Preparing your New York City condominium or cooperative’s annual budget can seem like a daunting task. However, it is a highly valuable exercise that will ensure the financial well-being of your multifamily property and protect the investment of your fellow homeowners.
If you are a board member of a property whose calendar year begins on January 1, here are some important questions you should be asking when creating your property’s annual budget.
1. Have all sources of ancillary income been considered? If so, are the revenue projections taking into consideration vacancy allowances?
2. Are commercial rents properly projected or do leases need to be renegotiated/renewed?
3. Is your property initiating the levy of a special assessment to recoup the New York City Coop Abatement program credits?
1. Are the total number of employees and related wages accurate?
2. Are overtime projections and all additional vacation, sick time, etc., properly accounted?
3. Are benefits accurately reflected on all full-time and part-time employees that meet eligibility requirements?
1. Do the average usage and rates properly reflect the current situation of your condominium/cooperative?
2. Are your condominium/cooperative’s water and sewer charges based on frontage or metering? Those with charges based on frontage should consider a switch to metering, which typically results in substantial cost savings.
3. Is water usage for your property being billed on actual meter readings?
C. Real Estate Taxes:
1. Are real estate taxes escrowed? If so, is the greater portion of the actual expense or escrow payment being utilized in the budget?
2. Are any reductions that may have been realized on assessed value properly taken into account?
3. Has your condominium/cooperative retained a certiorari attorney to contest real estate values on an annual basis?
D. Debt Servicing:
1. Is the property’s underlying debt service properly reflected as an amortized or interest-only instrument?
2. Are all loans properly accounted for or is there a need for secondary financing?
3. If your condominium/cooperative is refinancing, has the new debt service been properly reflected?
1. Does the mortgagor escrow for insurance? If so, does the budget reflect the higher of the actual expense or the escrow?
2. Will your condominium/cooperative finance insurance? If so, are the finance charge and installment service charges included in the budgeted amount?
3. Are all insurance policies properly accounted for, and is it time for a periodic bid out of
F. Professional Fees:
1. Have increases in the management contract been accounted for?
2. Are legal fees realistic? Are there any pending or new issues in the current year that
will require additional legal counsel?
3. Are there repairs or other expenses that may need the services of an engineer or other professional that will not be considered capital?
4. Is the annual auditor’s engagement letter in place?
G. Repairs and Maintenance:
1. Have all contracts been properly accounted for, including increases and sales tax on
contracted amounts? Are most repairs included in the contract price? (If not, your property
may need to consider switching vendors.)
2. Are budgeted line items for repairs such as plumbing, HVAC and other non-contractual
expenses realistically budgeted based on historical costs?
3. Have significant repairs that are anticipated for the upcoming budget cycle been
properly accounted for, i.e. painting, window cleaning, etc.?
H. General and Administrative:
1. Licenses and fees – have all current year expenses (such as new elevator fees), as well as any related expenses to obtain approvals, permits, etc., been considered?
2. Are there receivable issues? Has your condominium/cooperative included a reserve for bad debt to cover the cost of maintenance that is not being collected on residents in financial hardship? Are legal fees properly reflected for expenses that may not be recoverable on delinquencies?
3. Does the association have an operating contingency in the budget of 1-3% of operating expenses to cover unforeseen expenditures?
4. Prior Year Deficit Funding – Has a line item been included to cover deficits and shortages in
cash flow to fund working capital and prior year payables?
Effective management of your New York City multifamily property is dependent upon your financial resources and proper short- and long-term planning. It’s important to do your due diligence as a Board, and to consult your property manager for further guidance. For more information on how to successfully prepare for budgeting season, contact FirstService Residential, New York’s leading property management company.
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