Ever consider owning a property by the beach? The Outer Banks is typically not like other areas throughout the United States. People travel here and they can't get enough. One visit and you may find that you’re buying a vacation home or even take it a step further by making the purchase a permanent move. Whether you’re looking to live in OBX or potentially use a vacation home to create memories, I am sharing my experience of the current costs involved and some of the methods to make it a bit more affordable.
One of the first steps is deciding to purchase an existing turnkey home or a fixer upper that you can make your own. The other option is purchasing a vacant lot and building from scratch. So, before we get into the costs, what are the advantages and disadvantages of each?
Buying an existing property vs purchasing a vacant lot
If you purchase a property on the market, you get to skip the wait and challenges of a new build. This may be the most convenient way as you can best anticipate the costs involved. As soon as a property is closed you may be able to live in it or rent it out and get it on the market quickly. One of the major disadvantages is the potential for unexpected repairs and updates while making it your own or a competitive rental. Being in the Outer Banks, the homes tend to get quite a bit of wear from renters and the elements. Updating common items such as exterior painting, HVAC systems as well as the roofing and siding can become quite costly.
Calculating what may be more cost effective can be based on a few factors. The homes in the neighborhood we built the rental property Stress Less would commonly sell for 1 million to 2 million or more. The price for purchasing a vacant lot within the community varied, but over the last few years sale prices fluctuated between $150,000 for a semi-sound front lot to almost $400,000 on the water. The decision to build was easy since building new including the lot cost, we would be spending between $800,000 to $900,000. The cost to purchase a comparable home to buy in the development would cost several hundred thousand more. While the benefit of having a turnkey home allows you to put it on the market right away and potentially earn income on it, you may not always be getting exactly what you want. Being able to make quick decisions as time is money is also important if you’re building, as you’re putting out a bunch of cash during the building process and not taking in any income.
Costs of empty lots in the Outer Banks
The Outer Banks stretches for over 200 miles. Within those coastal towns the cost of properties can vary greatly. If you are not familiar with the area you must be careful and not be swayed completely by price. If you look at online sites such as realtor.com and look for vacant land, prices can go as low as $50,000 at the tip of OBX in Carova or flood areas like Colington. If you’re looking at more desirable locations or waterfront, they can easily exceed a million dollars.
Understanding many of these costs comes with significant risks and benefits. If you purchase a lot in Carova for example, you must consider renters would be significantly more limited as there are no paved roads and these homes are only accessible via 4-wheel drive vehicles. Another factor while looking for undeveloped lots is understanding their flood factor risk. Some properties may appear to be a bargain by comparison, but typically turn into a swamp if there is heavy rain or storms that come through the area. Costs for clearing brush and trees or adding fill as well as leveling a property can add up quickly. These costs can range from the low end of $5 - $6,000 to tens of thousands depending on the site. Our lot clearing and site work with fill finished within our $15,000 allowance. We also raised the lot slightly to prevent water runoff from the neighbors impacting our property. One lot over as an example had a much higher elevation and making that property ready to build would have exceeded $50,000 in costs due to the need of having a retaining wall.
One of the more popular choices tend to be ocean front lots. These can bring in a premium and have an easier time renting as people want the views and close proximity to beach access. Due to the hurricane and flood risk added costs of insurance of beach replenishment can be cost prohibited if you’re treating it as an investment or rental property. On the reverse non-ocean front lots can be more affordable but may require more amenities to attract renters.
The final factor you should consider is the location. Depending on where you own may shorten your rental season or limit the amenities. The more southern towns such as Salvo and Avon on the Outer Banks tend to have a much shorter season as many local stores and restaurants close. Areas such as Nags Head and Kitty Hawk tend to be more year-round. So bottom line you must balance your budget with what may make financial sense and depending on the current market conditions, make sure your purchase is affordable and profitable. Remember sound front or ocean front can double the cost even from one or two lots off the water. It may be appealing but not always profitable.
Added costs based on your location
Depending on which island and town can have a big effect on your costs. Building in the southernmost part of OBX in Ocracoke can be challenging as it’s only accessible by ferry. Where the northern most part in Carova can add costs and delays as there are no paved roads. Having only sand access and needing 4-wheel drive vehicles can cause difficulty with certain services or vendors reaching the worksite.
The type of finishings as well as how you must build can vary by location. Oceanfront homes are more susceptible to the natural elements due to the close vicinity to the ocean. This makes having dune protection or beach replenishment a significant factor. Also, if you’re in a flood zone certain ground floor items may have to be raised, costly retaining walls may have to be installed, extra ground fill etc. The type of sod or lawn planted can also vary based on what part of the outer Banks you’re located in or availably based on the season.
Acquiring Financing
Now that you have hopefully picked a lot or location you must have the funds to keep the process moving. If you’re lucky enough to be able to build in cash, financing may not be an issue. On the other hand, loans are a bit different when building on a vacant lot unlike a traditional mortgage. You may be able to take equity against a primary residence but if it’s a second home you typically aren't able to utilize that option. So, there are several loan types to consider. First is a property loan or land loan which tends to be the most challenging. These have the most scrutiny in underwriting since the banks typically take on the liability and there is no home to sell off the property if you default. The next is a building loan where you basically get approval for the value of the build and have an ongoing line of credit to use until its complete. Once done this typically will convert to a mortgage with a 30-year amortization unless different terms are agreed upon. Remember not everyone will allow for an investment property loan so you must apply for a second home mortgage at a higher interest rate and be able to show that you can afford both on your net income. When going through the process the best terms are usually on government-sponsored loans or conforming loans so consider that when looking for how much you must borrow also if it’s too high and falls under a jumbo loan it typical can be harder and less favorable terms.
Building New
The biggest benefits to building a new property includes customization and knowing everything is new. The ability to make your own design choices and have everything protected typically by a builder’s warranty provides quite the peace of mind that you should avoid major expenses for several years. There also may be added tax advantages depending on what you put into the home that could provide future savings. On the other hand, the disadvantages can add up quickly. You must deal with a longer timeline, until the property is able to be lived in, and often unexpected, costs can happen during the build process. If the
property will be used as a rental, you can't collect rental income while the property is being built, yet the expenses are still there. It is also important to find a reliable contractor who can build the property how you want it. One unexpected factor in dealing with this area is that many people tend to be on island time. Getting things done in a timely manner can be challenging.
As this blog is being written, the current environment has homes in the Outer Banks selling for a premium so we will cover the costs associated over the last 3 years that we ran into during our builds. We started looking to build a 4 bedroom and 3.5-bathroom home back in 2020. The size of the homes ranged from 2,200 - 2,800 square feet. Prices may vary based on the area, but in Kitty Hawk most options ranged from $650,000 and up based on the finishings and options included in the purchase. Since that time the prices have increased on average around 10 to 20 percent to build, but the home prices are still selling for a huge premium compared to just 4 or 5 years ago. Current building costs in 2023 are up from $180 to $200 per square foot and now range between $220 to $250 on average for building the structure. These figures include general permits, dumpsters, porto-lets, etc. The structural framing and roofing along with the insulation, drywall, fixtures, paint, etc. Also note this excludes certain extra amenities such as pools, furnishings and hot tubs.
As we researched the costs the challenges of purchasing an existing home, we found many examples of homes having outdated wiring and piping. Items such as HVAC units, the siding or roofing likely needed to be replaced or repaired and so on. Also, as the Outer Banks is an area surrounded by the sound and/or ocean and prone to heavy storms, the costs can be rather expensive. Ultimately, we felt we would get more value and increased equity building a new property and having the current materials and home up to code. This also allowed a more controlled scenario to limit future expenses over the next 10 to 20 years.
Initial Steps
After the property is acquired one of the first steps, if not already completed, is the purchase of building plans. There are many builders throughout the Outer Banks so it’s good to work with someone you’re comfortable with. Different towns have different stipulations, so it’s important to follow the building codes and pick plans that will conform with the town’s guidelines. For example, the town of Kitty Hawk limits a structure’s height to 35 feet. Due to this many plans had to be altered or were not a viable option due to that restriction.
Secondly if you’re creating or picking plans make sure they are designed for the purpose of a rental, not designed for you to live in. As an example, in our case I wanted it to comfortably handle 2 or 3 families. Therefore, each master has its own ensuite, deck access enough bathrooms and amenities to support who you’re appealing towards. Some minor adjustments we learned from our first build were to maintain a game room or rec room on the ground floor along with a bathroom, outdoor shower, and kitchenette. This allowed guests to avoid travelling up and down flights of stairs while accessing the outdoor amenities such as pools and hot tubs.
From a cost perspective, the architect costs can vary. You may be able to purchase stock plans and save some money, but modifications are not unexpected. Depending on the complexity and quality of the design, stock plans can range from $1,800 to $2,800, where custom plans may be $5,000 or higher. As you make design changes or the more you involve the architect, expect to add $150 to $250 per hour in costs to make changes. Options for plans include using your builder or larger vendors such as Saga. I chose to use a local vendor whose designs were recommended by people in our neighborhood and were appealing visually to me. We have used Florez designs for multiple builds at this point, you’re paying a premium, but I feel its quality is worth the added cost. Also, by no means am I taking away from the other options I just don't have specific experience with those vendors in creating plans.
Preparing for the Build and Completing the Foundation
Prior to being able to frame the home, a few things must be put in motion. Depending on the shrubs, trees, and lot size you will have to have it leveled and cleared. You must have a surveyor come in to set the location and a topographical map of the land. They will mark where the driveway and home placement will be located along with the Dare County water hookup and gas hookup along with an assortment of other items. When buying a lot this is a cost people greatly misjudge. Potential for preventing water runoff, adding fill and renting additional clearing equipment can vary the costs significantly. Many properties may have slopes that require retaining walls or must be raised due to their flood factor. Consider all these unexpected costs as they can add up quickly and be in the thousands or tens of thousands to handle. The one final item that will be needed in this step is the builders risk insurance which with a bank is typically required but protects everyone during the building process. This should be provided by the builder in most cases.
If this falls on you to purchase this insurance, below goes into further detail of what is typically needed. If the property requires a mortgage, then the builder’s risk may be the responsibility of the owner. If paying for the property in cash, then the builder will more likely be responsible for adding it to the build cost. Some items they ask for are the owners, trust or LLC contact information, the attorney information, if the property will be in a rental program along with the agency and if it accepts flood and excess liability insurance.
Lot Cleaning and Preparation
This is where things start to get exciting, the process will start with the lot surveyor staking the corners of the home followed by the pillar contractor marking their positions. The construction driveway along with the pillars are installed at an 8-10-foot depth. This will be followed by the completion of the foundation and framing of the home. You must also understand the surveyor will need a copy of the house plans prior to being able to determine the evaluation.
Onsite Lot Evaluation and Density of Lot - Clearing Costs
TOPO - Highs and Lows (Determine Fill Costs)
Elevation - Determine Views for Deck Location
Site Evaluation - Conventional or Engineered System (Septic)
You will then have to determine the additional selections that will be installed in the home. Doing this earlier is better as it can avoid changes that can add additional building costs to the home. As many may not be from the area, a foundation here is built and raised on wood pillars. Other parts of the country it may be done in concrete or other similar materials. Also prepare for Dare County to come in and do the water hookup. In 2021 this cost was $2,852 so I would assume this cost hasn't changed drastically and is relatively comparable still.
Outside amenities, lawn and bushes
Another complex factor I was unaware of was the choice of sod, irrigation, and landscaping. You have several choices that work for the sandy ground in the Outer Banks. Growing grass near the ocean can be challenging due to the complexity of the soil and climate so the choices are limited to warm season grass choices. Below are the most common ones able to be used in this coastal area.
Bermuda - This grass is a medium to dark green color that thrives in full sun and warm temperatures. It has a fast growth rate, so it’s common to mow it once or twice a week during peak growth season. This is also most prone to develop weeds.
Zoysia - Known for its ability to stand up to heat, drought, heavy foot traffic and a variety of other challenges. In its optimal growing zones, this tough grass can deliver a beautiful, dense lawn with very little input from you.
Centipede - This is a popular choice and shows as a lush, light green color. Its ability to thrive in high temperatures and low maintenance makes it a suitable choice for sandy soil. Recognized by its tight growth pattern, it’s popular because it’s very hands off.
St. Augustine - St. Augustine is a medium to a higher maintenance grass that is a thick carpet like sod. This allows it to crowd out most weeds or other grasses. My personal favorite as it’s the most soft and luxurious of the choices.
Understand this is one of the first impressions people see when pulling up to your house so having a well-manicured lawn and nice foliage or plants goes a long way to making your property stand out from the crowd. The cost easily runs around $10,000 to sod the lawn and run the irrigation for a 1/3-to-1/2-acre lot. In addition, just 3 years ago it would have cost anywhere from $2,000 to $3,000 for an above ground well. Now is an average of $4,000 or more and a submerged well is an average of $11,000. This can be attributed to digging to find clean water, especially when it exceeds 100 feet. The added depth can easily add costs as different equipment is needed.
When installing the irrigation, the water bills can easily reach $400 or more a month in prime season, so we chose to install a well that was directly hooked up to the irrigation system. Water in this area may have a high level of iron, causing a rusty color to develop on driveways or fences so this is a choice you must decide as to whether use the town water or irrigate with a well. The other basic features you must account for are the driveway, walkway, and house pad. This cost about $16,500 for our home but costs have gone up around 10 to 20 percent over the last few years.
Beyond this I would consider everything else an upgrade, which in my opinion is typically worth it if you want to be viewed as a premium rental. People want amenities and without them you run into a more difficult time filling the vacancies during the season. Below are the costs of some added features you may consider adding.
Salt Pool w/ deck, and pool fence: $50,000 - $60,000 (Pool heater: added $7,500)
Hot tub (Clarity Spas Precision 7) includes stairs and attached cover: $7,500 Want to see a video on the spa we chose? Click Here
Upgraded privacy louvers: 1,800 - 3,000 depending on home size
Stone firepit: $10,000 - $15,000 (Propane or natural gas hookup)
4kw Generac generator: $11,500 - $12,000
Furnishings Selections & Layouts
When dealing with many of what financial lending institutions call hard and soft cost items, such as windows, flooring and decking types. I found a few key factors you should consider. It is important to to have window treatments that are cordless as it’s safer for children and less of a liability with renters. Also due to the harsher weather conditions that you can experience in OBX installing certain higher quality items may easily save you money in the long term and be worth the added cost. One item I find to be worth the additional cost, especially if you have a pool, is installing luxury vinal planking flooring. This is a great option as it’s water resistant and prevents damage.
When considering options for decking or patios, you may consider Trex Decking to reduce overall maintenance costs from sealer to paint or refinishing. It will be more costly on the front end but it’s much cheaper long term. Wood needs constant maintenance and shows wear over a relatively short time frame. Surprisingly during covid this was a comparable cost to a wood deck but now is a bit more that costs have stabilized. It requires significantly less maintenance, doesn't show wear as much and has a long-life expectancy.
Finally on the outside you have the choice between multiple types of siding. This is one of the larger costs on a home and we ended up with smart siding. We used HardiePlank® lap siding on another home and over the years it started to form cracks. Either way this seems like a logical upgrade over time from that option. Vinyl siding is the lowest cost but in a place like the Outer Banks will easily require work or replacing, making it over time one of the costliest options. Spend the money here... siding can be costly but replacing it is not a small expense. The smart siding holds up and just needs to be repainted to look new every 7-10 years. Some of the cheaper options will get damaged during heavy winds or rain or storms. You must build, expecting harsher weather. For this build of 2,300 sq feet and approximately 1,000 additional sq feet of Trex decking and siding cost approximately $60,000.
The paint selection can be challenging too, it may seem minor but different lighting during different times of the day makes the colors look drastically different. In considering the paint colors, trim styles and fixtures, we ended up choosing Agreeable Grey from Sherwin William's and it appears that was a good choice. It was neutral enough to fit with most furniture and, looks good during all hours of the day.
When considering windows, Pella are popular and very good quality but remember you should really consider hurricane grade windows due to the area. Impact windows can also be an alternative but considering this is a large investment spending a bit more may be worth the extra protections and features. Simonton also had a comparable model window which we had installed in another home. From the outside both brands were fine but since using them for two years each the Pella 250 Series seemed to be of better quality and my personal preference. We had an allowance of $30,000 for the windows and doors and were able to get the mid to higher grade options in this price point.
Bathroom Upgrades
Taking into consideration the type of rental you’re looking to create. We had a vision of a more luxury rental therefore it included a tile upgraded master suite instead of a fiberglass tub. The cost difference was approximately $3,800 for a full tile bath and it would have been an additional $2,500 if fiberglass tub used for base. Double sinks are always a plus in each bathroom and anticipate light fixtures to add a few hundred dollars per bathroom. Below are some pictures of the finished product showing the bathroom and kitchen upgrades.
Household Appliances
Some of the initial items you will need to pick are the appliances including the washer and dryer, refrigerator, range microwave and dishwasher. Depending on the area you’re in you will have to determine whether gas, electric or propane appliances are most appropriate. We allotted ourselves a budget of $8,500 - $10,000 for the appliances which included delivery, installation, and warranty. It came to a few thousand more because I upgraded to a counter-depth fridge and stainless appliances throughout to have a higher end look and cleaner appeal. I do recommend using a local vendor to purchase these appliances. They may not have the most competitive price but due to the remote area if there is ever a service issue its important to have a vendor that can service them promptly.
Kitchen and Bathroom Cabinets
When selecting our cabinets we were given the choice of Mantra or East Front in white, shaker style. Plywood box, dove-tail doors, soft-close hinges, and den tracks. To keep a clean look throughout the house, we decided to have bathroom vanities use the same design and door style. We were given the option of either granite or quartz for the countertops throughout the home. I always stick to the quartz as it’s less maintenance and I prefer the look. The hardware options range from black, stainless to white and so on. I kept everything the black matte finish throughout which seemed to be very popular as they were difficult to acquire. The only upgrade I chose against was a white farm sink. Even though this is something I personally like, for a rental I didn't find it added much additional value or enough visual appeal to be worth spending the additional costs. Within the kitchen we allotted for cabinets and countertop including the install of $20,000 (Cabinets were $10,000 of allowance). We did go over here so $25,000 - $30,000 would have been more accurate if you want quality counters and backsplashes.
Want to see how the house turned out? Click here to see our video of the finished product: Click Here
Looking at the costs to furnish rental property then read our blog post on what we included for renters - Click Here
Want to see more about the Outer Banks?
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