[CoachKandSportsguy]

So, how does the bond payment work from the Developer's point of view? And how does the developer price our bond interest rate relative to the public bond floated to be sure that the 99% of the cash is available to pay off the bond in 30 years, when the bond holders get their principal back? took all of about an hour with a cup of coffee this morning. .

So I created a developer's point of view cash flow model for developing a 100 unit development, with a $3.0 Million bond with a 4 percent interest rate (The model has yellow input cells to change any development size, bond size and interest rate)

Because the bond is floated and interest is paid to bond holders before the units start paying the bond assessment fee, there is a cash flow timing issue, which the model clearly shows.

Developer Bond Model inputs:
Developer total bond float
Developer bond floated interest rate
Developer bond length of time
Developer interest rate for interest earned on bond escrow, which is the segregated account holding cash and earning interest to pay interest annually and the principal in 30 years.

Resident Bond Model Inputs:
Developer total bond float
Developer bond length of time
Resident bond interest rate
Resident prepayment assumption

So to have 99% of the bond interest and principal payment available in 30 years, due to the timing mismatch of receiving payments with about a 2 year delay from floating the bond to receiving residents bond payments, the resident bond rate is higher than the developer bond rate. as well as having as near zero escrow cash balance after the resident 30 years of payments

The image below shows the 30 years of model cash flow from the Developer and Resident point of view, with the resident view in total payments. . Note that the developer can't spend all the bond in the first year to maintain enough escrow balance to pay the bond interest prior to getting resident payments. . And most likely the developer will spend it all in the first 3-4 years as the development has issues etc. This model assumes that NO payments come from the developer's income from sold lots and houses, which I can add which can accelerate the developer's use of the bond, but that would be the entire P&L of the investment project, which has too many unknowns or assumptions to create for me to simply model in an hour plus. .