Accounting for Co-Ops and Condominiums

The ownership of cooperative (co-op) shares and condominiums (condos) is trending upward as the advantages of ownership are seen. For each, financial statements are audited frequently to ensure that the financial reports are accurately depicted to the shareholders and owners. At Kislay Shah CPA, we have the experience necessary to ensure the most accurate statements for you to make the most of your shares and property.

Differences Between Co-Ops and Condominiums

While both co-ops and condominiums contain multiple families within the same building, ownership and bills, such as property taxes, are handled differently.

Co-Ops

With a co-op, a family lives within a building, but does not own or rent where they live. They do, however, own shares for the corporation that owns the building and, with the shares, receive a lease for a shareholder’s apartment. With owning the shares, they get more of a say on how certain matters are handled compared to your regular renter. The number of shares is correlated to the amount of square footage, location/frontage (view and floor level), number of rooms, and outdoor space.

There are two fees responsible to the co-op unit shareholder – maintenance and assessment fees.

Maintenance Fees

The amount of the maintenance fee assessed to each holder is typically a percentage that corresponds to the amount of shares that you own. This fee, like other bills, can fluctuate depending on the co-op and condo operations and the external factors such as the economy. Maintenance fees cover an array of operating expenses such as:

Utilities

Decorations

Management Fees

Insurance

Property Tax

Mortgage and Interest Fees

General Property Upkeep

Assessment Fees

Just like any building, unexpected and routine repairs need to be addressed. To help cover these costs, board members of the co-op may require shareholders to deposit extra funding into a reserve to cover the cost of the repairs. The extra funding is labeled as an assessment fee. For instance, if the roof needs sudden replacement, the funds are available to provide it.

Condos

Unlike co-ops, a condo is considered property ownership, and the family occupying the condo is in possession of the deed for the space. Another big difference compared to a co-op shareholder, is condo owners will receive a separate bill (from the government) for property taxes. To purchase and own a condo is no different than doing so for your standard home in a neighborhood. Similar to co-ops, condo owners have two monthly charges – common charges and property taxes.

Common Charges

Similar to the maintenance fees for a co-op, the common charges are based on a percentage that correlates to the size, different features, and amenities (pools, gyms, Wi-Fi, etc.) of a condo. Think, the bigger and nicer the condo, the higher the fee. Common charges include:

Utilities

Parking

Maintenance

Essential Services (trash, plumbing, pest control)

Etc.

Property Taxes

While property taxes are included in the maintenance fees of co-op, it’s a separate bill for condo owners. This is because the condo’s deed is retained by the family residing within; thus, the government gives the invoice. With a co-op, the property tax is not separated by each condo within the building, but is billed for the entire building itself.

Financial Statements

While a co-op and a condominium are handled differently from an owner’s stand point, accounting for these corporations is similar and has numerous facets that make up its lengthy financial statement. A typical financial statement prepared in accordance with accounting principles generally accepted in the United States will include the following:

Balance sheet: which will typically include a current and non-current assets and liabilities and a members or shareholders’ equity

Income Statement: or a statement of operations and changes in members or shareholders’ equity. This will typically include a breakdown of total income items; expenses including administrative, operating, repairs, mortgage interest, and maintenance; taxes; major repairs and replacements (in addition to routine repairs and maintenance); and depreciation. Each of these expense items are supported with a schedule itself.

Statement of Cash Flow: Typically reconciles the beginning and ending of the year cash balances into operating, investing, and financing activities.

Footnotes to the Financial Statements: Explains the company formation, its accounting policies, and major line items of the above financial statements that help the reader understand the financial statements. The notes typically include further explanation of real estate taxes, personal exemption, and mortgage payable

Addressed below are some of the financial statement line items:

Use of escrow accounts – Expenditures using the escrow accounts will be listed for holders to view. These accounts are typically utilized when higher than normal bills (utilities, settlements, or taxes) need to be paid for.

Issues related to the superintendent’s unit – Any activity from renting the super’s unit will be released in the statement as well. Many locations rent out this unit to someone other than the superintendent to bring in more funding. Meanwhile, the super is housed in a cheaper rental close by.

Status of leases – This includes commercial and family leases in the building. Any expiring leases may impact the revenue of the building (positively or negatively). A tenant leaving could bring in more money if their previous lease was under market price.

Utility expenses – All utility expenses are listed along with possible projects that will focus on fixing any utility matters.

Line of credit and amortization – Any revolving lines of credit need to be discussed along with the amortization of the credit used.

Mortgage maturity – When the mortgage matures on a property, it must be refinanced. When refinancing a property, there aren’t any true implications, but there are fees associated with it. Interest rates may change and legal fees are typically accrued.

Legal cases – While the potential for any settlement wins will not be reported on the statement (principle of conservatism), any lawsuits will be discussed with their potential outcomes (positive or negative).

Repair assessments – this helps determine if the maintenance fee needs to be adjusted due to an increase in salaries for maintenance staff or a difference in economy. It also allows for any potential upcoming large-scale repairs.

Reserve fund balance – the amount available to pay utilities, project and operating expenses, and taxes. This will also help to predict the rise/fall of maintenance fees for owners.

Condo to co-op due to/from accounts – It is common for buildings to have both a condo and co-op side coinciding. While they are separate legal entities, one will commonly pay for an expense for the other. This is similar to accounts payable/receivable consistently seen in statements.

Investments – will show the amount gained or loss from investments that the corporation has made. Typically, condos and co-ops will invest with a popular brokerage to locate a safe investment.

Going the Extra Mile

By understanding the aspects of co-ops and condominiums and their accounting needs, Kislay Shah CPA is able to address your business’s demands ensuring that proper decisions are made to accomplish your company’s goals. Taking additional steps and going the extra mile is always accomplished and the importance of doing so is never undermined. You can reach Shah at kislay@shahcpaus.com or call at 646-328-1326.