Category Archives: Buying a Home

Carova, NC: Is This Remote Beach Community the Location for Your Next Vacation Home?

 

Pros and Cons of living in or owning a vacation home in Carova NC

Carova, NC is the northern, most remote town or village in the Outer Banks at the Virginia and North Carolina border.  Located in Currituck County, it is only accessible through the unpaved beach.  To the North, the Sandbridge area of Virginia Beach is not accessible from the Carova beach area due to an ocean to sound fence that was installed years ago. A few families do have the key.  So, you must have a 4 wheel drive vehicle to own a home or vacation in Carova.  Before driving on the beach, lower the air pressure in your tires to about 20lbs.  You can re-inflate your tires back in Corolla. 

Advantages of Carova

This beach area is one of the most pristine beaches on the east coast.  If you are seeking a place to get away from it all, with few distractions, and lots of privacy – Carova is the place to be.  This is the biggest advantage to the Carova area.

Some of the unincorporated areas or communities in Corova are known as Seagull, Penny’s Hill, Swan Beach, North Swan Beach, Carova Beach and Ocean Beach. Residents, visitors and any service providers can only reach the area using 4 wheel drive vehicles.  Depending on the tide or area storms, the drive on the beach can be quite challenging!

What this area of OBX is most known for are the wild horses.  The wild horses were relocated here from Corolla many years ago because this area was less populated and provided a safer spot for the horses to be able to roam freely without the threat of getting hit by vehicles.  The horses are descendants of Spanish Mustangs believed to have been shipwrecked in the 1500s. 

You will find over 11 miles of wide open beaches in Carova.  There are a few interior dirt/sand roads and a scattering of homes leading to the sound side of the island.  There are also some canals that lead to the Currituck Sound.  Many of these homes are modest in size while nestling into the simple landscape of live oaks, cedars and native grasses.

What you won’t find here are retail stores, restaurants, gas stations or even a grocery store.  There are no hotels or motels located here, but there are some really large rental homes (23+ Br), typically used as wedding or event homes, that some argue should be considered and regulated like a motel. 

Carova also has smaller cottages available for rentals with 2 or 3 bedrooms.  These smaller homes can be the perfect second home or retirement home to get away from it all.

There are several nature reserves- the Currituck Banks Reserve, the Currituck Banks North Carolina National Estuarine Research Reserve and the Currituck National Wildlife Refuge.  The preserve status ensures the land will remain undeveloped in the future.

The area is still very secluded and is likely to remain so.  There are only a few permanent residents that live year round (around 180 or so) and approximately 1,000 vacation homes (second homes and rental homes) in the area.  Many of the vacation homes are available for weekly rentals.  There is a fire/EMS station and a refuse station servicing the area.

The small population of the area allows the residents to know each other and socialize.  In the event of adversity, folks tend to rally and support each other.  Perhaps due to the rugged nature of the area, the residents are a close knit group of neighbors.

Some residents of Carova have vehicles positioned on Knotts Island to shorten the driving distance to Virginia.  This way, they can take the boat from Carova and use the vehicle to go the rest of the way to Virginia. 

Disadvantages of Carova

New home construction costs higher

Oceanfront lots in Carova are generally large and cost between $300k to $400k.  However, the cost to construct a new home will be much higher compared to locations with a paved road.  This applies across the board for all trades.  Generally, fewer tradesmen will service the area since it requires 4 wheel drive vehicle and is at times not accessible due to high surf. 

Keep in mind any heavy equipment used to construct the home also has to be 4 wheel drive or moved/ trailered on a 4 wheel drive.  This can significantly impact the final cost of construction.

Maintenance cost higher

Similar to new construction costs being higher, maintenance costs for homes in Carova will tend to be higher.  This would apply to emergency plumbing services (already expensive), to painting, appliance repair etc.  There are fewer companies equipped and positioned to service the relatively small community.

Fewer Vacation Rental companies service the area

There are also fewer Property Management Companies that serve the area for vacation rental services.  The ones that do service the area can add a premium to their fees due to their higher costs and less competition.  Employees will need to use 4 wheel drive vehicles to reach the homes.  This would apply to maintenance workers, cleaners and pool technicians. 

Vacation Rental Services more costly

The homes located in Carova are spread out over a large area.  Since there are no stores or even gas stations in the area, any parts needed for repairs can require a second trip to the area; further increasing the costs.  Each service provider tends to use their own transportation.

Drinking Water Quality

There is no city water or sewer, so each property must have its own well dug and their own septic system.  The quality of the water from individual wells can vary depending on the location and the depth.  There is also a prevalence of iron in Outer Banks well water which can stain fabrics or even your car or home when used in landscaping.

Interior “roads” can disguise deep holes that fill with rain water after storms.

There are no real “engineered roads” in the area.  They are dirt/sand paths that were established long ago.  Some are at the lowest point and tend to fill with rainwater quickly.

As reported in the Virginia Pilot newspaper, “Sandfiddler Road and Sandpiper Road – two primary routes there – become nearly impassable after hard rains, when more than 50 large potholes fill deep enough to reach the door handles on a large truck”.

Storm surges can make it impossible to get in or out of communities

In the event of a nor’easter, tropical storm or hurricane, the only way out of the area is to drive on the beach which will typically be impassible for the duration of the storm.  This could be quite dangerous should there be a medical emergency.  While EMS services do have use of a helicopter, poor weather conditions can eliminate this alternative until the storm passes.

Vehicle maintenance higher

The conditions on the interior roads, wears out brakes and bearings and the constant driving on the sandy and salty beach corrodes the under-carriage of residents 4 wheel drive vehicles.  This means higher cost to repair and maintain and more frequent replacement for vehicles.

Insurance Cost

The federal government designated much of the off-road area as a COBRA zone.  This means federal flood insurance is not available and restricts certain infrastructure from being built.

Pay attention to the flood insurance maps when selecting your Carova property.  If a property has been incorrectly mapped as being located in the floodplain, but is actually located on high ground above the base elevation, then you may be able to get a LOMA.  A Letter of Map Amendment is an official document that amends the NFIP Map.  Unless the property is located in a X flood zone or a LOMA, the cost to insure privately can be very expensive.

Commute can be challenging

Anyone who lives in Carova and expects to commute to a job in Corolla or further south or west will need to have a very understanding company or boss.  There are times where the beach and driving conditions make it impassable.  Having a position where you can work from home will go a long way toward a less stressful life – where commuting is not necessarily always an option.

The same logic also applies if you have children who need to attend school.  While some families have used boats to shorten the commute, weather conditions may not allow you that choice.  The Currituck County schools are located on the mainland and require over an hour bus ride each way for children.

The Outer Banks is a beautiful place to relocate, retire or invest in a vacation home.  For some folks, Carova is the perfect location and exactly matches their dreams.  Other folks may prefer modern conveniences and roads.  The Outer Banks has a community to match all your lifestyle preferences.

 For more information on the Outer Banks and on Outer Banks real estate contact Eillu, or call 252-491-9999.   We are experts on the Outer Banks and are ready to help with your Outer Banks real estate needs.  Let us help you find the perfect Outer Banks location and the perfect home of your dreams.

New Homes in Outer Banks


Luxury Vinyl Tile Flooring Deserves a Place in Your New Home or Remodel

semi soundfront similar Kitchen

Selecting flooring for your Outer Banks home should be a balance toward beauty and practicality.  One wants to have beautiful floors but they should also be easy to take care of so you can get the most enjoyment out of your vacation home.  Frequently guests may not take precautions to preserve hard wood or laminate floors by tracking sand in or leaving wet towels around.  You want your guest to enjoy their time in your home without having to worry about fussy building materials.

The LifeProof luxury vinyl tile delivers on both beauty and practicality.  If you have ever wished for life proof flooring, your wish has come true.  While “lifeproof” is also the brand name that Homes by Eillu uses, the tough product looks great, is easy to install and stands up to the wear and tear in even heavy traffic areas.  It is ideal for homes with pets and children where messes can be an everyday occurrence.

Homes by Eillu has installed these luxury vinyl tiles on several homes we have developed in exclusive Corolla, NC Communities.  Potential buyers have responded favorably and often times believe the floors to be wood.  The owners of our new homes, have appreciated how well the floors have performed and how easy they are to care for – even years after installation.

848 Golden Bluff Way - game room wet bar

The product is water proof so it is great for bathroom and kitchen installations where requiring water proof flooring is a necessity.  It is also ideal for a basement or game room applications near a pool area; where visitors will often track in water and wet bathing suits.  I would also recommend it for the laundry room flooring, where in the event of a leak or accident, the flooring will not be ruined.

Residential installations come with a lifetime warranty.  The lifetime warranty means you may tire of it or styles may change before the product wears out. 

Removing the product in the future is simple.  The planks lock together and are installed without glue or any adhesive.  You simply just lift and un-snap to remove.

Each plank is about 7mm thick with the foam underlayment backing included with each plank.  The flooring snaps together with a tongue and grove that hides any seams.  It is easy enough for a DIY person to install but some have commented that you need to get the feel of the angle to snap the product together. 

The floor “floats” over existing floor coverings like tile, cement or plywood.  So, for remodeling projects, the old floor does not have to be removed.  This saves time and money weather you are doing it yourself or have hired a professional for your remodeling project.

Home Depot carries this brand of flooring and there are several colors and finishes to choose from.  There are wooden oak colored finishes in warm tones and weathered gray tones.  There are also stone finishes to choose from.  Some finishes are available in store and some require ordering online.

The flooring is manufactured into planks that are 47.6 inches long and either multi-width or 8.7 inches wide.  The cost is from $2.79 to $2.99 per square foot; a box will cover between 19 to 20 sf.  The stone finish is available in 16 inch width by 32 inch lengths. 

There is a closed-cell foamed PVC core that is lightweight and easy to handle but strong and rigid once installed.  PVC is polyvinyl chloride which is usually used in commercial or institutional settings with high traffic. 

The flooring is a breeze to maintain and only requires a simple sweeping, vacuuming or a damp mop to keep it looking good.  The material is treated with an inhibitor to resist stain and odor causing mold or mildew both on the vinyl top layer and the foam underlayment. 

The wood graining in the product has a warm and realistic look.  The foam underlayment makes it softer to walk on and quieter when walked upon. 

Luxury vinyl tile has a texture that mimics wood or stone with deeper embossing to provide a very realistic look and feel.  The polyurethane top layer provides protection from scratching or gouging.  The embossing and texture on the tile provides traction and is not slippery in damp conditions.

Some color selections are included below:

luxury vinyl tile color selections luxury vinyl tile color selections

 

There are several manufacturers of luxury vinyl tile.  The colors, textures and design for each will vary as well as the price for each. 

You can see the diverse patterns, colors, textures available with luxury vinyl tile on this Pinterest page.  You can select a quality product by picking one made with a thicker layer of materials. 

Luxury vinyl flooring is more forgiving then laminate flooring.  Laminate flooring is very susceptible to damage from water, humidity and higher moisture content.  So, vinyl is better suited for kitchen and bathroom applications where water or spills are likely to happen.

Luxury vinyl flooring is also more forgiving in a remodeling environment where the subfloor may not be perfectly smooth.  In these applications, laminate flooring may break or crack while vinyl will be more flexible.

Homes by Eillu is proud to provide our buyers with high quality products and the most generous warranties for our new homes and the products within.  We have tested and sourced products to provide utility for the long term.  Your primary home or vacation home should be a place to relax and not have to worry about unnecessary maintenance. 

infographic map with cost and ratings for vacation destinations from Maine to Florida


How to Buy and Customize a New Home Without the Hassle and Expense of Multiple Closings

New home construction outer banks corolla

Homes by Eillu has several new homes under construction in desirable Outer Banks neighborhoods

These Corolla listings in Monteray Shores, Corolla Light and Villages at Ocean Hill, are in demand by vacationers and are enjoyed by second homeowners.  If you act now, there is time for you to customize the homes and select the finishes you prefer.

These homes are fully funded by the developer.  This means there is only one closing after the home is complete.  This will save you money and it also allows you to avoid the stress that many buyers frequently feel during the custom home buying process.

Lot Loan

Buyers of a custom home will frequently select and purchase a lot.  The purchase of the lot can be financed with a loan. 

From a lenders point of view, this loan will be riskier and will tend to have a higher interest rate.  These loans are considered non-conforming loans and the bank can’t sell the loan on the secondary market. 

It is more difficult for buyers to qualify for a land loan than for a mortgage and the terms can sometimes be onerous.  Once the home is completed, the land loan amount can be included in the amount of the mortgage.

Homes by Eillu does NOT require our buyers to obtain a loan for the lot or land.  We pay for the lot and incur all cost while building your new home.

Construction Loan

A construction loan is usually obtained by the buyer to begin construction for a new home.  This is a short term loan used to fund the project with disbursements as the project progresses.  Buyers typically pay interest on the loan over the course of the building, but the entire balance including principal is due when the home is complete. 

Typically, the construction loan balance is incorporated into the final mortgage loan once the home is completed.  This ‘interest only’ construction loan is cash out of the pocket of the buyer while the building progresses.  If the amount is not rolled into the mortgage then the buyer will be paying closing costs for both loans.

At Homes by Eillu, we do NOT require buyers to take out a construction loan.  This adds up to thousands in savings for the buyer. 

Earnest Money

A custom home builder usually requires a higher earnest money deposit than typically required for a resale home.  They do this to share some of the risk with the buyer.  A buyer may select some finishes that do not have wide appeal and would make it more difficult to sell to another buyer should the deal fall through.

At Homes by Eillu, we require a 5% earnest money deposit at the time of signing the contract for purchase and another 5% deposit once the roof is complete. 

The buyer should have a loan approval letter at the time of signing the contract for purchase and a commitment letter from the lender within 30 days.

One Loan – One Closing

At Homes by Eillu we believe in making your new home purchase simple, stress free and an enjoyable process.  Once your home is complete and a certificate of occupancy is issued, only one purchase money mortgage is used to finance the home.  This saves buyers thousands of dollars in cost.  Only one closing means there are no duplicate loan application fees and other transaction costs.  It makes the entire process more efficient without the extra burden of scheduling draws and arduous paperwork for the buyer and the builder.

Customize Your Way

We currently have several homes under construction.  The earlier you act, the greater the opportunity to customize the home with your selections.  The process is very simple.  You can also visit one of our completed homes, to visualize some of the finishes and to inspect the quality construction methods employed.  See completed home pictures here.

Select Quality Products

The New Construction signed contract includes an attachment with the specifications for your new home.  Some items, like the 50 year warranty LP siding with sofit and facia and Pella windows and doors, are included in the specifications.  Roofs are Owens Corning True definition Architecture Shingles.  Cabinets are BJ Tidwell.  Even the paint is specified to PPG (Pittsburg Paint & Glass) rather than a builder’s grade paint that will likely need to be re-painted too soon.  All are quality products to produce a quality home.

Other suggested finishes and products include granite counters, LVT (Luxury Vinyl Tile), Viking Vinyl pool (12×24) and Whirlpool stainless steel appliances.  A buyer can simply select a color palate, bath and related fixtures and use all the specified products for a unified and well-designed home that will remain in style for decades. 

Substitute Finishes with Allowances

Alternatively, a buyer can customize the home to uniquely reflect their personal style with the allowance program.  Each allowance category has a dollar value and product substitutions that cost over the allowance will have the difference added to the final cost of the home and are paid at closing.  Any items selected that are below the allowance appear as a credit at closing.  The allowance categories are:

  • Vinyl Tile
  • Carpet
  • Ceramic Tile
  • Appliances
  • Lighting
  • Granite
  • Cabinets
  • Landscaping

Homes by Eillu include state of the art smart home technology.  This package works together with a hub to efficiency and easily control all connected devices.  The smart devices include:

  • Wired and wireless internet
  • Alexa voice controlled assistant
  • WiFi Thermostats
  • Front Door Camera
  • Door locks
  • 2 Wifi lights
  • Leak detector
  • Indoor and outdoor speakers

Plus, when you are away from home, many of the devices are controlled and send alerts to your smart phone so you can monitor your beach home from a distance.  This is a huge benefit in the Outer Banks where many homes are used as second homes or vacation homes.  Imagine being able to control the temperature of your Living Room in the Outer Banks from your permanent home!

Also, all of our homes include a 1 year Builders Warranty and a 4 year American Home Shield Warranty to ensure worry free enjoyment of your new home for years to come.

Currently, all of our new homes are centrally located in Corolla.  We have homes in several established communities; like Village at Ocean Hill, Monteray Shores, and Corolla Light.  Each of these communities is sought after by vacationers for their abundant amenities, proximity to the Sound and the Ocean.  All are close to shopping, restaurants and local attractions. Our fun beach homes are perfect for a second home or vacation rental.

Homes by Eillu has many new construction packages available.  Call today to schedule an appointment to view a completed home or visit our next project. 

New Homes in Outer Banks


Corolla Light – Premier Ocean to Sound Resort Community in the Northern Outer Banks

Corolla Light resort in northern Outer Banks

This ocean to sound community spans across 250 acres of pristine dune and maritime forest to present the wonderful setting for upscale vacation homes. The amenities are distributed throughout the community and a free trolley runs in season to take visitors between the ocean, sound, pools, gym and other amenities.  The year round sports center has indoor tennis, racquetball and an indoor pool which makes an off season visit anything but boring.  The resort even has its own putt-putt golf course.

Corolla Light is recognized as being a premier resort area and was even named as 2014 North Carolina Resort of the year.  It has earned this distinction for over 14 years. This well-established community is known for its elaborate yet well managed amenities that attract vacationers and keep them coming back.  These state of the art amenities and common areas are expertly and efficiently managed so it is not a burden to property owners. The delightful community still has a few selective lots and new construction available.

Corolla Light Amenities

It is no wonder why Corolla Light was named as the 2014 North Carolina Resort of the year.  You can’t help but to feel like you are on vacation and in a rather special place if you are visiting or are lucky enough to own a home here.  There are so many amenities and pools that there is a trolley to make it easy to get from the beach to one of the many pools and back to your home.  In fact, there are 7 pools located on the oceanfront and sound and even an indoor pool for year round enjoyment. 

The attention to detail with all the oceanfront and soundside amenities show why it is consistently in demand for rentals and homes:

  • Two ocean front swimming pools with the Oceanfront Grille serving food.
  • Children’s playground
  • Training pool (heated!)
  • Lighted full court and half-court basketball courts
  • Four lighted shuffleboard courts
  • Lighted volleyball court
  • Baby pool
  • Five lighted oceanfront walkways and gazebos
  • Swimming pool
  • Baby pool
  • Soundfront pier and gazebo
  • Self-guided discovery trail
  • Ecology walkway
  • Nature trail
  • Fishing Pond

The state of the art fitness center and indoor sports center is immaculately maintained and includes:

  • 2 indoor clay tennis courts
  • Racquetball court
  • Full size locker rooms with showers and sauna
  • Fitness/cardio room with:
    • 7 Startrac Treadmills
    • 3 Startrac Ellipticals
    • 1 Startrac Stepper
    • 1 Startrac Total Body Trainer
    • 3 Startrac Recumbent Bikes
    • 2 Startrac Upright Bikes
  • Weight room with free weights, Cybex Circuit Weights, and an Atlantis Multi-Station
  • 25 yard indoor heated pool with 3 lap lanes
  • 12 person spa
  • Aerobics room
  • Pro shop with rental equipment
  • 2 ping pong tables

Corolla Light will appeal to the serious tennis player with multiple tennis courts:

  • 2 indoor clay courts
  • 4 outdoor clay courts
  • 4 outdoor hard courts

Contact Eillu today to schedule a showing of any of our wonderful new homes at Corolla Light.  The shoulder season is one of the best kept secrets on the Outer Banks; the crowds are gone but the weather and the beaches are superb through Oct and in early spring.  So, if you were thinking about visiting the Outer Banks – there is no time like the present.  Let us know if you would also like to see some other new homes in the area.

Outer Banks Luxury Properties


Blockchain Applications for Real Estate – How “Bitcoin Technology” will Change or Improve Real Estate

Blockchain Applications for Real Estate

Most people have heard about cryptocurrency but few understand it.  I must admit, upon first hearing about Bitcoin years ago I was very wary.  Bitcoin and other cryptocurrencies remind me of a Ponzi scheme or other scam.  It just seemed like voodoo and I thought it was creating money out of thin air.

I think it is a tough pill to swallow when someone changes our concept of money.  If money is only virtual can it just disappear? 

We have learned to trust banks; but it would not take too much of a disruption for that trust to be shattered.  The foundation of money is the exchange of value and people’s perception of value. 

The mighty dollar is recognized as a store of value the world over.  The US stopped backing up the value of the dollar with gold decades ago.  But, it is still the world standard and trusted currency.

What is Cryptocurrency?

Bitcoin was created in 2009 and is perhaps the most well-known of the cryptocurrencies; but there are over 1,000 other digital currencies.

Unlike the Federal Reserve System of centralized control of the banking system and money supply, cryptocurrencies are decentralized and use a blockchain transaction database as a distributed ledger. 

There is no single entity, government or financial institution that controls the bitcoin or any cryptocurrency network.  So, rather than a single “truth” ledger as used in a centralized system, the distributed system uses several thousands of points or ledgers and “people” (miners) to verify the integrity of the system. 

This means it is exponentially more difficult to hack as there are thousands of copies that must agree instead of one central “location” of the data.

Best Explanation of Blockchain Technology

I didn’t truly understand or trust Bitcoin and have ignored it until I began to understand the blockchain concept of a distributed database and the implications it has for verification across many applications and industries. 

Removing the “currency” aspect helped me to understand the implications without getting hung up on the money part.

I highly recommend watching the video below. This video by Anders Brownworth, is the simplest and best explanation of blockchain that I have seen to date:

Broad Real Estate Applications and Implications

I don’t know about you but watching the above video was a lightbulb moment for me.  Seeing the demo as to how the actual records worked deepened my understand and allowed me to visualize its usage in so many other areas. 

While I am not the smartest egg in the basket; if I can grasp the future implications then the really smart people can actually harness them and make them a reality.

The advantages of blockchain techniques are accurate, verifiable and public information. 

Consider the current state of the real estate industry where title records are centralized and recorded at the county level.  Distributing the information through a blockchain would eliminate any clerical errors and provide a streamlined history of property transactions. 

Title insurance is prone to fraudulent targeting but blockchain encryption would improve security.  This would also impact the title insurance industry costs and reduce risks. 

Escrow could be handled through a blockchain rather than through an Attorney.  Blockchain technology could validate property disclosures across many owners and over decades could be saved and easily retrievable.  Global real estate markets would become more transparent, lowering risk and increasing liquidity.

Smart contracts are pre-written, stored and replicated with blockchain.  They can be used for money, property or anything that can be shared, traded or exchanged. 

The contracts are executed and run by the computers in the blockchain without the help of any 3rd party.    Therefore, no one person owns the contract or has complete control of it.  They enable trust by encryption on a shared ledger where all parties have access to them.  They are redundant across the blockchain to prevent loss.  They save time and money by eliminating the need for a middleman. 

Ethereum is the most prominent public blockchain platform to use smart contracts.  Smart contracts will be the future of negotiation; they will self-execute based on a set of instructions that two parties have agreed to.  This code logic can include just about any of the-  if this, then that – contingencies prevalent in a real estate transaction.

The National Association of Realtors have also explored and written about the potential of blockchains and real estate.

Real Estate Backed Cryptocurrency

In July 2017, REcoin was launched as the first ever cryptocurrency backed by real estate.  Recently, the Securities and Exchange Commision (SEC) declared the offering a fraud designed to bilk unsuspecting investors.

A quick search also finds Share Estate, that allows you to invest in commercial real estate all over the world using blockchain.  It uses the Ethereum platform and a closed end fund.  Share Estate owners will receive SRE tokens that are backed up by real estate assets, share in the net profit of the commercial projects (through rent or eventual sale), able to use the underlying objects like booking a night in a hotel in the fund, the value of tokens will increase over time reflecting the underlying value of the real estate asset and provide voting rights for the holder toward planned project acquisitions.

Make no mistake, cryptocurrencies are here to stay.  Witness over 1,574 bitcoin ATM’s installed all over the world by September 2017. 

The IRS treats bitcoin as property rather than currency. So, bitcoin is subject to capital gains tax and scholars have agreed that the currency behaves similar to the precious metal markets. 

Coinmarketcap.com reported in June 2017 the total market capitalization of cryptocurrencies is bigger than 100 billion USD and record high daily volume is larger than 6 billion USD.

REAL (Real Estate Asset Ledger) is another real estate venture using cryptocurrency.  It crowdfunds real estate purchases where a group of investors, whom may not even know each other, buy shares similar to a Real Estate Investment Trust.  The properties being crowd funded accept REAL Tokens or its in-house cryptocurrency.  Pay outs are made in Ether a widely used cryptocurrency.

Streamline Rental Process for Landlords and Tenants

Rentberry is another blockchain related real estate application.  It uses a long-term rental application built on consensus blockchain ledger technology.  The company’s website describes its services as “a transparent home rental service and a price negotiation platform uniting tenants and landlords. It automates all the standard rental tasks from submitting your personal information, credit reports and custom offers, to e-signing rental agreements and online rental payments.”    Rentberry is also an Ethereum based blockchain application.

Rentberry has over 100-thousand users and lists 160-thousand properties in nearly five-thousand cities in the United States.

Current Marketing to Bitcoin Buyers

A Philadelphia Condo community has advertised condos for sale at 795 bitcoins (over $342k at the market exchange rate at the time) to attract the segment and illustrate the validity of the currency. 

Currently, the practicality of a total bitcoin transaction doesn’t fly.  The title insurance company must comply with the “good funds rule” where money needs to cover all escrow items.  A lender will not currently accept bitcoin to pay off a mortgage balance so bitcoin transactions are limited to where a seller owns the property without a mortgage.  A transaction where the bitcoin is converted prior to completing the real estate transaction is always possible and has taken place in Texas. 

A Dubai apartment complex is also being priced in bitcoin.  The $332 million dollar project has two apartment towers and a shopping mail.  Prices for a studio apartment started at 27 BTC.

Limiting Factors to Blockchain Adoption

Forbes recently wrote about the roadblocks for blockchain applications in real estate.  The roadblocks are very real due to the lack of understanding by most people and entrenched industry incumbents whose entire reason for being would be threatened by the change.  As applications using blockchain increase and people become more trusting and knowledgable, the technology will be applied to real estate. 

Bitcoin magazine states cryptocurrencies are a significant challenge to central banks ability to influence the price of credit for the whole economy.  Cryptocurrencies work without regard to national boundaries or policies.

Fraud and Criminal Use

While cryptocurrencies facilitate person to person exchanges globally, their nature has attracted a “criminal” or underground use from Ransomware hackers requiring payment in the currency to helping dwellers in the black market to evade taxes or launder money. 

Unlike currency held in a financial institution, cryptocurrencies are more difficult for governments or law enforcement to seize and are favored by the criminal element to remain anonymous and undetected.

Volatility

Over the last year bitcoin gained value and recognition.  On Jan 2, 2017 a bitcoin was worth $985.56; as of Nov 6, 2017 a bitcoin was worth $6778.17.  This would be quite a windfall for any real estate transaction defined in bitcoins from earlier in the year.  However, like all markets what goes up can also go down. 

The volatility of bitcoins, or how much the price changes over time, is much higher than most centralized currencies.  Some experts warn that it is the next bubble that will burst. 

Conclusion

Fundamentally, blockchain technology has many more applications that will affect our lives in far reaching ways.  Cryptocurrencies is just the tip of the iceberg.   Cryptocurrencies are in their infancy and will likely go though many changes in the future. 

Blockchain technology can be applied even more broadly and has the potential to radically change much of how business and governments operate.  Our lives and our jobs will likely be dramatically impacted over the next few years.  Changes will not be limited to real estate applications.  For this reason, it is important to begin to get a basic understanding of this technology and how it may be applied in the future.

Eillu real estate leverages the best in technology to provide the best service and value to our customers.  While we are not advertising our listings in bitcoin, we always stay on top of industry and technological trends to provide first class services.

MLS Monthly Outer Banks Market Report


Outer Banks Home Buying Tips for First Time Home Buyers

first time homebuyer tips for Outer Banks Buyers

Buying your first home is a big step no matter where you decide to purchase.  Often times, there are more questions or doubts then there are answers.  Nailing down all the potential costs can be nerve racking and make your head swim.  After obtaining pre-approval for a mortgage you will have one piece of the financial puzzle but what about insurance costs, repair cost and taxes? 

Expert Help

Rest assured there are professionals here to help you every step of the way.  An Eillu Buyers Agent has walked many buyers, just like you, through the process with satisfying results.  No question is a dumb question and you deserve a truthful answer and expert advice each step along the way. 

Rent vs Buy in the Outer Banks

Renting a home or finding an affordable rental for year round living can be rather difficult in the Outer Banks.  Rental rates, even for year round rentals, tend to be more expensive here. 

Many times, homes can net more income for an owner through a weekly rental program than through a year round rental. 

Sometimes, these home are available for a longer term in the off-season, but require the renter to find other housing in season.  Not only is this inconvenient, but finding available housing during the summer months can be very daunting. 

Perhaps you have experienced this as well.  Here are some other financial reasons for home ownership.

To reap the full financial benefits of home ownership, you should have plans to stay in the home for 5 to 7 years.  This spreads out your cost of purchasing over a longer time period and allows you to build up equity through appreciation.

Pre-approval for Mortgage

Most first time buyers in the Outer Banks are not looking to buy oceanfront property due to the cost.  While millennial home buyers are reportedly skipping buying a starter house and buying a larger home with more amenities for their first purchase. 

Even so, the median value of homes in the Outer Banks is around the $400k mark.  Attractive homes priced below this can get very competitive among buyers; especially homes in the range of $200 to $300k.  All home buyers should get pre-approved prior to embarking on a home search.

Narrow the Search

Buyers usually begin their search online.  It is helpful to actually write down and rank what features and criteria that you are looking for. 

Typically, the criteria will include number of bedrooms, design or style, garage and other amenities, like a pool or hot tub, and the price range you have pre-qualified for.  This is a very personal list and all that matters is what will make you happy in your new home.  An artist, for example, may value the homes orientation, good lighting and a space that can be used as a studio.

The Outer Banks is over 100 mile long chain of Barrier Islands.  Each town or neighborhood has its own character, amenities and vibe

In addition to the Outer Banks, there are towns along the inner banks or on the mainland.  These towns are close enough to the Outer Banks for residents to work or play but typically are lower cost.  It is helpful to narrow your search to a specific location to spot new listings quickly and be able to assess it against your criteria.

If you are considering a condo, neighborhood or development with shared amenities, make sure you budget the cost of Home Owner Association (HOA) fees and consider the quality of the management.  Failure to keep adequate reserves can cause surprise assessments to future homeowners.

Due Diligence

First time home buyers should trust their Eillu Agents and other expert’s advice.  For example, one home may appear to be a perfect fit on a bright summer day but due to a low elevation could be prone to flooding. 

A professional inspection should also be a contingency to the contract and will provide peace of mind to the buyer regarding the condition of major systems.  Make sure you get the best advice during the due diligence period. 

You may have a friend that is handy around the house but that is not the same as a professional home inspector.  Do not take the cheapest option to save money.  You home is a long term commitment and a few hundred dollars spread over time will amount to pennies per day.  It could save you a lot of grief depending on what may be uncovered by the inspection. 

Taking your time to find the right house for you is important so you do not have any regrets.  Make sure you view and tour as many homes as it takes for you to be comfortable with putting an offer on the one that is right for you.

Down Payments and Reserves

First time buyers should keep some funds in reserve after closing.  Using all of ones savings for a 20% down payment rather than have to pay private mortgage insurance can leave buyers strapped when unforeseen events occur. 

In life, unforeseen events always occur.  Keep some savings to be able to repair the car or appliances without having to panic or increase your debt. 

Financing alternatives, like FHA, require a lower down payment and is a good option for first time buyers.  Investigate first time homebuyers programs and government programs for credits and lower down payment requirements that you may qualify for.

Before Closing

Refrain from making any lifestyle changes or making major purchases before closing.  Read this: for specific items not to do after applying for a mortgage

From seasoned veteran to first time home buyer, Eillu is here to help you navigate the home buying process.  With over two decades of experience in the Outer Banks market, we can help you with any questions and guide you every step of the way for a smooth buying experience.  Our exclusive buyers rebate will save you money without sacrificing service.  Schedule an appointment with Eillu today.

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Tax Reform Threatens the Holy Grail of Real Estate – The American Dream of Home Ownership and the Mortgage Interest Deduction

Tax Reform Impact on Real Estate

Most people would agree that the US tax code is too complex and should be simplified.  Once you move from the general concept of simplification to the execution is where the difficulties occur.  Personal self-interest favors keeping tax deductions one qualifies for while eliminating deductions of one’s neighbor. 

Mortgage Interest Deduction

Tax deductibility of mortgage interest has been favored by the real estate industry for, what seems like, forever.  Actually, it dates back to 1913 and most consider it sacred and not to be touched by any reforms.  The current proposal leaves it in place, but ineffective or irrelevant, to all but the wealthiest Americans.

President Trump’s tax overhaul plan removes every deduction except for the home mortgage interest deduction and charitable contributions.  Many experts argue, nonetheless, the plan effectively makes both these deductions irrelevant by doubling the standard deduction to $12k for single tax payers and $24k for married couples. No longer would state and local taxes be deductible.  Effectively, over 80% of homeowner’s who itemize under the current tax system would see a greater benefit by taking the standard deduction under the new plan.

For example, a couple with a $500k mortgage (which is much higher than average) at 4% interest would pay about $20k in interest.  That couple would then have to donate $4k to charities to match the standard deduction under the new plan.  Fewer homeowners would choose to itemize deductions as the standard deduction would be more beneficial.  This would effectively eliminate the incentive to buy homes and donate to charities.   Many experts believe this could further decrease the US homeownership rate, which is currently 63% down from 69% in 2004. 

Is the US destined to become a nation of renters?

The National Association of Realtors suggest most middle income homeowners who currently itemize would likely pay higher taxes due to the elimination of state and local tax deduction and dependency deductions that would be folded into the higher standard deduction.

A recent Fortune article states it a little differently, “The elimination of mortgage-related tax savings for most homeowners, and reduction for others, compounded with the loss of tax savings from deducting property taxes means the after-tax cost of home ownership will increase. A taxpayer in the 25% tax bracket with $11,000 in mortgage interest and $5,000 in real estate taxes would receive tax savings from these itemized deductions of $4,000, or $333 per month, under the current law. The elimination of the home-ownership tax subsidies means that the after-tax cost of home ownership will increase”.

Rental property owners will likely continue to enjoy favorable tax benefits.

Rental Property

While the proposal does not have all the details specified, it does not appear to reduce the tax subsidies benefiting owners of residential rental real estate.

Residential rental property owners and vacation rental property owners may continue to deduct mortgage interest paid to purchase the rental property and can also deduct state and local property taxes. These items are not considered itemized deductions but are deductions in computing net rental income.

Eliminating the state and local tax deduction under the proposal only applies to an individual taxpayer’s itemized deductions. Rental property owners will still receive the federal tax savings from both mortgage interest and real estate taxes.  Clearly, the proposal creates a stark difference in the tax treatment and incentives between owner-occupied homes and rental properties.

Furthermore, rental property owners can also deduct the cost of maintenance and depreciation.  When it comes time to sell, the rental property owner can use a 1031 exchange and avoid taxes on the sale and acquiring a like property.  The proposals reduced tax rate of 25% for pass through will further benefit real estate rental industry.

Individual Tax Rates

Tax brackets under the new plan would also be reduced from 7 currently to 4.  The top tax bracket would be reduced from 39.6% to 35%.  Next, there would be a 25% and 12% bracket.  The fourth bracket in the plan was not described in detail but would be for the highest income households and exceed the 35% bracket. 

The alternative minimum tax and estate tax would be eliminated from the tax code. 

The plan did not define tax treatment for dividends or long term capital gains, or the profit on the sale of one’s primary residence.

The gift tax was also not mentioned in the proposed tax plan.  Gift taxes are payable on gifts of more than $14k annually.  “Gifts” are commonly used by first time homebuyers.

Small Business

Changes in taxes for small or family owned businesses was included in the plan but not well defined.  Some of these are organized as flow through businesses or pass through (sole proprietorship’s, partnerships or S Corporations) but it is unclear if all business structured as such would have a 25% maximum tax rate or if it would only be limited to an organization that meets criteria for “small” or “family owned”.  It could also be defined with a revenue limit.  Many legislators have previously indicated that “professional service” companies like healthcare, legal, accounting would not be eligible for the 25% maximum rate.

Corporate Taxes

The Corporate tax rate is to be reduced to 20% in the proposal.  This is believed to work as an incentive to keep companies in the US instead of moving profits offshore.  However, labor and raw material costs would have to be competitive to wipe out the incentive to operate globally in the most efficient manner.

Expensing Structures

The tax proposal would like to create incentives for companies to invest in new assets by allowing full depreciation or immediately expensing to lower taxable income.  While all eligible assets were not specified, structures were specified, which is believed to mean buildings.  If borrowed funds are used to purchase new assets and then the assets are depreciated immediately then the interest expense would not be deductible. 

The tax proposal does keep the low-income housing credit to continue to provide an incentive to developers to build affordable housing.

Tax planning and preparation can be complicated, hopefully tax reform will simplify the process for most Americans.  In the meantime, it is always best to consult with an expert in this area for specific advice that considers your exact circumstances.  The Eillu team has decades of experience selling real estate on the Outer Banks and have insight to structure 1031 exchanges and more complicated deals.  Schedule an appointment today to learn how to maximize the profit on the sale of your home with our low real estate listing commission.

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September 2017 Outer Banks Real Estate Market Outlook and Current Statistics

Outer Banks Real Estate Market Outlook Sept 2017

The Outer Banks Association of Realtors released the September 2017 MLS Statistical Report – you can get the full report here

Real estate sales for September 2017 in the Outer Banks increased slightly from August with 156 units to 158 units.  This is almost the same as September 2016 sales of 159 units. Under contract units increased by 6% to 442 from August reported 419 units under contract.  The average home price increased by 4% compared to 2016.  The median single family home price has increase by 2% in 2017 while condos have increased by 5% in 2017.  Some highlights from this month’s report follows. 

Overall Market

Residential inventory decreased by 10% in September following last month’s 8% decrease both compared to last year.  The inventory trend has continued downward for the past few months.  Active residential inventory is 1484 units.  The quantity sold increased by 11% following last month’s 11% increase; with volume sold up by 16% following the same increase last month.

Lots and land quantity sold increased by 6% after last month’s increase of 8%.  The average sale price for lots fell by 191% and while the median price increased by 4%. Land inventory is down by 13% compared to last year.

Commercial unit sales are down by 24% following last month’s decrease of 20%. Only 16 commercial units were sold compared to 21 last year.  The average and median sale prices have little relevance with such a small sample and appear skewed from a large sale last year.  Commercial inventory is down 22% compared to last year with only 57 units active on the market compared to 73 units last year.

Distressed Property

Distressed sales increased in September and were 9% of all residential sales compared to 2% reported last month. There were 22 residential short sale units sold, compared to 24 short sales this time last year; an 8% change from one year ago.  The average sale price decreased by 12%.  The median sale price increased by 6%. 

Sales for bank owned properties increased by 11% from 57 units to 63 units compared to last year. The average sale price for Bank Owned property fell by 8% compared to last year; while the median decreased by 1%. 

Overall, the quantity of distressed property sold increased by 5% compared to the same period in 2016.  The average price decreased by 11% and the median increased by 3%.  Total volume sold is down by 8% compared to last year.

The effect distressed real estate will have on the overall Outer Banks market will continue to diminish as foreclosure and short sale inventory is depleted and the market returns to pre-recessionary levels of distressed real estate.  

Residential

Single family unit sales increased by 13% slightly higher than the 12% reported last month, with 1275 units compared to last year 1130 units.  The volume sold increased 17% with the average sale price increase by 4% and the median sale price increased by 2%. 

Condos unit sales increased by 12% following last month’s 16% increase compared to last year.  September condo unit sales were 151 compared to 135 a year ago.  The volume sold increase by 10% following last month’s 14% increase.  Median sale prices for condos increased by 5% compared to last year.  Average sale prices fell by 1%, compared to last year.  Unlike many other markets, the Outer Banks did not see an oversupply of condo construction during the boom years and current demand for condos has been strong in 2017. 

Residential land unit sales increased by 3% in September.  This follows the 5% YOY increase reported in August and a 19% increase reported in July. The average sale price fell by 11% while the median price was unchanged compared to last year.

Overall Days on the Market for the all residential properties is down by 39% in September following the reported 23% decrease in August.  Days on the market is 124 versus 203.  Upon closer inspection, for the 800 units sold since Jan. 2017 the average days on the market is a startling 46 days.  Outer Banks properties are selling much faster; especially new inventory.

New Construction building permits are down by 16% with 184 units compared to 220 last years.  Building permit value decreased by 21%.

Outer Banks Town Statistics

The September 2017 median sale prices for the towns in the Outer Banks and the percent change compared to 2016 appear below:

Sept 2017 OBX market report

Sept 2017 OBX market report data table

Corolla experienced the largest percentage gain of 13% compared to 2016. The next highest YTD increase was Hatteras Island at 8%; these towns are unchanged from June, July and August. 

The Outer Banks real estate market is on track for a solid sales year.  OBXMLS reports 442 under contract compared to 419 units reported last month. October is a great time to visit the Outer Banks and view real estate as the crowds have reduced and the weather is warm during the day but with low humidity and cool at night.  Experience the colors of fall on the OBX; the marsh grass gets a pewter color, the sea oats rustle in the breeze and the deciduous trees change into the reds and golds!

If you have been thinking about an Outer Banks vacation home purchase, second home purchase or permanent home, now is the time to act.  Purchasing power will decrease once the anticipated mortgage rates increase.  Smart buyers and investors will lock in rates now before the increase. 

Buy with Eillu and save more with our buyers rewards plan.

If you have considered selling your Outer Banks home, now may be the best time.  The lower inventory levels will allow your property to be seen with less competition.  The strong demand will sell your home with fewer days on the market.  Our 1.5% listing commission will save you thousands of dollars!

The rental market continues to be strong to provide income from the investment and enjoyment for the family for years to come.

The Outer Banks continues to be named a top beach destination every year.  Beach nourishment has recently been completed for a large portion of Dare County beaches and will ensure strong future appreciation for real estate. 

Schedule an appointment today to find your vacation rental property, second home or investment property. 

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Get a Ton of Value With this Whale of a Deal in Whalehead Club– 6BR, 4 Bath Home priced at $599,000.

909 Corolla Drive Front Elevation

Where else can you get a home within walking distance to the beach AND have a pretty white picket fence to complete the dream.  This 3 story ocean side beach home has been meticulously maintained by the original owners.  It was built in 2001 and has performed well as a rental vacation home earning over $58k in income for 2017. 

front exterior of 909 Corolla Dr

This 6Br, 4 bath home with 3,154 sq ft of heated living space is a very popular vacation rental home for discriminating families.  The home is priced right at $599,000 and is located at 909 Corolla Dr, Corolla, NC 27927.  The home is located in the Whalehead  Club community known for its fabulous, wide and gently sloping beaches.

Whalehead Club is an established Corolla community with large lots and multiple beach accesses.  It does not have shared amenities or a HOA; so buyers will not have to be concerned about additional monthly HOA fees.

Front yard with volleyball basketball 909 corolla dr

Pool at 909 Corolla Drive Whalehead Club

The home screams fun from the moment you pull into the driveway where a volleyball court and basketball hoop greets visitors and serious competitors alike.  The fun doesn’t end there and continues to the back of the home with the generous sized private pool and hot tub.

gameroom with pool table 909 Corolla Dr

The fun is not limited to only outdoor activities.  The bright and cheery ground floor game room with pool table, flat screen tv and outside access will provide hours of entertainment for young and old alike.  A wet bar with under counter fridge is here to make drinks and snacks conveniently located to this delightful entertaining space.

relax on multiple decks at 909 Corolla Dr

The home has 3 levels with generous covered and uncovered decks and balconies just begging one to stop and sip a cool beverage and enjoy the gentle ocean breezes.  Relax on a hammock or deck chairs and breathe in those salty breezes.

rooftop deck at 909 Corolla Dr with Ocean and Sound views

The rooftop deck allows for ocean and sound views showcasing how special the location is and allowing the visitor to take the expansive site in for as far as the eye can see.  It is perfect for stargazing at night and catching the shooting star to make the wish that you never have to leave.

The coastal inspired reverse floor plan is ideal for large family vacations and spending quality time together.  The top floor includes the great room hub with the large open living room, dining room and kitchen where it is easy to have lots of activities going on at once.

open floor plan at 909 Corolla Dr

kitchen at 909 Corolla Dr

The recently updated kitchen has quartz countertops, new glass tile backsplash with 2 dishwashers and a large fridge to make it easy to feed a large group with panache.  The two level island bar in the kitchen includes generous seating, pendant lighting and plenty of work space for the chef. 

Living room at 909 Corolla Dr

Living room at 909 Corolla Dr

The comfortable and plush living room furniture make you want to curl up, light the fireplace and watch a movie.  The space is light and airy while still being cozy, comfortable and inviting.

Dining room 909 Corolla Dr

table alcove at 909 Corolla Dr

There are multiple dining areas in the great room; perfect for enjoying a meal or playing an impromptu game of cards.

The home has clean simple lines with attractive wood trim, wood wainscoting and easy to maintain surfaces. 

Master suite 1 at 909 Corolla Dr

Master bath 1 at 909 Corolla Dr

Each bedroom and bath are expertly decorated with a bit of sophistication and simplicity.  This provides a calm and inviting ascetic for everyone to be able to relax.

The mid-level floor of the home includes 2 master bedrooms and 2 bedrooms with a shared Jack & Jill bath.  Three of these bedrooms have access to the covered mid-level deck.  Each bedroom has a flat screen tv.  The ground floor has two bedrooms with a full bath in addition to the game room.

This home has been expertly maintained and kept up to date since being built in 2001.  Each bathroom has an updated vanity, new mirror and laminate flooring.  It is a perfect turnkey investment as a vacation rental home or perfect to enjoy as a second home and invite all the extended family to create memories that are priceless. 

Watch the drone video to appreciate this home and its location.

Call Eillu today and visit this beautiful home.  Discuss your options on how to make a profitable investment with Outer Banks real estate and vacation rentals or enjoy the Outer Banks in your second home. 

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How Will NFIP changes Impact you Outer Banks Home Purchase or Sale?

impact on Outer Banks for National Flood Insurance Program Changes

NFIP Expiration Date Extended to December

The National Flood Insurance Program (NFIP), administered by Federal Emergency Management Agency (FEMA), was set to expire on September 30, 2017.  With consideration for the areas impacted by Irma and Harvey, the US Senate voted to extend the NFIP on September 7; the House of Representatives passed the legislation on September 8th and the President signed it into law later in the day.  This is a reprieve but not a solution.  The deadline for something to be done is now December 8th 2017.

The new legislation provides 3 months to find a solution.  It is time needed for the folks impacted by recent storms and for law makers to come up with a real long term solution.  The National Association of Realtors (NAR) advocates a comprehensive re-authorization of the NFIP to cover the 5 million homeowners and 22,000 communities around the US.  The NFIP has been extended 17 times and lapsed 4 times between 2008 and 2012.  It is time to quit kicking the can down the road and find a long term solution.

NFIP Purpose

Established in 1968, the NFIP has played an essential role in efforts to prevent and recover from flood disasters.  Floods are the number one disaster in the US for the number of lives lost and property damage.  Flood insurance coverage is mandatory for property in a high risk area where the mortgage is provided by a federally backed or regulated lender.

The NFIP encourages communities to implement flood plain management policies and provides affordable insurance based on flooding risk as determined by the flood insurance rate maps.  The preliminary rates maps for Dare County were released last year and lowered the risk for 15,970 buildings.  Flood maps are revised every 10 years. 

As our previous blog post concluded: “just because you no longer are required to have flood insurance does not mean that you should cancel the policy.  A preferred risk policy may reduce the cost and provide valuable protection.   It could also be a lower cost option in the long run should the maps revert back.  Keeping the insurance in place may also make the property more saleable and provide the additional option of the new owner assuming the insurance policy after the sale.”

“Remember, annually over 20% of all flood insurance claims are from properties not in a designated Special Flood Hazzard Area (SFHA).  Operate accordingly.”

Many people do not carry flood insurance unless they are required to.  Only an estimated 20% of homeowners in the area affected by Harvey even bothered with flood insurance, a number that has been dropping in recent years.  This trend has complicated and driven the NFIP further in debt since the government eventually pays for damages not covered by insurance.  Katrina, for example, had a flood insurance payout of $16.3 billion. But Congress authorized supplemental spending of more than $100 billion to provide relief and temporary housing and to fix the broken levies. Harvey and Irma are likely to have a federal cost even higher.

NFIP Impact on Real Estate Sales and Purchases

The NAR released a statement “When the NFIP expired in 2010, over 1,300 home sales were disrupted every day as a result. That’s over 40,000 every month. Flood insurance is required for a mortgage in the 100-year floodplain, but without access to the NFIP, buyers simply couldn’t get a mortgage or vital protection from the No. 1 cause of loss of property and life: flooding.”

“This problem affects far more than coastal communities, and prospective homeowners aren’t the only ones at risk. Policyholders in over 22,000 communities across the country depend on the NFIP to protect homes and businesses from torrential rain, swollen rivers and lakes, snowmelt, failing infrastructure, as well as storm surges and hurricanes. When that lifeline is cut off, the NFIP can’t issue new policies or renew existing residential or commercial policies that expire. That means current home and business owners may find their most important asset unprotected.”

“Last year was the third largest claims payout year in NFIP’s history, costing more than $4 billion. While there were five billion-dollar floods, including Hurricane Matthew, four of the five were inland, and the largest single event was in Baton Rouge, Louisiana in August, just one year out from the NFIP’s expiration date.”

If the NFIP were to expire without a reauthorization or alternative solution, it will prevent new flood insurance policies from being issued.  Existing policies will remain in effect but claims could be put on hold until new legislation is passed.  There are few private insurers for flood coverage.  With NFIP in place, private insurer’s rates need to be competitive with NFIP, which are currently subsidized.  If the NFIP were to expire, flood insurance rates could become unaffordable.

NFIP History

The NFIP is over $24.6 billion in debt.  Storms like Katrina going back as far as 2005, and Sandy in 2012 have placed the agency in debt before claims for Harvey, Irma and even Marie are even tabulated.  Back in 2012, the NFIP was extended for 5 years and called for rate increases.  Many coastal residents felt they were bearing the brunt of the increase while not contributing most of the costs of the debt. 

Many recent storms had a greater impact inland than on coastal areas.  Willo Kelly, Government Affairs Director for the Outer Banks Association of Realtors and Outer Banks Home Builders Association, notes that up until Hurricane Matthew last year, North Carolina policyholders were paying more into the program then they were getting back in claims.

Finding Solutions

Reauthorizing the NFIP while encouraging the private flood insurance market development can provide options for a stable, affordable and sustainable flood insurance market.  Fifty years ago, when the NFIP was created, the private sector had no interest in participating since the risk was high and unpredictable.  Today, however, technology has made it easier to manage and predict the risks.  Encouraging the private flood insurance market to develop while phasing out the role of the NFIP can provide a long term viable solution.

One reform bill, the 21st Century Flood Reform Act, includes new coastal designations which could result in increased premiums for some property owners.  It would include an inland rating and a coastal rating.  The bill includes a provision where rates could rise as high at $10k per year, which is unaffordable for most property owners.

Congress passed the Biggert-Waters Flood Insurance Reform Act of 2012 (BW-12) in 2012, a five year reauthorization of the NFIP that revised the national mapping program and certain rate increases to achieve fiscal soundness by moving away from subsidized rates to full actuarial rates that are more reflective of risk.

Congress later passed the Homeowner Flood Insurance Affordability Act of 2014 (HFIAA), which repealed certain parts of the 2012 act (BW-12), restored grandfathering, limited certain rate increases and changed the approach for fiscal soundness of the fund by adding an annual surcharge to all policyholders.

Up until 2005 the NFIP was largely self-sustaining.  The NFIP covered claims with insurance premiums; and occasionally needed to borrow (and repay) funds from the treasury.  Evidence of mismanagement goes back to 2005 with Hurricane Katrina, where claims for uninsured damages were paid out and cost the program millions of dollars in additional losses.  Experts argue current rates in North Carolina cover the cost of claims. 

Long Term Planning & Management

Critics of the NFIP cite the mere existence of the agency and the subsidized insurance rates encourages development in flood prone areas.  As more flood prone land is developed, losses continue to mount. 

Repetitive flood losses on the same dwelling without raising the structure or other abatements is not a smart use of resources when flooding is likely to reoccur.  There may also be some areas that may require a retreat rather than rebuilding. 

There are several Texas communities where the same dwelling(s) has flooded 3 times in the last 3 years.  Hard hit is Willow Meadows, Houston, and Meyerland to name a few.  Some are seeking a home buyout where the resulting open land could then be used for drainage channels and absorption.

No matter where you may stand on sea level rising, some forecast must be used to predict future potential risks and adopt smarter building practices to minimize losses during a flood event.

Risk Evaluation

It has taken us since 1968 to get to this point and I don’t believe there is a fair solution that will fix the problem overnight.  It is likely a phased approach will be needed to implement changes gradually. 

Real estate buyers rely on FEMA’s flood maps to determine the flood risk on a property based on what “zone” it’s in. Unfortunately, FEMA’s flood maps are often inaccurate, outdated and not reflective of true flood risk. The result is that some homeowners pay too much, while others pay too little. That’s a problem and inherently not fair.

It is unfair to implement dramatic and sudden premium hikes on homeowners who bought their home before they knew the true risk.

Currently, it can take 10 years to update the maps.  As a result, it’s not unusual for homeowners in a lower-risk zone to suddenly discover they’ve been mapped into a higher-risk zone, which means higher premiums.  Sometimes much higher.

In some areas, homeowners have spent thousands to raise their property to reduce flood risk, and the potential burden on tax payers.  But, what happens when a homeowner raised the property by 2 feet only to find out the new FEMA maps require a 3 foot increase.  The homeowner’s investment is wiped away.

Outer Banks communities have been pro-active in managing the flood plains to minimize damage due to flooding.  In recognition of the effort, many residents in these communities receive a discount on the flood insurance premiums by reducing the risk.  Southern Shores for example, has a rating of class 6 in the community rating program and qualifies for a 20% discount on flood rates.

If you are buying or selling real estate, you can rely on the information and advice from the Eillu team.  Subscribe to our blog to stay up to date with Outer Banks area and real estate news.

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