But some of the most important information about a condo purchase may be found in documents that have nothing to do with the interior of the unit.
The condominium association's financial statements can help reveal whether the building has adequate reserves, whether expenses are being managed responsibly, whether owners are paying their assessments, and whether a future special assessment could be more likely.
This matters because when you buy a condo, you are purchasing your individual unit while also becoming financially connected to the condominium association responsible for maintaining the building and its common elements.
A beautiful condo in a financially troubled association can become an expensive ownership experience.
Here is how buyers can approach condo financial statements, what numbers deserve attention, and which questions should be asked before closing.
Explore our Atlanta condo building guides, browse condos for sale, or contact The Agency Atlanta Intown for help evaluating a condominium purchase.
Why Condo Financial Statements Matter
A condominium association is responsible for operating and maintaining property shared by all owners.
Depending on the building, association responsibilities may include:
- Roof
- Exterior
- Elevators
- Swimming pool
- Fitness center
- Parking garage
- Common plumbing
- Landscaping
- Security
- Concierge or management staff
- Insurance
- Utilities for common areas
- Long-term capital repairs
The money to pay for these responsibilities ultimately comes from the owners.
If the association collects enough money and plans appropriately, major expenses may be manageable.
If it does not, owners may eventually face higher monthly assessments, special assessments, deferred maintenance, borrowing, or some combination of those solutions.
Start With the Association's Budget
One of the first documents to review is the current annual operating budget.
The budget shows how much money the association expects to collect and how it plans to spend it.
Common sources of association income include:
- Regular assessments or HOA fees
- Parking fees
- Move-in and move-out fees
- Rental or administrative fees
- Interest income
- Other building-specific charges
Expenses may include:
- Insurance
- Management
- Utilities
- Security
- Landscaping
- Cleaning
- Pool maintenance
- Elevator service
- Repairs
- Legal and accounting expenses
- Staff payroll
- Reserve contributions
The goal is not necessarily to find the building with the lowest expenses. A large full-service high-rise will naturally cost more to operate than a small condominium without elevators, a pool, or staff.
The more important question is whether the budget appears realistic for the property being maintained.
Look at Actual Results, Not Just the Budget
A budget is a plan.
Financial statements tell you what actually happened.
If possible, compare budgeted income and expenses with actual results.
Repeatedly exceeding the budget in categories such as insurance, utilities, repairs, or legal expenses may indicate that future budgets and monthly assessments need to increase.
One unfavorable year does not automatically mean the association is poorly managed. Unexpected repairs and insurance increases happen.
A pattern over several years deserves more attention.
Understand the Balance Sheet
The balance sheet provides a snapshot of the association's financial position at a particular point in time.
It generally includes:
- Assets
- Liabilities
- Fund balances or equity
For a buyer, several balance-sheet items deserve particular attention.
Cash
How much cash does the association have available?
Cash may be divided among operating accounts, reserve accounts, money-market accounts, certificates of deposit, or other permitted investments.
A large dollar amount by itself does not necessarily mean the association is well funded. The amount needs to be considered relative to the size, age, complexity, and upcoming needs of the property.
Accounts Receivable
Accounts receivable generally represents money owed to the association.
For a condominium association, this can include unpaid assessments from owners.
If receivables are unusually high or increasing, ask why.
A building where a meaningful number of owners are behind on assessments may experience cash-flow problems and place additional financial pressure on owners who are paying on time.
Liabilities
Look for amounts the association owes, including:
- Accounts payable
- Accrued expenses
- Loans
- Insurance obligations
- Contractual liabilities
- Other debt
Association debt is not automatically a problem, but buyers should understand why the debt exists, its terms, and how it will be repaid.
Reserves Are One of the Most Important Numbers
A reserve fund is money set aside for major future repairs and replacements.
Examples can include:
- Roof replacement
- Elevator modernization
- Exterior waterproofing
- Painting
- Parking garage repairs
- Pool replacement
- HVAC equipment serving common areas
- Plumbing infrastructure
- Windows or exterior components when association responsibility applies
A healthy reserve fund helps spread these costs across many years of ownership rather than requiring the owners present when the project occurs to pay the entire amount.
There Is No Universal "Good" Reserve Number
Buyers sometimes ask how much money a condominium association should have in reserves.
There is no single dollar amount that works for every building.
A 20-unit condominium with few amenities has very different capital needs from a 300-unit high-rise with elevators, a pool, parking decks, mechanical systems, extensive common areas, and full-time staff.
Reserve adequacy should be evaluated in relation to the building's expected future expenses.
That is why another document can be particularly useful: the reserve study.
Ask Whether There Is a Reserve Study
A reserve study evaluates major common components and estimates:
- Remaining useful life
- Expected replacement or repair cost
- Timing of future projects
- Recommended reserve contributions
For example, a reserve study might identify that an elevator modernization is expected within several years or that exterior waterproofing will require substantial future spending.
The important question is whether the association is accumulating enough money to address those expected projects.
Compare the Reserve Study With the Actual Reserve Balance
Having a reserve study does not automatically mean the association is following it.
Compare:
- Recommended reserve contributions
- Actual annual contributions
- Current reserve balance
- Upcoming capital projects
If the reserve study anticipates significant work while the association has relatively little money accumulated, ask how the board intends to fund the difference.
Possible answers might include:
- Increasing monthly assessments
- Special assessments
- Association borrowing
- Delaying projects
- A combination of funding methods
Understand Special Assessments
A special assessment is an additional charge to owners beyond the regular monthly condominium assessment.
Special assessments may be used to fund projects such as:
- Roof replacement
- Elevator modernization
- Exterior repairs
- Water intrusion remediation
- Parking deck repairs
- Insurance-related costs
- Major mechanical replacement
A past special assessment does not automatically mean a building is financially unhealthy.
In some circumstances, an assessment may represent a deliberate decision about how to finance a major improvement.
What matters is understanding the reason, frequency, size, and whether additional assessments are being discussed.
Ask About Current and Proposed Special Assessments
Do not limit your review to assessments that have already been approved.
Ask whether the board is discussing major projects that have not yet resulted in a formal assessment.
This is one reason board meeting minutes can be extremely valuable.
A financial statement may not tell you that the board has spent six months discussing a parking garage repair expected to cost hundreds of thousands of dollars.
The meeting minutes might.
Review Board Meeting Minutes Alongside the Financials
Financial documents become much more informative when reviewed with recent board minutes.
Look for discussions involving:
- Roof leaks
- Water intrusion
- Elevator problems
- Insurance increases
- Structural repairs
- Plumbing failures
- Parking garage repairs
- Litigation
- Special assessments
- Reserve funding
- Delinquent owners
- Major vendor contracts
The financial statements show numbers. The minutes can help explain what is behind them.
Pay Attention to Insurance Costs
Insurance can represent a significant condominium operating expense.
When reviewing several years of budgets or financial statements, look at how insurance expenses have changed.
If insurance costs have increased substantially, determine whether the current budget reflects the latest premium.
Also understand what the association's master policy covers and what owners are expected to insure individually.
Insurance requirements can vary by condominium.
Look at Utility Expenses
Some condominium associations include certain utilities within monthly assessments.
Depending on the building, these might include:
- Water
- Sewer
- Gas
- Common-area electricity
- Internet or cable packages
Review whether utility expenses have been increasing and whether the association has budgeted appropriately.
In an older high-rise, utilities can represent a meaningful portion of operating expenses.
Examine Repair and Maintenance Expenses
Repairs are normal.
Repeatedly high repair costs in the same category may deserve additional investigation.
For example, recurring elevator repairs could indicate aging equipment approaching modernization.
Repeated plumbing expenses could point to aging infrastructure.
Large recurring water-remediation expenses might warrant questions about the building envelope.
Individual expense categories do not provide a diagnosis, but they can tell you where to ask more questions.
Look for Association Loans
Some associations borrow money to fund major capital projects.
If a loan appears on the financial statements, ask:
- Why was the money borrowed?
- What is the outstanding balance?
- What is the interest rate?
- When does the loan mature?
- How is it being repaid?
- Are monthly assessments supporting the debt payments?
- Can owners be assessed to repay it?
A loan may be a reasonable financing tool, but buyers should understand the obligation they are joining.
Check for Owner Delinquencies
An association depends on owners paying their assessments.
If too many owners fall behind, the association still has bills to pay.
That can place pressure on cash flow and potentially shift more financial responsibility toward owners who remain current.
Ask about:
- Total delinquent assessments
- Number of delinquent units
- How long balances have been outstanding
- Collection procedures
High delinquency levels can also create complications for some forms of mortgage financing.
Understand Operating Funds vs. Reserve Funds
Operating funds and reserve funds serve different purposes.
Operating funds generally pay recurring expenses such as utilities, management, cleaning, security, landscaping, and routine maintenance.
Reserve funds are intended for larger long-term capital expenses.
Buyers should be cautious about assuming that a large combined bank balance means everything is healthy.
Determine how much is designated for normal operations and how much is actually reserved for future capital projects.
Look at Several Years, Not Just One
A single financial statement provides a snapshot.
Several years can reveal a trend.
If available, compare at least two or three years of:
- Operating income
- Operating expenses
- Reserve contributions
- Reserve balances
- Insurance costs
- Repair expenses
- Owner delinquencies
- Association debt
You are looking for direction as much as absolute numbers.
Watch for Repeated Operating Deficits
If an association repeatedly spends more on operations than it collects, determine how those deficits are being funded.
Possibilities include:
- Using accumulated operating cash
- Reducing reserve contributions
- Using reserve funds when permitted
- Borrowing
- Increasing future assessments
A single unexpected deficit may have a reasonable explanation.
A recurring structural deficit deserves closer attention.
Do Not Judge a Condo by the HOA Fee Alone
Buyers frequently compare condominium buildings based on monthly HOA fees.
A lower fee may seem more attractive, but low assessments are not necessarily evidence of strong financial management.
Consider two buildings.
Building A charges relatively low monthly assessments but contributes little to reserves.
Building B charges more each month but consistently funds reserves for future capital projects.
Building A may appear less expensive until a major project results in a substantial special assessment.
The better question is:
What am I receiving for the monthly assessment, and is the amount sufficient to responsibly operate and maintain the property?
Related reading: What Buyers Need to Know About HOA Fees
Consider the Building's Age
Building age can change the financial picture.
A newer condominium may have relatively few immediate capital needs, although major expenses will eventually occur.
An older building may be approaching replacement cycles for:
- Elevators
- Roofing
- Plumbing
- Windows
- Mechanical equipment
- Exterior waterproofing
- Parking structures
Older does not automatically mean financially risky.
A well-managed older condominium with substantial reserves and a disciplined capital plan may be financially stronger than a newer association that has not planned adequately.
High-Rise Condos Require a Different Perspective
Atlanta high-rises can have particularly complex operating and capital expenses.
Depending on the building, the association may be responsible for:
- Multiple elevators
- Parking structures
- Fire-safety systems
- Large mechanical systems
- Exterior glass or façade systems
- Swimming pools
- Fitness facilities
- Concierge and security staff
- Extensive common areas
A high-rise therefore may need substantially more reserve funding than a smaller condominium community.
Explore our Midtown condo buildings and Buckhead condo buildings to compare Atlanta condominium options.
Review the Financials With the HOA Documents
The financial statements should not be reviewed in isolation.
Depending on what is available for the property, buyers may want to review:
- Current operating budget
- Recent financial statements
- Reserve study
- Recent board meeting minutes
- Declaration
- Bylaws
- Rules and regulations
- Insurance information
- Special-assessment history
- Information about pending litigation
Together, these documents provide a more complete picture of the association.
Financial Health Can Affect Financing and Resale
The association's condition matters beyond your monthly expenses.
Mortgage lenders may evaluate aspects of the condominium project when determining whether a unit qualifies for financing.
Depending on the loan program and circumstances, issues involving insurance, owner delinquencies, litigation, structural concerns, commercial space, reserves, or other project characteristics may affect financing.
That matters even if you are purchasing with cash.
A future buyer may need financing when you eventually sell.
Red Flags That Deserve More Questions
No single item automatically makes a condominium a bad purchase, but buyers should investigate further when they encounter:
- Very low reserves relative to upcoming projects
- Repeated operating deficits
- Large or increasing owner delinquencies
- Frequent special assessments
- Major projects without an identified funding source
- Large association loans
- Rapidly increasing insurance expenses
- Repeated repair expenses in the same building system
- Deferred maintenance
- Financial statements that are old or incomplete
- A reserve study that is outdated or not being followed
The appropriate response is usually not immediate panic. It is further investigation.
Positive Signs to Look For
Conversely, buyers may be more comfortable when they find:
- Consistent reserve contributions
- A current reserve study
- Realistic annual budgets
- Transparent financial reporting
- Manageable owner delinquencies
- Planned capital projects
- Clear explanations for major expenses
- Board minutes that demonstrate active financial planning
Financial strength is usually less about one impressive number and more about consistent planning.
A Simple Example
Suppose a condominium has $1 million in reserves.
At first glance, that sounds excellent.
But imagine the reserve study identifies:
- $600,000 in upcoming garage repairs
- $400,000 in elevator modernization
- $350,000 in exterior work
Suddenly, the $1 million reserve balance looks very different.
Now consider another building with $600,000 in reserves but no major projects expected for several years and consistent annual contributions of $150,000.
The second association could potentially be in a stronger financial position despite having less cash today.
Context is everything.
10 Questions to Ask Before Buying a Condo
- How much does the association currently have in reserves?
- When was the most recent reserve study completed?
- Are actual reserve contributions consistent with the study's recommendations?
- What major capital projects are expected during the next several years?
- Are any special assessments currently approved or being discussed?
- How much do owners currently owe in delinquent assessments?
- Does the association have outstanding loans?
- Has the operating budget produced recurring deficits?
- Have insurance, utilities, or repair expenses increased significantly?
- Do recent board minutes identify financial or maintenance issues not obvious from the statements?
Should You Have a Professional Review the Financials?
If the documents are complicated, the purchase is significant, or something in the statements concerns you, consider having an appropriate professional review them.
A real estate agent can help identify documents and questions that deserve attention, but buyers may also want advice from a CPA, attorney, lender, insurance professional, inspector, engineer, or other specialist depending on the issue.
The goal is not to turn every condo buyer into an accountant.
The goal is to understand the financial obligations you are joining before you own the unit.
Final Thoughts
Buying a condominium means evaluating two investments at the same time: the individual residence and the association responsible for the building around it.
A beautiful unit with a renovated kitchen, skyline view, and excellent amenities can still carry substantial financial risk if the association has inadequate reserves, deferred maintenance, large delinquencies, or major unfunded projects approaching.
Conversely, a well-managed association that budgets realistically, contributes consistently to reserves, plans for capital projects, and communicates clearly can provide buyers with greater insight into the long-term cost of ownership.
Before purchasing, look beyond the monthly HOA fee. Review the budget, balance sheet, reserve information, recent financial statements, board minutes, assessments, and upcoming projects together.
If you're considering a condo in Midtown, Buckhead, or elsewhere in Intown Atlanta, contact The Agency Atlanta Intown. Our team can help you understand the building, identify important association documents, compare condominium options, and ask the right questions during due diligence.
This article is provided for general informational purposes and is not accounting, legal, lending, engineering, or financial advice. Buyers should consult appropriate professionals regarding the specific condominium and financial documents under consideration.
