Last week we spent some time in discussing the ownership structures of condominium associations. These types of housing represent an enormous change in the way real estate has been developed over the last 30 years. Many people, who may have been resigned to renting their entire lives, have found that they can 'get in on the ground floor', by purchasing in a condominium complex.

Granted, it is not the little Bermuda cottage with a garden and water rights, but it is a terrific start to building equity in your future financial security. Even so, when the suggestion has been made in a financial planning conference, the idea often has been outright rejected.

"I'm not living next to a bunch of other people! What if I don't like them and they are rude and noisy?" Precisely. This is why the original of this series of articles appeared more than six years ago.

It was obvious to me then that given our tiny land mass, and the rapid acceleration in housing prices, this was a concept that would just explode.

There are great condominium complexes out there, and some not so terrific. I can immediately think of a few that everyone knows and likes, but they cannot be named.

Conflict of interest, even though I receive nothing for promoting this housing product.

You must be a serious shopper, though, and find the well-built, harmonious, financially sound ones, however, by doing your own research.

Let's start with the neighbours and everyone's collective financial responsibilities. Continuing from last week: b) What happens if the absentee owner cannot keep a tenant in the unit? This is a double whammy. He/she may not be able to meet the mortgage payment either; the unit lies empty and starts to take on that abandoned look.

c) Research sales turnover. Are units Empty for longer than market average? High turnover in rentals indicate that there may be problems with the complex itself. Ask more questions.

d) Generally, the more units that are owner-occupied, the more stable a complex. Everyone, when owning his or her own home that they have worked, scrimped, and saved for, has pride of place.

Caveat: You do not want to be placed in the position of providing interest free loans to carry costs for absentee owners.

Neglected units may affect the value of your unit. All owners must be vigilant in detecting defaulting on liability owners, and put procedures in place to assess fees immediately. Fees, fees, and more fees. Condominium owners are assessed monthly.

Condominium fees. Just what are these fees for? They run the Condo Association that supervises the complex as well as taking care of ordinary maintenance and expenses. Some condominium associations do not want the bother of this type of business and hire a management company to supervise for them. Others have gone that route; then reversed course and taken on maintenance themselves. There are advantages and disadvantages to both.

1. Ask how are the fees are split between the Condo Association capital reserve and operating expenses?

2. What are the operating expenses of the Association? Are the contracts with vendors hired under fair bidding? Try to get comparisons with other Condominium Associations in Bermuda to see if per unit, these are of comparative average value, not too high, and just as important, not too low. You don't want to have to contribute more later, just when your own budget is strained.

3. Have all condo owners paid their condo fees on time? If not, why not? Moreover, what steps has the condo association taken to get them to pay up? How many are in arrears and for how many months? These are not nosy questions. They all have a direct bearing on the overall financial health of the condominium complex as is explained further.

Capital reserve: Just about every condominium association has one. This is saving for a rainy day on a grand scale. There are always certain major projects that have to be undertaken every few years: re-tarring the road, roof and wall painting, major septic repairs, water filtration and leakage issues, sport facility and playground construction, capital improvement items. Capital expenditures add value to your group of homes.

Ask if the Condo Association is planning any major expansion, for how long, and how detrimental the construction will be to the present owners? Construction schedules can run amok for many, many reasons. You don't want to be without water, sewers, driving over rubble and sand or not be able to go outside for months at a time.

You will also want to know the following:

4. Who authorises capital reserve expenditures and when? Board of Directors? Management company?

5. What decision do you have as an owner, in approving these expenditures?

6. When was the capital reserve last used? How much was it? How much is left?

7. When is next capital project expected to need to be done?

8. .Is the capital reserve adequate for this project? If not, why not? These projected amounts should be built into the monthly condominium fee and accrued in an interest bearing account.

9. What is the interest rate on the capital reserve?

10. If there was not enough in the capital reserve, did the Condominium Association have to call a 'special assessments' levy?

11. When was that and why was everyone assessed?

12. Has everyone who was called on the special assessment paid? If not, how much is still owed?

Why do I bring these issues up? In one condominium complex that I dealt with (12 units), all owners were called on for a special assessment. It was a major repair project and it hurt every pocketbook. Eleven out of the twelve owners paid. The twelfth did not, although his family continued to drive the Mercedes, the SUV and take trips.

So, what do you do? How do you force someone like that to pay his or her share? Not patch that roof, not pave that part of the road? Ostracise the family? It all reflects upon your home as well. Associations must be run as professional businesses.

Stay tuned for scrutinising the balance sheet and income statement of your new condominium association. It's your money in Condo Living Part III.

Martha Harris Myron is a Senior Wealth Manager at Argus Financial Limited, specialising in comprehensive financial solutions and investment advisory services for individual private clients and their families, business owners, endowments and trusts. DirectLine: 294 5709 Confidential email can be directed to mmyron@argusfinancial.bm

The article expresses the opinion of the author alone. Under no circumstances is the content of this article to be taken as specific individual investment advice, nor as a recommendation to buy/ sell any investment product. The Editor of the Royal Gazette has final right of approval over headlines, content, and length/brevity of article.