Think back to when you were younger and got your first job. You worked your hours—perhaps flipping burgers, taking orders or cutting the grass—and then earned your first paycheck. You went to the bank, signed the back and had it cashed and then…what? You probably spent it. Maybe you put some of it in a savings account. But as a teenager, your financial knowledge was pretty limited. Odds are you didn’t know that you could invest some of it. Like many teenagers, your focus was likely on clothes, music, and entertainment. Once the money was gone, you worked your hours and waited for your next check.
Now you’re all grown up and on the board of directors for your building. More than likely, you've gotten better at handling your finances. After all, you saved up enough money to buy your home. You probably have a savings account, a checking account, a few retirement accounts, some stocks and numerous other investments. On a given day, you know how much money you have to spend and how much you’ve saved. You’ve taken all the necessary precautions to make sure that your money is protected.
Now that you’re on the board, it’s important to know that handling the finances for an entire building is just as big of a responsibility as handling your personal finances. Residents rely upon board volunteers like you—as well as the building’s accountant—to make good financial decisions on behalf of the entire community and protect both individual and collective assets. But while handling the finances is the same responsibility, you actually need to know more, about reserves, budgets and accounts payable. It’s desirable for board members to have at least a passing knowledge of the various components of their community’s financial profile to adopt best practices when it comes to oversight and transparency where money is concerned.
Lesson #1: Learn the Difference
Co-ops and condos are similar regarding operations, but there are some differences when it comes to finances. “In a condo, there is no underlying mortgage on the building, while in a co-op there usually is, hence the monthly maintenance in co-ops tends to be higher,” says Richard Conley, senior vice president and chief credit officer at the New York City-based Community Preservation Corporation (CPC), a non-profit agency that provides financing and capital solutions for multifamily housing. “Also, each individual condo unit is a separate block and lot, allowing each unit to hold separate mortgages. On the other hand, co-op owners are shareholders in the building’s corporation, holding shares for their apartments and a proprietary lease. Therefore, an end loan for a co-op unit is secured by assigning the shares and lease for the apartment to the lender.”
Lesson #2: Learn about Financial Profiles
Conley notes that there are several components of a typical co-op or condo’s building’s financial profile that a member should understand. For example, “operating expenses, debt and maintenance,” he says.