Are CDD Community Development Districts expensive to live in?
Many buyers unfamiliar with the concept of Community Development Districts, such as Naples Reserve or Winding Cypress, often think that CDD fees are just another way to increase property taxes without any benefit to the owner. This is a valid concern of many buyers new to these communities and wondering what is a CDD, why does it exist and is there any benefit to a buyer or should they avoid these types of communities?.
There have been many articles and posts written detailing the lengthy and legal technicalities of originating, operating and maintaining a community development districts. So this post is simply answering the question, "What is a CDD community and should a buyer stay clear of purchasing a property in one" because of the additional fees added to the property tax bill?
What is a CDD community?
In very simple terms, it's a special purpose unit of local government that is set up to develop, manage, fund and maintain parts of a community, known as a Community Development District. Examples of CDD communities in the South Naples Real Estate area are Naples reserve Community development district, Esplanade at Hacienda Lakes, Winding Cypress.
Why does it exist?
CDD community is where a builder/developer of a new construction community has decide to not use or doesn't have sufficient funds of their own for building part of the the community and infrastructure. By creating a CDD community, funding can be raised through the sale of bonds. These funds are can then be used to build parts of the community or infrastructure needed. (Which could be roads, lighting, storm water drainage, clubhouse, etc.) The cost of this funding is then paid for over a period of time, usually between 20-30 yrs, by the property owners living and using the community infrastructure. The CDD fee is added to the property tax bill.
What's the benefit of a CDD community, if any?
A community development district is able to provide improved or upgraded community amenities or infrastructure that may not have been possible without the CDD funding. In some cases it could be the difference between a community having or not having sufficient storm water drainage to eliminating flooding or a resort style pool, etc.
Should a buyer avoid a CDD community?
The simple answer is no and here's why.
If the developer had used all their own funds or taken out a short term loan to pay for all this community development, the developer would need to recover that cost or repay the loans before the community is completed by higher sales prices of all homes sold. This could increase the home prices by many thousands of dollars and make them too expensive for the market, yet buyers want these community improvements.
If they fund part of this community development cost separately, via CDD bonds which are paid for over say 30 years and not added as a one time big increase onto the home price, then the initial cost of the property is often less and more affordable to many buyers while still having the community facilities they desire. These buyers in a CDD community also the advantage of paying this cost over say 30 years rather than having to pay for it in the initial home price and seeing as few people stay in a home for more than say 7 years, when they sell the home they have only paid these costs for years they used the community facilities, in this example 7 years, and the remaining CDD balance is paid by the new owners of the home.
So a way to look at a CDD is to think of it as a portion of the community and home cost that is not paid for in full at closing, so you get a lower cost when you buy but you pay it back only in the years you own the home and when you sell the home, the new home owner then pays the rest.