation, not of your apartment. They show whether the building is financially sound.
  • Start with the balance sheet (assets against liabilities), then cash flow, then the notes. The notes are where the real news usually sits.
  • Check the reserve fund, the underlying mortgage and its maturity date, planned capital work, litigation and the history of maintenance increases or assessments.
  • Weak numbers do not always mean “walk away”. They can mean “negotiate”, “ask more questions” or “expect higher monthly charges”.
  • Have your attorney and your agent read the statements with you before you sign, not after.

Table of Contents

What building financial statements are, and why buyers need them

Every co-op and condo is a corporation or association that collects money from owners and spends it on staff, utilities, insurance, taxes, repairs and debt. Its financial statements report how that went.

The basic structure is the same one used everywhere. The SEC’s beginners’ guide lists four main statements: the balance sheet, the income statement, the cash flow statement and the statement of shareholders’ equity. A building’s package usually includes versions of the first three, plus the notes that explain them.

Why does this matter to you personally?

  • Your monthly costs. Maintenance (co-op) or common charges (condo) are set to cover the building’s expenses. If the budget is stretched, the charges go up.
  • Assessments. If a roof, façade or boiler needs money the building does not have, owners may be billed directly.
  • Your mortgage. Lenders look at the building as well as at you. Brick Underground reports that Fannie Mae lender guidelines have made banks less willing to lend when a building’s reserves look too thin for structural repairs.
  • Resale. The next buyer will read the same documents. A building that frightens you may frighten them.

If you are earlier in the process and still deciding between a co-op and a condo, our guides to buying a co-op and buying a condo explain how the financial review differs for each.

Where to find them and when to ask

In a co-op purchase, the financial statements are part of the documents the managing agent or the seller’s side provides once you are under contract, and your attorney reviews them during the due diligence period. In a condo, you will usually see the building’s budget and financials alongside the offering plan or resale documents.

You do not have to wait. Brick Underground notes that you can read a building’s statement at any point to help decide how much to bid and to be a more informed client for your attorney. In practice, we ask for the most recent two or three years early, because comparison across years tells you more than any single year.

What to request:

  1. The latest audited or reviewed financial statements, plus the prior two years if available.
  2. The current operating budget.
  3. Any recent shareholder or owner letters about assessments, capital projects or rate changes.
  4. Board meeting minutes, where the seller or managing agent can share them.

The balance sheet: what the building owns and owes

The SEC describes a balance sheet as showing what a company owns and what it owes at a fixed point in time. For a building, that fixed point is usually the fiscal year-end.

Look at three lines first.

Working capital: current assets against current liabilities

Current assets are cash, escrows and other money the building can use soon. Current liabilities are bills and obligations due soon. Brick Underground quotes a New York CPA who works with co-ops and condos saying you should see at least a 1:1 ratio, meaning enough current assets to cover current liabilities.

A ratio under 1:1 is not automatically a deal-breaker. It is a question for the managing agent: why, and what is the plan to correct it?

The reserve fund

The reserve fund is the building’s savings for large, irregular costs, such as a boiler, a roof or a façade. The same article says the usual benchmark is about three months of carrying costs, or a quarter of annual operating costs, though it also notes that the reserve may not be obvious on the statement. It can be labeled “other assets” or folded into a working capital fund.

Ask directly: how large is the reserve, how is it funded (monthly charges, a flip tax, the sale of unit-related fees), and is a draw-down planned?

Liabilities, especially the underlying mortgage

Many co-ops carry a blanket mortgage on the whole building, called the underlying mortgage. Your purchase does not create it, but you share in paying it through maintenance. Questions to answer:

  • When does it mature?
  • Is it interest-only, meaning the whole principal comes due at maturity, or does the building pay down principal?
  • What is the interest rate, and is it fixed?
  • If it matures in the next few years, can the building likely refinance at today’s rates, and what would that do to maintenance?

Condos usually do not have an underlying mortgage, because each owner holds title to their own unit. Some have a common charge loan for capital work instead, and the same questions apply to it.

The income statement and cash flow: is the building paying its way?

The income statement covers performance over a period, usually a year. The SEC’s explainer describes it as reflecting financial performance over a specific period of time. For a building, you want to see revenue from maintenance or common charges (and any commercial rent) covering operating expenses, real estate taxes, debt service and contributions to reserves.

The statement of cash flows tells a different story. The SEC defines it as showing how cash moves in and out of an entity. A building can show a paper profit while cash is shrinking, for example because it is spending reserves on a project.

What to look for:

Line Healthy sign Question to ask
Operating expenses Stable year over year, with increases that track known costs (taxes, fuel, labor) What drove any jump of more than a few percent?
Real estate taxes Matches the building’s tax bill and abatement status Is an abatement ending?
Debt service Covered comfortably by revenue Does it rise at refinancing?
Commercial income Long lease, tenant paying on time When does the lease end, and who pays if the tenant leaves?
Net cash from operations Positive If negative, how is the gap being funded?
Reserve contributions Regular, budgeted Is the building adding to savings or only spending them?

A New York real estate attorney quoted by Brick Underground advises that counsel first look at cash flow and decide whether the building generates enough to pay expenses, its mortgage or common charge loan, taxes, reserve contributions, repairs and improvements. That is the right order.

One technical point helps when you read: net income from the income statement flows into retained earnings or fund balance on the balance sheet, as the SEC’s income statement guide explains. If the two do not seem to connect, ask your attorney or the building’s accountant.

The notes: where the real news is

The numbers are a summary. The notes explain them. Read all of them, but pay particular attention to these.

Capital projects and how they are funded

Local Law 11 façade work, elevator modernization, boiler replacement and roof repair are common in Manhattan’s older buildings. The question is not whether work is coming but whether the money is already set aside. If the notes mention planned work funded by “future assessments” or new borrowing, expect your monthly cost to rise.

Litigation

Is there pending litigation, and is the building defended by its insurer’s counsel? A claim covered by insurance is a different matter from one that could produce an uninsured judgment.

History of increases and assessments

A building that raises charges a little every year is often healthier than one that held them flat for a decade and then raised them sharply. Ask for the last five years of increases and for any assessments in that period.

Subsequent events

This note covers things that happened after year-end but before the statement was issued: a new loan, a refinancing, a lawsuit settlement. It can change the picture considerably.

Tax abatements

In a condo, the building’s or the unit’s tax abatement can materially change your carrying costs. Our post on recording your primary residence to keep a condo tax credit explains one deadline that owners can miss.

Condo or co-op: what changes in how you read

The documents are similar, but the emphasis differs.

Topic Co-op Condo
What you own Shares in the corporation plus a proprietary lease The unit itself (real property)
Underlying mortgage Common, and central to the review Uncommon
Real estate taxes Paid by the corporation through maintenance Billed to each unit owner
Board’s financial scrutiny of you Typically deep (see below) Usually a right of first refusal rather than an approval interview
Fees at closing Often a flip tax and move-in deposits Often a working capital contribution

On that last point, a one-time charge into the building’s working capital often shows up on the statements as a source of cash. Our note on the working capital contribution covers what to check before closing.

Red flags, and what to do about each

None of these ends a deal on its own. Each is a reason to ask a question or adjust your offer.

  • Working capital ratio below 1:1. Ask what changed and whether an increase is planned.
  • A reserve that is very small against annual costs. Ask about upcoming capital work and the plan to rebuild savings.
  • An interest-only underlying mortgage maturing soon. Ask about refinancing plans and how a higher rate would affect maintenance.
  • Operating expenses rising faster than charges. The gap is being funded from somewhere, usually reserves.
  • Heavy reliance on one commercial tenant. Ask for the lease term and rent history.
  • Auditor’s notes about going concern or material weakness. These need your attorney’s attention before you go further.
  • A managing agent who is slow or evasive in answering. That is information, too.

On the other side, a clean statement is not a guarantee. It describes a past year. That is why we also look at board minutes, recent shareholder letters and what residents say about the building.

Why the financials matter to the board, and to you

If you are buying a co-op, the building’s board reads your financials too, and it has the same instinct about risk that you should have about the building. Our guide to buying a co-op, including board approval and financials shows how to prepare your package so that the board sees a stable buyer with enough liquidity after closing.

Sellers have a stake as well. A building with strong, clean financials is easier to sell, and a seller who can put clear answers to common questions in front of buyers early tends to avoid delays. If you are preparing a sale, see our page on selling your apartment.

A word on bookkeeping basics

You do not need to be an accountant, but it helps to know what sits behind the statements. The IRS explains in Publication 583 that business transactions are ordinarily summarized in journals and ledgers, and that good records help you monitor how the business is doing. A well-run building works the same way: a managing agent records every transaction, an outside accountant audits or reviews the year, and the board approves the result.

If a building cannot produce timely statements, or the accounting is informal, treat it as a governance issue, not a paperwork one.

Our perspective

We have sat on the other side of this table. Michael served as an Upper West Side condo board president, so he has approved budgets, argued about reserve contributions and explained a maintenance increase to neighbors. That experience shapes how we advise buyers.

First, buyers worry about the wrong number. Many ask about maintenance or common charges and stop there. The charge matters, but whether it is sustainable matters more. A low monthly charge in a building with a thin reserve and an old boiler is often a bill that has been postponed.

Second, comparisons across years beat any benchmark. Industry rules of thumb are useful starting points, but a building with a smaller reserve, a fixed-rate mortgage far from maturity and steady increases can be sounder than one that looks better on one ratio.

Our perspective — overview diagram

Third, the financials are a negotiating tool and a planning tool. If you know an assessment or increase is likely, you can adjust your offer, budget for it or choose a different building. What we never want is for a client to learn about it after closing.

Finally, no one should be rushed through this. Reading the statements, asking the managing agent follow-up questions and talking through the answers with your attorney is time well spent, whatever the market is doing.

— Michael Carroll

Working with us on a Manhattan purchase

If you are comparing buildings, we review the financial statements with you, flag the lines that deserve a question and help you decide whether a concern is something to negotiate or a reason to move on. Start with our page on buying an apartment in NYC, or reach out through michaelcarrollnyc.com to talk through a specific building. Your attorney remains the person who gives you legal advice on the documents.

A short checklist to take to your attorney

  1. What are the working capital and reserve balances against annual operating costs?
  2. For a co-op, when does the underlying mortgage mature, and is it interest-only?
  3. What capital projects are planned, and how are they funded?
  4. What are the increases and assessments of the last five years, and what is planned?
  5. Is there litigation, and is it insured?
  6. How dependent is the building on commercial income?
  7. Do the notes mention anything that happened after year-end?
  8. Will the building’s finances affect my lender’s willingness to approve the loan?

FAQ

What are the main financial statements for a co-op or condo?

The core set is a balance sheet, a statement of income and expenses, and a statement of cash flows, with notes. The SEC’s general guide also lists a fourth statement, shareholders’ equity, which in buildings appears as a statement of changes in fund balance or equity. Ask for the full package, including notes.

What reserve fund should a building have?

There is no single legal number. Brick Underground cites a common benchmark of about three months of carrying costs, or a quarter of annual operating costs. A smaller reserve can still be reasonable if capital work is already funded, so ask your attorney to look at it in context.

Can a building’s finances stop me from getting a mortgage?

Yes, they can influence it. Lenders review the building as well as the borrower, and Brick Underground reports that Fannie Mae-related guidelines have made some lenders hesitant when reserves look insufficient. Ask your lender early whether the building meets its requirements.

Who should read the financial statements with me?

Your real estate attorney should review them in full, and your agent can help you spot the questions to ask. For tax or accounting questions specific to your situation, consult a CPA. We read them with every client who buys.

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