[Villages Kahuna]

When the developer of TV begins the development, he has to grade the land, install roads and sewers, utility lines, street signs, roadway lighting, etc. The total cost of this construction for each community development district (CDD) is divided among the houses built in that district on an ad valorem basis. That is, the front-end costs are divided among the houses in the CDD based on the selling price of each home. (The more expensive homes pay a greater proportion of the costs than the less expensive homes.)

Another poster here was correct in observing that every new residential development has similar costs, but their developers handles those costs in different ways. Many simply include their land development costs along with a price he sets for each lot in his development, along the cost of actually building each house in the development, then adds his desired profit margin in order to arrive at the selling price of each house. In the Villages, the developer separates the land development costs from the price charged for each lot and the price of each house model. When a prospective buyer is considering the purchase of a house in TV, he is faced with three costs: the price of the lot he chooses (larger lots with golf course views are more expensive than smaller lots with no views); the price of the house he chooses; and the amount of the bond (or land development costs) associated with the particular lot and house he is considering.

The price of the lot and house must be paid to the developer at closing. The developer actually "pays himself" for his land development costs up front by having the CDD, which the developer controls initially, issue a municipal bond, the proceeds of which are used to repay the developer for his land development expenditures. So, at some point each CDD "begins life" with the obligation to pay the interest on and eventually repay the municipal bond principal which reflects the land development costs in that CDD.

The home buyer has more flexibility with regard to the payment of the bond associated with his new house. He can opt to pay the bond amount associated with his house "up front" or he can pay it off over the term of the underlying municipal bond that was issued. The amounts paid by homeowners up front are then used to reduce the principal amount outstanding on the municipal bond. Those homeowners who choose to pay their bond obligation over the life of the underlying bond pay their bond obligation divided by the number of years until the maturity of the municipal bond plus interest at rate of the underlying municipal bond for their CDD.

Home owners who choose not to pay their bond obligation up front have even more flexibility. Each year at the time their real estate taxes and bond payment are due they are given the option of paying off the remaining portion of their bond obligation, thereby avoiding any future payments or interest. Again, if interim payments such as this are made, the payments are applied to the reduction of the amount outstanding on the municipal bond.

So there you go. That's my best shot at explaining what "the bond" is and how it works. Unfortunately, TV developer, in attempting to define and separate all the costs associated with each house clearly, has created one of the least understood elements of the cost of buying and owning a house in TV.