Putting aside style, location, size, and amenities, one (very) unsexy distinction among various condo buildings is the amount the building has in its reserve fund - a simple line item on their balance sheet which carries so much import.
The conventional wisdom is that a high reserve fund reflects a solid well-run building, preparing for future improvements and prudently managing its course like cautious grandparents—steady, disciplined, always saving for a rainy day. A high number looks good and generally makes buyers feel really yummy and comfortable proceeding with their purchase.
Conversely, the conventional wisdom is that a low number looks really bad and gives buyers the Heebie-jeebies about stepping into a situation where an out-of-pocket special assessment may be required to pay for improvements, known or unforeseen. Buyers may feel like they’re jumping into the abyss.
Seems like it's pretty clear which way is better, eh? Well, my friends, as always, we shouldn’t be so quick to judge.
Consider the following scenarios:
1) a building with a whopping $5 million in reserves (yay!!)…but has $12 million worth of upcoming projects. (Oops/Yikes).
2) a building with super low reserves, but only because it just completed a long list of major projects leaving the building in A+ physical shape.
3) a building which intentionally elects to keep a low reserve so its owners can invest (or spend) their own money and cough up the dough if and when it’s needed.
4) a building which is so super risk-adverse that it keeps an unbelievably high reserve. But the cost of that comfort is a higher monthly assessment - not a good look for buyers comparing condos in different yet similar buildings.
Each of these are examples of why conventional wisdom may not be what it seems. Thankfully, you have the caring hands and wisdom of the folks at the Brad Lippitz Group - and your real estate attorney - to help you weigh these considerations.
We're always happy to help in any way we can.
Have a great weekend!
Best,
Brad
