PUD in real estate is a planned unit development. They are more flexible than more traditional subdivisions, and they are legally structured like a condominium. Whether or not this is the right investment for you depends on your situation. They have: 

  • More flexible zoning 
  • Homeowners’ Associations (HOA)  

If you decide to buy one then you should tell your lender about it as soon as possible, because they want to see the HOA’s documents.  

Determining if the Property is a PUD in Real Estate

Fannie Mae and Freddie Mac consider a property a PUD if they meet the following characteristics. 

  • Individual unit owners own or lease a parcel of land with a dwelling that is not in common with other owners. 
  • The development has an HOA that maintains property and improvements
  • Owners have an automatic, non-severable interest in the HOA and pay mandatory dues or assessments. 
  • Zoning is not a basis for classifying a subdivision as a PUD. 

If you are unsure refer to your contract, appraisal, title commitment, or covenants. All of these should indicate the property type.1  

Difference Between a Subdivision and a PUD in Real Estate

There are two major differences between a subdivision and a PUD. They are: 

  • Subdivisions do not have HOAs.  
  • Subdivisions are single-unit properties, each owned by one owner. Where a PUD is one large property, and each owner has percentage ownership of the total. 

These have a very big effect on land use because a PUD operates much like a condominium. Each owner owns a percentage of the total development and has a private lot within the community. This allows the developer to divide the area into smaller lots with big open spaces and still be compliant with zoning laws. 

In one county in Tennessee zoning restricts residential land use to 1.089 buildings per acre. In the hypothetical example, a builder wants to develop 100 acres of scenic, hilly land. Whichever development he/she chooses to build he/she is limited to building 92 houses. However, he/she wants to build as many houses up on the hills as possible for the great views. 

For a traditional community, he/she must space all the houses .92 acres apart, so some would be on the hill and some in the valley. If he/she chooses to build a PUD the houses can all be up on the hill with smaller lots. 

Owners don’t just buy small lots, but they purchase a percentage of the whole community. They have access to the vast open spaces on the 100 acres. There may be hiking trails, tennis courts, a clubhouse, or other amenities.  

The PUD must have an HOA to take care of these amenities and open spaces, as well as enforce covenants and restrictions. Without the properly maintained open spaces, the whole community would be in violation of zoning laws in the area.

Purpose of PUD Zoning

The purpose of planned unit development zoning is to give greater flexibility to builders. It permits a developer to: 

  • Meet overall density and land use goals without rigid lot standards and categories 
  • Cluster individual lots in a smaller space 
  • Preserve open spaces 
  • Be creative in uses of land mixes (residential and nonresidential) 

The local government must approve the plans for these communities, and that plan becomes part of the public record.2  

Is It a Good Investment? 

Whether a PUD is a good investment depends on the person buying it. They have advantages and disadvantages, just like any other property. Strictly as an investment, though, there are a couple of points that you should think about: 

  • You own a share of a larger property, so you don’t have complete autonomy over the land. 
  • The competence and diligence of the HOA have a lot to do with how the property maintains its value. 

You do not have as much control as you would if you owned the home in a traditional way. If the HOA is good then the property’s value remains high relative to other houses, but if it is bad then values drop. If you are handy you may want more control, but if you are not you may appreciate the association taking care of everything for you. 

What does PUD Ownership Mean? 

PUD ownership means that you own a lot within a community and receive access to open spaces and amenities within the development. There are two parties that own land in a PUD.  

  • You own a lot that includes your home. 
  • The HOA, or less often another entity, owns the open spaces that are not homeowners’ lots. 

Each lot owner receives rights and easements to the common, open areas within the development. All this information is laid out in the covenants and restrictions (CC&R) for the community.3  

Pros and Cons  

PUDs are newer land use schemes. They are flexible, and they can get very creative. Here are some of the pros: 

  • Professional maintenance and landscaping 
  • Amenities 
  • Some larger communities include businesses like restaurants and shops. They may even have doctors’ offices. 

This may all sound good, but let’s look at some of the cons: 

  • HOAs may limit a lot of things – paint color, improvements, even vehicles 
  • Many are densely populated and crowded 
  • They often have very high dues and fees 

Which is more important to you? There are certainly advantages to living in one of these communities, but you must weigh them against the disadvantages.4  

PUD Rider on a Mortgage 

A PUD rider on a mortgage is an addendum. Because they are not standard lots your mortgage company has different qualification requirements. Your lender probably wants your HOA documents. They review the CC&Rs and modify the loan accordingly. For the most part, lenders treat them very similar to a condominium.  

Final Thoughts on PUD in Real Estate 

PUD in real estate is a flexible land development tool. They offer many benefits to the right people. They also have disadvantages. Whether it is the right investment for you depends on your personality and situation. 

If you decide to buy one, make sure to tell your mortgage representative. He/she needs to know, so they can adjust the loan documents. This shouldn’t affect the time it takes to close or the essential terms of the loan, but they do have to review the HOA’s documents and adjust some qualifications of the loan. 


  1. National Association of Mortgage Underwriters 
  2. Planners Web 
  3. California Land Title Association 
  4. Marcia Goodman Real Estate