[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. .

[Marathon Man]

Whatever Dude.

[mtdjed]

Originally Posted by 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. .

Well, I understand the reason for the bond. I just paid it and don't worry about it.

[tophcfa]

Originally Posted by Marathon Man

Whatever Dude.

Sortsguy is just going through “recently retired syndrome”. It happens to many folks in his shoes. Having created financial models for many years, it’s a process to break away from what he has had to do for a living. Give it time, it took me a very short while to recalibrate my new priorities. The most important spreadsheet I keep now tracks my daily lap swimming, rounds of golf, and bike rides. Not that the statistics are overly important, it simply quantifies baselines to set newer and higher goals to achieve. I’m confident Sportsguy will get there soon : )

[Topspinmo]

It’s money maker, they don’t want you to pay it off.

[justjim]

OP, our Son has a MBA in finance. A few years ago ,after a couple visits to The Villages, I remember him saying that The Villages business model is the best he has seen. “They have taken the Community Development legislation (CDD) and used it to its potential”, he said. Good for them.

[BrianL99]

Originally Posted by justjim

OP, our Son has a MBA in finance. A few years ago ,after a couple visits to The Villages, I remember him saying that The Villages business model is the best he has seen. “They have taken the Community Development legislation (CDD) and used it to its potential”, he said. Good for them.

They've gone above and beyond the intentions of the CDD legislation and expanded its potential, far beyond what was envisioned by the creators of the CDD framework.

https://www.**************.com/2020/...-the-villages/ ("Taylor, who later defected to KD Premier Realty, said in training she learned it was “heavily” discouraged to encourage people to pay off the bond.

“I could see a reason for The Villages to not want me telling them that because the interest rate, to the best of my understanding, is paid back to The Villages. Which is the train of thought, looking back on it now, why they would have encouraged us, as sales representatives, to tell people not to pay the bonds off,” she testified in the deposition.")

IRS Decision on Florida Community Development Districts: Commercial Is Out; Residential May Be In | The National Law Review

IRS relentless in probe of Villages bond transactions

IRS decision on Villages' tax-exempt bonds worries residents

Villages Settles Lawsuit | POA of The Villages

[4$ALE]

Someone may want to search "Gary Moyer"

[biker1]

I suspect one of the reasons why The Villages sales agents tend to suggest that you not pay off your bond is because it may increase the probability that you will buy another house. Perhaps with the bond paid off, you are more likely to stay put??

In our own case, we paid off the bond - about $22K. The thinking was that we would probably be in the house for at least 10 years. During this time, we will have paid about $14K in non-deductible interest and fees and about $3K in principal. There is definitely a cost to the lost opportunity if the money was invested but the returns have uncertainty. For those who didn't pay if off, it was refinanced recently and the annual payment appears to have dropped about 13%.

Originally Posted by Topspinmo

It’s money maker, they don’t want you to pay it off.

[JMintzer]

I just checked my Bond balance...

Just over $18K @ 3.82%. 21 years left... Cheap money...

[BrianL99]

Originally Posted by Topspinmo

It’s money maker, they don’t want you to pay it off.

https://www.**************.com/2020/...-the-villages/ ("Taylor, who later defected to KD Premier Realty, said in training she learned it was “heavily” discouraged to encourage people to pay off the bond.

“I could see a reason for The Villages to not want me telling them that because the interest rate, to the best of my understanding, is paid back to The Villages. Which is the train of thought, looking back on it now, why they would have encouraged us, as sales representatives, to tell people not to pay the bonds off,” she testified in the deposition.")

[MrChip72]

Originally Posted by JMintzer

I just checked my Bond balance...

Just over $18K @ 3.82%. 21 years left... Cheap money...

Mine's even lower. Closer to 3% with 28 years left. It would be silly for me to pay it off when even my worst investments are making much more than that after tax.

[Altavia]

Originally Posted by BrianL99

https://www.**************.com/2020/...-the-villages/ ("Taylor, who later defected to KD Premier Realty, said in training she learned it was “heavily” discouraged to encourage people to pay off the bond.

“I could see a reason for The Villages to not want me telling them that because the interest rate, to the best of my understanding, is paid back to The Villages. Which is the train of thought, looking back on it now, why they would have encouraged us, as sales representatives, to tell people not to pay the bonds off,” she testified in the deposition.")

Or it could be they should not be providing financial advise at all.

And the remainder of your understanding is incorrect.

[Altavia]

Originally Posted by biker1

I suspect one of the reasons why The Villages sales agents tend to suggest that you not pay off your bond is because it may increase the probability that you will buy another house. Perhaps with the bond paid off, you are more likely to stay put??

In our own case, we paid off the bond - about $22K. The thinking was that we would probably be in the house for at least 10 years. During this time, we will have paid about $14K in non-deductible interest and fees and about $3K in principal. There is definitely a cost to the lost opportunity if the money was invested but the returns have uncertainty. For those who didn't pay if off, it was refinanced recently and the annual payment appears to have dropped about 13%.

Banks love people who think like that.

$22k would have grown to $40K if invested at 6% for 10yrs.

Plus it is unlikely you will recover that $22K at time of sale, much less the $40 it would have grown to safely invested.

[biker1]

The lost opportunity cost might be real, albeit the future returns were unknown at the time, but you ignored the fact that over 10 years we will have paid $17K anyway in annual bond payments.That money would be gone with virtually nothing to show for it. The bond is amortized like a 30-year mortgage so most of the interest is in the early years. That interest, plus the $100 annual service fee, is not tax deductible, unless you are a tax cheater. So, at the end of 10 years I paid $22K instead of $17K and there is really no telling how much of the $22K we will recover when we sell. The annual carrying cost on the house is now $1400 (lower than the initial $1700 before the refinance of the bond last year, the initial interest rate was just shy of 6%, IIRC) less than if the bond was still in place. An astute buyer will recognize this and it may support a higher sales price. Neither you nor I know.

I could have left the money invested and used the returns to pay the annual bond payment but this would have required an annual return in excess of 8%, depending on tax bracket. Safe returns in that neighborhood didn't exist 10 years ago. If those returns were available and were used to pay the annual bond payment then the original $22K would not be growing (i.e. it is not $40K). Since those safe returns weren't available 10 years ago, the $22K I paid upfront to eliminate the bond would have been spent down to some unknown level, with a bond payment still in place after 10 years. Let's assume I could have gotten an after tax return of 5% on the original $22K. This would have resulted in a shortfall of about $600 per year. So at the end of 10 years my $22K would have been down to $16K, and I am still paying the bond and the returns on the "balance" still won't cover the bond payment so the "$16K after 10 years" will continue to go down.

Originally Posted by Altavia

Banks love people who think like that.

$22k would have grown to $40K if invested at 6% for 10yrs.

Plus it is unlikely you will recover that $22K at time of sale, much less the $40 it would have grown to safely invested.