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What is a Planned Unit Development (PUD), and Is It the Right Investment for You?

Is it a condo development? Is it mixed-use? A single-family home community? The answer is YES, a planned unit development could contain all of these, or just one.

[Updated: Feb 04, 2021 ] Mar 17, 2020 by Lena Katz
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If you've ever looked for a residential property in a gated community, condominium development, or townhouse community, you may have been looking at a planned unit development (PUD). But that's not a definite. It can be tricky to determine which communities and complexes are PUDs, because the term is descriptive of a type of ownership rights, not a property style. Thus, the differentiators are not entirely visible.

While PUD as an acronym is not particularly appealing, the lifestyle inside one is ideal for some people, offering the appeal of single-family housing along with the amenities of a condominium complex and the mixed-use commercial offerings of a tiny town.

The downsides are that PUD homes sometimes are burdened with more HOA-governed restrictions than they would be in a fee-simple single-family home situation.

A PUD is a Common Interest Development

To begin understanding what a PUD is, let's look at the umbrella category of Common Interest Development (CID). This describes a planned development where the residents have shared use of amenities and common spaces, and where they also share certain financial obligations and community bylaws, outlined in covenants, conditions, and restrictions, or CC&Rs.

The ownership rights in any CID are more limited than fee-simple ownership, but the trade-off is that the owners have access to common spaces and amenities that they couldn't necessarily afford if paying the full cost.

Three characteristics of a PUD

  1. Homeowners-association (HOA) governed with mandatory membership for all owners.
  2. Shared access to common spaces and amenities not owned by individual homeowners but by the HOA.
  3. Individual owners in a PUD own the lot as well as the structure, but no fraction of the amenities.

What distinguishes a planned unit development (PUD) from a condominium?

It's important to note that the classification PUD denotes a type of interest in land, not a physical style of home. There are a number of development types under the CID umbrella, but the two most commonly conflated are condo and PUD.

While sometimes condo developments can be PUDs, they often are not. This is because condominium ownership generally tends to only cover the structure, whereas PUD ownership is usually of an entire lot. However, typical condominium ownership also grants the owner a percentage of ownership of the common spaces, whereas an owner in a PUD would not own any interest in the common spaces.

A best-case scenario for a condominium development that is also a PUD would be one in which each owner owned their own lot and also a fraction of common space. In this case, the units would probably be categorized as townhouses. The most limited ownership would be only of the structure itself -- excluding ownership of shared walls and the exterior.

Planned unit development creation

As one of the fastest-growing types of residential development, PUDs are a topic of interest to investors and regular homebuyers alike. Local governments will sometimes also push investors/developers toward developing large parcels of land as PUDs as a way to get around traditional zoning.

What does a PUD look like?

This is a trick question, because there is not one specific look that defines a PUD. Some look like condominium developments, some look like townhouses, and some look like gated communities of single-family homes. Some will look like a mix of building styles, such as apartments, condos, and villa-style homes, within one development.

Do PUDS allow some mixed-use construction?

Yes, a certain percentage of the land is fine for retail usage. So, one of the benefits of certain PUDs is that they feel like tiny towns, where you can have a gate-secured home with luxury amenities as well as a grocery store and some retail services.

What do PUDs and condos always have in common?

Three commonalities that PUDs and condos always share are:

  1. Owners own the structure of the individual residences.
  2. Developments are governed by homeowner association bylaws.
  3. Homeowners share access to common amenities.

PUDs and financing

How do the federal entities view PUDs?

PUDS must be approved by the U.S. Department of Housing and Urban Development (HUD) in order to be eligible for federally backed loans. Similar to the requirements for condos, PUDs must be able to show that their HOA has sufficient budget reserves and minimal delinquent association dues.

HUD is okay with PUDs having a mix of different building types, including commercial/retail and green spaces/parks -- although the PUD should be primarily residential.

How is a PUD listed on an appraisal?

What distinguishes a PUD on a title is the notation of mandatory -- not voluntary -- HOA dues. However, mortgage underwriters are taught not to take an appraiser's word immediately that a property qualifies as a PUD but to ask them how they reached that conclusion, and if doubts remain, to request a copy of the subdivision documents or the CC&Rs.

What should you consider before investing in a PUD?

If you are considering investing in a PUD from a larger perspective; i.e. investing in a development, you need to understand how easy or difficult it will be for the developer to work with local government and interest groups. Sometimes PUDs offer more flexibility for innovative building and greater efficiencies of space usage. Other times, they lead to endless back-and-forth negotiations.

If you're considering investing more modestly, like in a single-family home in a PUD, realize that you'll be under all the same constraints as you would in a condominium complex -- only, perhaps with slightly more favorable ownership terms (like owning the ground on which the home is built) and a single-family home aesthetic.

Living in a PUD

The biggest thing to note is that a PUD is always HOA-governed, so if you place a priority on owners' rights, you may never feel fully autonomous or free. You'll always have dues as well as certain rights and privileges that will be determined by the vote of your neighbors.

The upside is access to all sorts of common spaces, ranging from pools and fitness centers to marinas, playgrounds, and more.

Some PUDs have few amenities and common spaces, but their monthly HOA dues are also significantly lower. This is often the case with townhouse developments. Nonetheless, when you live in a PUD, there's a definite sense of being in a close-knit community that is gated off from the larger city.

What purposes are planned unit developments best suited to?

As a first-time home purchase, PUDs make a lot of sense because they offer more luxuries and more security for the money. People also tend to like PUDs as vacation homes because maintenance and security are typically under the oversight of the HOA, and therefore require out-of-area owners simply to pay their dues, not actually look after contractors and projects.

Because PUDs are always HOA-governed, in order to know whether one would make a good rental property, you have to carefully review the individual CC&Rs -- specifically the rental restrictions. Some will be more lenient than others.

Responsibilities of a property owner in a PUD

A property owner in a PUD will be responsible for maintaining the look and condition of their home to the standards outlined in the development's CC&Rs. This may require the homeowner to oversee certain improvements to their individual property, or it may be a matter of paying the HOA whatever sum is necessary for the maintenance/improvements.

Owners are also responsible for abiding by the community bylaws, however, those are outlined in the CC&Rs. This may include rules about how the lot should be landscaped or how many/what size pets are allowed.

Is planned unit development right for you?

Because of the flexibility and cost efficiencies, PUDs are right for many residential buyers. It's also a case-by-case question -- one PUD may not be right, while another may be perfect. The most important thing is to know what you're buying, what your rights will be, and what sort of additional costs and resale value this will lead to down the road.

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