[NotGolfer]

Yet the OP bought a place here! I don't get people who come and settle in THEN complain about this and that. My opinion is..."some" people have WAYYYYYYY too much time on their hands.

[spinner1001]

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. .

@retiredFinanceGuy

As you know, every successful large corporation has a finance group trying to optimize the company’s cash flows. I believe that you trying to figure out parts of how The Villages developer finances itself. Since this developer is an unlisted company, you might look at the public SEC filings of listed companies with operations and financing similar to The Villages developer to learn more about what you are trying to model. PulteGroup (NYSE: PHM) might be a start. Start with a listed firm’s cash flows from financing activities in the financial statements and the footnotes.

Separate topic — On one of your other posts of about two months ago, did you ever figure out the arithmetic of the bond amortization payments charged to us property owners?

[spinner1001]

Originally Posted by NotGolfer

Yet the OP bought a place here! I don't get people who come and settle in THEN complain about this and that. My opinion is..."some" people have WAYYYYYYY too much time on their hands.

It seems many posters on TOTV.

[BlueStarAirlines]

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.
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. .

I'm not retired yet, but I hope when I do I can have a clean break from the way I used to spend my waking hours......

[Goldwingnut]

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. .

As I read your post it appears to have a major flaw in it, the assumption that the developer is holding this bond. If that's your assumption, you're completely incorrect in your posting.

The CDD's sell the bond through a 3rd party company (major banking institution or investment firm) on the open market. The developer bills the CDD for the infrastructure costs as the infrastructure is built and is paid from the bond proceeds the CDD received from the bond sale.

The developer doesn't hold the bond, manage it, or have any involvement with it. For the developer, the bond is all about cash flow, getting paid for costs incurred. They don't have their money tied up in roads, water lines, and sewer pipes. This allows them to invest it in things like rec centers, golf courses, and pools. The CDD issued bonds is one of the key factors in the developer being successful, by improving cash flow. Because of the improved cash flow the amenities are built with the communities, so when you buy your home or lot you will hear "that IS the 3rd tee for the ... executive golf course" instead of "over there they will build the ... golf course".

The bonds are not loan, they are investment vehicles, so they simply can't be refinance whenever they want and the interest rate is not based on the same factors as a mortgage. What the bond market is demanding is what the rate will be when they are issued. Depending on the terms of the bond they can be reissued to take advantage of the changes in the bond market, for the CDD bonds this is typically 10 years. The investors invest in these bonds with an expected fixed rate of return. The CDD bonds from The Villages area highly rated and rarely last more than a few hours on the market before they are sold out.

The CDDs hold in reserve a portion of the monies received for the bond payment from the Tax Collector's office. Some of this comes from those that pay off the bond early. This money is invested and creates additional income to offset the bond cost. Remember, these are investment bonds and the bond holders aren't really interested in receiving their principal back until the maturity date, they are interested in getting the annual interest payments on their investment.

The developer is out of the picture when you are paying your bond payment with the annual county tax bill. The make no money from the bond and interest beyond the initial payment for the development work.

If you decide to pay off your bond that is a personal financial decision only you can make based on your own circumstances. For me, I made the decision that if I was in the same house for 6 or more years, at that point I would pay it off as I was likely not to move again and I would eliminate long term debt, less than 6 years it didn't make sense to me as I wouldn't recover the costs.

The bond isn't an additional profit center for the developer, you are going to pay for the costs of the infrastructure either in a bond or rolled into the total cost of the home. For the developer the bond is helpful as it recovers the costs quicker than having to wait several years to sell out the entire community.

Buying a home with the bond paid off or not has pluses and minuses for both the buyer and the seller. It can affect the selling price if the seller is trying to recover an early payoff. If recovery isn't a factor in the cost, then it can be attractive to the buyer as they don't have the remaining bond payment in their property tax bill.

The bond isn't used for operation and maintenance cost, that comes out of the annual CDD maintenance assessment for each home. It is strictly for the construction cost. It can't be increased to cover some other costs. It's basically a one and done deal for the CDDs and the home owners.

There are some exceptions to the developer's involvement in the bonds that should be pointed out. About 18 months ago CDD 10 reissued their Phase 2 bonds (they were 10 years old and eligible for reissue), the bond market was more volatile than it had been in recent years so rates were higher than were seen during the reissue of the CDD 10 Phase 1 bonds. The CDD received an offer to buyout the bonds from a local bank at a rate less than what the market rate for the bonds offered, this was a very good deal for the residents holding these bonds. CDD 10 accepted the offer and entered into the agreement with the bank and the residents paying the CDD 10 Phase 2 bonds saw a significant decrease in their annual bond payment. The bank is Citizens First Bank, they have to follow all the state and federal banking regulations just like every other bank must. They operate as a separate business unit not associated with the development, building, and sell of the homes. The bank considered it a good investment of their assets and shows a lot of faith in the long term viability of The Villages as a community and a developement. It was both a strange and scary situation entering into this transaction, as the Chairman of CDD 10 board at the time, I had to sign for the $57 million note with the bank while surrounded by a team of bankers and lawyers. I'm a follower of Dave Ramey's money management principles in my own finances and signing for debt made me a little twitchy, even though I knew that this would be saving the residents several million dollars in interest.

The bond can be difficult for some to understand, I spent almost 8 years on the CDD 10 board and have come to understand the importance, value, and workings of the bonds here in The Villages.

[Bogie Shooter]

Well done, Don!

[edtherock]

Nice job putting this together. Good information and for those who don’t care why post anything at all? Sad to see some of the rude comments in here. Some people are just trolls looking to be negative. —- Buying the villages bonds is a safe way to make money also. They are some of the most highly rated bonds on the open market. Our 20 year old house we recently bought had the bond paid off!( thank you previous owners).

[Altavia]

Thanks Don, very much appreciate you sharing your knowledge and taking the time to explain what bonds are and how they work.

[jrref]

You can't guarantee interest rate income over many years to come. And the longer you wait to pay off the bond the more interest you pay.

I paid mine off and don't worry about it and reduced my long term debt. When I sell my house the $20K will be recoverable in my $1M home.

A paid off bond is just another selling point for your home that you will need if you want to get top dollar when the time comes.

And thanks Don for the accurate explanation!

[Jhrath7@gmail.com]

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. .

In English so we the math idiots can understand!

[tophcfa]

Originally Posted by NotGolfer

Yet the OP bought a place here! I don't get people who come and settle in THEN complain about this and that. My opinion is..."some" people have WAYYYYYYY too much time on their hands.

Hmmmm, re-read his post. He is not complaining, he is trying to figure out the bond from the developers point of view. Your point about too much time on his hands could be argued, but everyone has differing opinions of how free time is best spent.

[Tobys Dad]

Originally Posted by JMintzer

I just checked my Bond balance...

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

Where did you go to check bond balance? Thank you in advance.

[BrianL99]

Originally Posted by Goldwingnut

The bonds are not loan, they are investment vehicles,


The bond isn't an additional profit center for the developer, you are going to pay for the costs of the infrastructure either in a bond or rolled into the total cost of the home. For the developer the bond is helpful as it recovers the costs quicker than having to wait several years to sell out the entire community.

.

Thank you for your input, Don.

As is obvious from the original post and your post, CDD Bonds are an extremely complicated subject and until you've had personal involvement in the (wing) nuts & bolts, it's hard to appreciate how it all works. I disagree that they're not a "loan", but that's simply semantics.

I think the most informative part of your post for those who don't understand the concept, is the sentence above in italics. Buyers have to pay for the infrastructure, one way or the other. If this wasn't a CDD Community, every home would have initially been priced at least 10% higher, to recoup the Developer's infrastructure costs.

You're far more of an expert than I on CDD Bonds, but if you jump into this again, you might want to remind folks that the Interest Rate spread is regulated by the state and not just a number the Developer picks out of the sky.

How are CDD Bonds going to be affected by the current interest rate situation? Interest rates this high, are something we haven't seen in many years. Bond prices move inversely to interest rates, as you know. How will this effect the Developer's plans to the South and resultant bond prices?

[4$ALE]

Originally Posted by Tobys Dad

Where did you go to check bond balance? Thank you in advance.

Residential Bond Assessment Information

[jayteadunn]

@CoachKandSportsguy one thing we learned is if you have the intention of paying off the bond and avoiding the interest you will over pay if you build. After buying land we received the amortization schedule. It showed $35,233.55 if it was paid off saving $22,722.04 in fees and interest. At closing they made us pay $1,933.04 toward the bond that the developer paid. This is the first payment on the bond with the most interest and the fee. So if you are building a home and the bill comes due prior to closing and you were preferring to pay the bond off you will end up paying the first year interest and fee. It would have been nice if they had a system to ask the person building if they intended to pay off the bond but its probably baked into the cake to get that first interest payment and fee.