Bermuda rooftops at sunset



Moneywise : Bermuda

Condominium Ownership Analysis: Is it for You?







Sunset over White Limewashed Bermuda rooftops and the Great Sound

November 19, 2011 - by Martha Harris Myron, revised from original published 2002 the Royal Gazette, Bermuda





Bermuda is a small community with finite resources. Open space is premium priced; those fortunate enough to still have it, hope to be able to preserve it. Housing is expensive with the cost of a single family detached home almost beyond the reach of middle class.

Some families have pooled financial resources to purchase or renovate properties. In a way, they have created family condominiums without the physical and legal constraints of a formal entity called a condominium association. While we love our relatives, warts and all, in some cases these combined family property purchases may just not work from a financial and emotional perspective.

For many families, then, the first rung up the ladder of home-ownership is purchasing a condominium. In Bermuda today, there are many competitive selections; some large structures with 65 or more units, others as small as a dual-connected dwelling. Condominiums can be tastefully designed to fit compactly into spaces that a single-family unit cannot while still preserving remaining land owned collectively as permanent open space for all residents.

Home is where the heart is. There is a large checklist of information you should be aware of before you buy your condominium home. Since for most individuals, this is the biggest purchase of one’s entire life, you (and anyone else purchasing this home with you) should be fully informed of all the facts before you make your final decision.

Condominium structures are unique, generally titled in two types of ownership:  free hold or leasehold. With freehold titling, the purchaser owns an undivided share in the condominium unit. This is accompanied by a vote in the condominium association that owns the common land.

Leasehold titling is a different concept. You may own the condominium but not the underlying land, which is leased from the original owner (freehold). The lease is typically a very long one, i.e. 99 years,  or even longer. You will pay rent to the owner and at the end of lease, if your heirs still own the property, it is returned to the owner. Technically, as the leasehold property is sold and resold, the new sales price may actually be lower than the original sales price since the right of longevity in ownership is gradually decreasing.

There is also a difference in ownership rights and responsibilities between the inner and outer walls of your condominium.  Legal title will generally define individual ownership as all structures within the inner walls of your dwellings, but collective association ownership of the outside walls and everything outside to the land legal structural boundaries. 

This creates the interesting situation where all of the common areas including the outside walls are maintained through the collections of the condo assessment fees, but the insides of each condo are treated like separate homes. You may have an individual mortgage for which you are personally responsible that is legally separate from the assets and liabilities of the condominium association.

Within condominium associations, many rules and covenants are generally put into place so that all residents can have in the classic real estate sense, “the right to quiet enjoyment of their home.” Covenants will pretty much eliminate having your own mini-farm with egg-laying free-range chickens (and a rooster) in your back yard (although I bet half the time you chase off those feral ones who waltz up without permission just like they owned the place), but may be too restrictive about other rights, such as the use of traditional clotheslines. First-time condo home buyers may not realize that they have a vote on many of these rules, since they are also percentage owners in the association.

Being a cash counting financial planner, I have a personal agenda about excess energy consumption in such an expensive place to live and feel that everyone should have the right to a clothesline utilizing 340 days of sunshine a year. It is a conservation fact that an electric clothes dryer costs $5 per load, but the sun is free.

The condominium association, for its part, must collect condominium fee every month, and run the association as a business. It has debts, utilities, water, landscaping, and road maintenance, pool maintenance, insurance coverage to maintain for fire, catastrophic events, and so on. And since everyone owning a condo generally is employed during the day (or is an absentee landlord, more on this later), many condominium associations in turn will hire a management company to handle these business affairs. Add another layer to the stratification; the homeowner inside, the condo association outside and the management company even further removed. 

Your monthly condominium fee is broken into several different chunks: Part to running the condo association business, part to the management company to oversee the maintenance (and rental of some units, etc) and I cannot emphasize enough, the most important and usually the biggest part of your monthly condominium fee should be set aside to be invested in the capital reserve account for future contingencies and repairs.  

What are those? Major painting jobs of the entire complex; roofing replacement, re-enforcement of structural outside walls after storms and so on. What you may not realize is that as a condo homeowner, it is your right (and your duty) to be sure that the capital reserves are fully collected from everyone in the complex and just as fiercely protected for the future. Have you heard of the term “special assessment”? For the record, this assessment occurs when there is not enough in the capital reserve (for whatever reason) to pay for a major structural repair. In the event of an assessment, every owner will have to ante up the capital charge. If you have not set aside personal contingency funds, you could find yourself taking a further charge on your mortgage.

Suggested Items to Research on Condominiums

What is the Composition of the other owners in the condominium complex? You already know who you are!

a.   Number of units with Absentee owners, living here or living abroad?

b.   Number of units with Tenants, are they long-term leases or short-term leases?

c.   How many units unoccupied at any one time and length of time remaining so?

d.   How many units are owner-occupied and the length of time they have been there, on average?

Why are these questions a factor?

Consider a) above - If there is a downturn in the economy and the absentee owner runs into financial difficulty, either here or abroad, he may decline to make all the payments. The absentee owner pays the mortgage, but starts skipping the monthly condo fee. Ever try collecting anything from someone living in another country?

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 neglected look.

c) Empty rental units sitting for longer than market average and high turnover in rental units indicates that there may be problems with the complex itself. Ask more questions.

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

Note. These are legitimate queries. 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.

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 Condo Associations do not want the bother of this type of business and hire a management company to supervise for them.

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? Try to get comparisons with other Condo 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? And 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, sewer, 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 authorizes capital reserve expenditures and when? Board of Directors? Management Company?

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

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

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

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

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

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

9.   When was that and why was everyone assessed?

10.   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 their share? Not patch that roof, not pave that part of the road? Ostracize the family? It all reflects upon your home as well. Condominium associations must be run as a professional businesses.

Financial Health of the Condominium Association: As a potential buyer, or new Home owner, you also need to know the following financial information. Make sure it is current!

1.   Ask for and review the balance sheet, income statement. If these are not your forte, get an accountant friend, or pay to have someone look at these. Trust me, it is worth the expense to know that your future home association is solvent.

Balance Sheet

2.   Look for accounts receivable balance. How much and how old are they? This is a good indicator of the health of the owners and the Association because receivables are indicators of the amount of condo fees that have not yet been paid.

3.   How much cash in checking account?

4.   How much actual capital reserve held in cash? Is the capital reserve allotment being set aside each month? You might want to have a couple of years financial statements to look at.

5.   Is the Condo Association Audited?

6.   Who has access to the accounts and the checkbook?

7.   Look for Accounts Payable balance. How much and how old are these invoices?

8.   Who are the Major Vendors? Do they have conflict of interest with The Board or Owners? This means, are individuals on the Board of Directors also are performing work for the Association? Is the work bid out?

Income Statement

9.   Does Condo Fee Revenue for the year appear about right? Try the average Condo fee times number of units times 12 months and see if it appears reasonable.

10.   Do any expenses look excessive on the income statement? Look at accounts called miscellaneous. If those are large numbers, ask what those entail and request a copy of the invoices.

11.   Did the Association have a surplus at the end of their fiscal year? A lot, a little? Too large a surplus means that Condo fees could be lowered, or it could mean that the Association is trying to build additional reserves.

10.   Does the Association have a yearly budget and is it meeting its budgetary goals?

11.   Are there any stated or unstated liens on the Association? Or lawsuits?

Anecdotal evidence again. A condo unit owner had to go to court to gain access to underlying invoice documents being paid out of condo fees. A relative (who did not own or live in a unit) of another condo owner was in charge of all bill paying functions and was receiving a salary as well. The court ruled that the condo fee had to continue to be paid even though the bookkeeping was under scrutiny. In these cases, none of the alternatives are palatable.  Do you dig your heels in to have better reporting, or move on?

If the Association uses a Management Company?

1.   Place look well maintained?

2.   How old are the units? Show evidence of careful maintenance?

3.   Who performs the maintenance? Are repairs handled in a timely manner?

4.   How are the utilities handled?

5.   Where is the water supply, how metered, do you share with another owner?

6.    How often spray for pest control, etc?

7.    Ask other owners if they are happy with the Management Company.

8.    Any noticeably bad odors? One complex visited many times here in Bermuda over the course of year never solved a septic problem. It was not, and I repeat, not a great place to come home to.

Some condo owners have become very independent and released their management company. They’ve taken over the maintenance themselves, almost like real single family homeowners. They have lowered their condo fees and feel more in control of their lives.

Beware of this move too; if you work sixteen hours a day, you don’t want to be accused of not ‘contributing your labor’ to the condo maintenance group.

Last, But Not Least:

  • Take the time to interview other tenants if you can, preferable renters, regarding their overall impression about living there long-term
  • Find out average number of days any units for sale have been on the market.
  • Are the units appreciating in value?
  • How is the water supply handled, does each unit have its own tank? Imagine the vexation in having party people next door practicing ultra-clean hygiene. You get up to head to work, no water for you!
  • Check all the covenants in the Association documents, in particular, what are the rules about unrelated parties residing in each condominium unit, including using your parking space, and overloading the septic systems
  • Watch for poor construction, such as particle board that eventually blows up in the humidity and monitor the thickness of privacy walls. At that same odoriferous complex described above, one could hear the neighbor going up and down stairs at all hours of day and night.
  • Pay a few visits at odd or different times. Things still look good?
  • Give it the image test. Does the place feel like, look like (smell like) home?


If it doesn’t, you know what to do. Keep Looking!




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