Understanding a Community Development District (CDD)
Thanks for being with us again, everyone!
Today we’re going to cover what is commonly known as a “CDD” – a Community Development District. We are often asked what a CDD is and, not only that, but how to handle it and help your customers when it is a part of your deal.
Generally speaking, a CDD has been established by a developer when he needs help paying for infrastructure on a project. Examples of this are places like the villages and other large scale projects. The cost of putting in roads, utilities, and other necessities in these areas is astronomical. It can prohibit the entire development of the property if the developer can’t get a loan big enough, which usually happens just because there are no people living there yet.
The state legislature has recognized that there is a value provided to the community as a whole when developers come and develop these properties and, because of this, the legislature provides for the establishment of a community development district. Once the paperwork is completed and all the figurative hoops have been jumped through, the CDD will allow the developer to borrow money to pay for the infrastructure of their project.
However, if a developer borrows money through a CDD, the costs of those improvements are eventually born by the people that ultimately buy the property. This is paid as a part of their annual taxes – every year they will pay a ‘CDD’ portion which will be visible on their tax bill.
It’s important for you to know if a property in your deal has a CDD. Obviously, on the buy side, you will have to prepare your client for the fact that there is an additional cost that will have to be paid. If you’re listing property that has a CDD in place, you need to be able to explain what a CDD is to any potential purchasers.
You need to have a basic working knowledge of what a CDD is and, as we have outlined about, it is simple: it is established when a developer borrows money to pay for the infrastructure of a project and is paid back eventually through an extra tax on the property by the eventual purchasers.
Currently, we don’t see it that often but, since it is a good vehicle for large scale development of rural areas, you can certainly expect that we are going to see it more and more in our area. Any time you see large areas being developed and believe you may be helping buy or sell homes there eventually, be prepared to find out if they have a CDD in place.
If you have any questions about how a CDD works or about any other topic we have covered, we can be reached at: 352-394-7408.