Getting Started - That Riveting Co-op Financial Statement - NYTimes.com WHEN you own an apartment in a co-op and the annual board meeting rolls around, the building's financial statement arrives in the mail. It's tempting to let it languish in a pile of bills, but remember: you are a shareholder in the company that owns the building. Given how much New Yorkers invest in their co-ops, it's worth giving the finances more than a cursory glance. Even if you're just thinking about buying a co-op, here are questions that can guide you in analyzing whether you're making a sound investment. Financial statements typically present results for the past two years, in columns so you can compare the numbers. "I look for changes from one year to the next," said Paul Wolsk, a real estate lawyer with Hartman & Craven. If all of a sudden there's a much higher accounts payable to vendors, that might mean the co-op is in a cash crunch. It's not that a big increase is necessarily a bad sign - the co-op might have had a big expense like replacing the roof. You want to understand why there was a significant change. Obviously, a profit is better than a loss - meaning the building's income from monthly maintenance fees, commercial rent and other sources covers its expenses. But if a building relies on an unpredictable source of income to pay for operating expenses, like the flip tax some co-ops charge sellers when an apartment changes hands, that can be a red flag. "If they're making up a deficit with a flip tax," Mr. Wolsk said, "it's likely that their maintenance is not high enough." Most buildings aim for a balanced budget, so if yours shows a loss year after year, that should be a concern. Co-ops typically need assessments to pay for capital improvements or unanticipated expenses, like replacing a boiler, doing major work on an elevator or fixing the facade to comply with local regulations. "Try to find out what the assessment is being used for, and how long it continues," Mr. Wolsk said, noting that longer-term assessments, payable in monthly installments, have become more common than single lump-sum payments. Unlike individual homeowners, co-ops don't usually try to pay off a mortgage, because that would mean current shareholders were paying for something that would benefit future shareholders. So a large mortgage isn't necessarily a concern. But you should pay attention to the interest rate and maturation date. Arthur Weinstein, a real estate lawyer who serves as a vice president of the Council of New York Cooperatives and Condominiums, said a building's mortgage should be evaluated in the context of economic conditions. "In a low-interest-rate economy like we're in now," he said, "you'd worry about a high-interest-rate mortgage that cannot be refinanced." If a mortgage is maturing soon, there will be expenses like legal fees associated with refinancing, but monthly payments may decrease if the new mortgage has a lower interest rate. The one item that even number-averse shareholders tend to look at is the amount in the reserve fund, which is generally used to pay for capital expenses. The question is, how much is enough? "To analyze the adequacy of the reserve fund," Mr. Weinstein said, "you have to do a little bit of due diligence with respect to the condition of the building." If the building hasn't upgraded its heating system to use a less polluting type of oil, as required by city law, that's a major upcoming expense; so is doing facade work to comply with local regulations. Some buildings rely on a line of credit instead of a large reserve fund to cover unanticipated expenses, Mr. Weinstein said. Another variable, for buildings that have recently refinanced, is whether some of the proceeds were used to beef up the reserve account.