Capitalizing on Public Investments in Tax Increment Financing (TIF) Districts

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The future of tax increment financing (TIF) districts looks bright and promising. However, it isn’t just about investing in these areas; it’s about transforming communities for the better. From revitalizing neighborhoods to fueling economic growth, each dollar you invest holds the promise of a brighter future. 

Here’s a look at public investments in TIF districts for every investor. Read on to learn how to capitalize on them for a prosperous community and business profitability. 

An Overview of Tax Increment Financing (TIF) Districts

TIF allows local governments to fund infrastructure projects in specific locations needing progress and development. It works by collecting the incremental tax increase from property tax revenue. The government then uses this money to develop infrastructure and attract investment. 

A TIF district is a specified area where property tax increases are set aside for future infrastructure initiatives. In a TIF district, every rise in property values generates additional tax income. This income helps in community-benefiting projects for local improvements. 

The diagram explains the concept of TIF districts:

Here are definitions of the concepts used in the diagram:

• Captured appraised value: The captured value in a TIF district is the total property value minus the initial year’s value.

• Baseline property value: The starting value of a TIF district is the total property value in its first year.

• Tax increment: Each year’s tax increment is the property taxes collected on the captured value within the TIF district.

TIF started in California in the 1950s to fight urban decay and became popular for redevelopment projects nationwide. Almost every state uses it to finance infrastructure, except Arizona, after repealing its TIF Act in 1999. The District of Columbia accepts TIFs, whereas Puerto Rico does not.

Types of Public Investments in TIF Districts

As an investor, you can leverage different types of public investments in TIFs. No matter the type, they are crucial for economic growth and community development. 

Here are the three types of public investments: 

1. Infrastructure development in TIF districts is the construction or improvements of public structures, such as roads and utilities. This project often requires meeting contractor insurance requirements.

2. Public amenities in TIF districts include parks and recreational areas. These areas improve the community for residents and visitors, which is why lawmakers support investors and boost the real estate supply.

3. Community services in TIF districts involve investments in schools and healthcare, even mobile home investments. The goal is to benefit residents and improve the entire neighborhood.

Key Benefits of Public Investments in TIF Districts

Public investment in TIF districts come with potential benefits for the investors and the community, such as:

• Increased economic growth: Public investments boost the economic activities in TIF districts by improving infrastructure and attracting companies. As an investor, you also contribute to job creation and business opportunities, helping the local economy grow and expand.

• Enhanced quality of life: TIF district investments in public amenities and community services help citizens live better lives. As an investor, you can participate in offering recreational activities, providing easy access to vital services, and creating more community spaces.

• Private investment attraction: TIF areas usually attract private investors who perceive opportunities for growth and profitability. Coupled with negotiation across generations as an investor, you can partner with local governments and pursue worthwhile community projects.

How You Can Capitalize on Public Investments in TIF Districts

When it comes to fractional real estate investing, it’s best to take advantage of public investments in TIF districts. This initiative involves using smart strategies to make the most of infrastructure improvements and community investments. Not only does it drive economic growth, but it also revitalizes these areas. 

As an investor, here are five ways you can get started with public investments in TIF districts, as well as advice from those in the industry.

1. Set clear goals

Start by defining your specific objectives for your public investment in a TIF district. Be clear on what you want to achieve from these investments. This will provide a roadmap for decision-making and guarantee alignment with the desired outcomes.

Anthony Martin, founder and CEO of Choice Mutual, recommends setting SMART goals for public investment in a TIF district.

Martin told BiggerPockets:

 “As various stakeholders dive into TIF district investments, it’s crucial to set clear goals from the get-go. It’s like mapping out the road trip destination before hitting the gas—you’ll know exactly where you’re heading and how to get there. However, ensure these goals are specific, measurable, achievable, relevant, and timely.”

2. Identify main priorities

Identifying the most important objectives is best for your public investment in a TIF district. Doing so lets you know your areas of focus as an investor and guides you in the right direction. It also helps you manage human and material resources and allocate financial resources effectively and strategically. 

Jay (Yong Jia) Xiao, co-founder and president of SuretyNow, suggests being clear about your role and scope as an investor in public investment. He told BiggerPockets:

“Investing in a TIF district is all about knowing where to focus your efforts. Identifying our primary priorities beforehand allows you to focus on the areas with the greatest impact. That lays the groundwork for ultimate success.”

3. Pursue stakeholder partnerships

Public investments in TIF districts involve the local government, private investors, and many other stakeholders. This means collaborating with diverse people and organizations interested in district projects. As an investor, forging partnerships lets you harness varied knowledge and resources to optimize the investment impact.

Bert Hofhuis, founder of Every Investor, underscores the importance of effective communication and collaboration in public investments, telling BiggerPockets:

“TIF district investments rely heavily on teamwork. By collaborating with stakeholders who share your goals, you can accomplish far more than you could alone. It’s similar to building a dream house: Everyone contributes their expertise to the project, resulting in something absolutely wonderful.”

4. Engage in communities

Public investments are meant for the community and its people while offering return on investment (ROIs). This implies that you should engage with them by including local citizens and stakeholders in decision-making. By doing so, you can guarantee investments address the public needs and goals.

Allison Kesselring, sales manager at Oaks Roofing and Siding, highlights the value of community engagement in public investments, telling BiggerPockets:

“Community engagement is critical when investing in TIF districts. By listening to the people who live in these neighborhoods, you can ensure that the investments have the greatest impact—here in their own backyard. Ultimately, a successful investment is how you can positively impact the community.”

5. Measure performance

Performance monitoring is critical to any public investment, including in a TIF district. This step entails tracking how to meet your key performance indicators (KPIs) as an investor. These key metrics also measure how you can achieve your investment goals or objectives.

Tony Mariotti, CEO at RubyHome, recommends performance measurement of public investments, saying to BiggerPockets:

“In TIF district investments, monitoring performance is similar to watching the scoreboard. As an investor, it informs you how well you’re doing and where you need to improve. By keeping track of the numbers, you can ensure that your investments have a tangible impact on the communities you serve while maximizing your ROIs.”

Final Thoughts

Public investments in TIF districts are key to fostering economic growth and community development. And as an investor, the ROIs are all worth it.

Consider these practical steps for capitalizing on public investments in TIF districts. Set clear goals, prioritize investments, engage with stakeholders, and measure performance. With these in mind, you can maximize their impact.

Ultimately, TIF districts can become thriving hubs of opportunities, driving lasting prosperity for residents and investors alike.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.