Old beach homes give way to luxury houses
By Katy Stech
The Post and Courier
January 28th, 2007

From time to time, we like to provide articles of interest to our vacation rentals owners in highly targeted areas - like South Carolina Vacation Rentals.

Nell McDuffie expects that her single-story ranch home soon will sit in the shadow of other houses in her Isle of Palms neighborhood.

To her left stands a two-story family home. Another on the corner is a $1.7 million weekend getaway owned by a family from Georgia.

McDuffie's modest, three-bedroom, 1½-bath residence looks similar to the ones across the street and to her right.

But one of those is set to be demolished and replaced. The other is likely to follow suit, as it is on the market as a $835,000 "teardown" property.

"I'll probably be sandwiched one of these days," McDuffie said, smiling.

Space is limited on the Isle of Palms. With only a few dozen empty lots left on the island and the value of coastal properties pushed to sky-high levels, buyers and investors are looking to older beach homes as prime locations for roomy new dream houses to live in or resell for a tidy profit.

In some cases, real estate agents don't even factor the structural value of the existing homes into the selling price. And despite the coastal housing slowdown, many expect investors to continue the trend of tearing down old homes until almost all of this beach community's structures are replaced with towering luxury spreads.

"One thousand square feet of house isn't going to meet the needs of someone who's paying $1 million dollars for a lot," said Douglas Kerr, the city's building department director.

In recent years, Kerr's office has received a steadily increasing number of demolition permit applications. Only four homes were demolished in 2000.

That number increased to 12 in 2002 and to 25 in 2004.

Last year, 36 homes were approved for demolition.

Compared with the 4,100 total residential units on the island, that's a sizable rate, Kerr said.

Most of the flattened homes were built in the 1950s and 1960s, when the island was beginning a transformation from a sparsely populated seasonal vacation spot to a community of year-round residences.

Residential development on the Isle of Palms blossomed under the direction of the late J.C. Long, who founded The Beach Co., now one of the state's largest privately held real estate firms.

The land was simple and flat, but the area was not that accessible because the only bridge to the mainland was on Sullivan's Island. A daily commute to Charleston could take hours if the span was malfunctioning, said Bill Casey, a 59-year-old lifelong island resident.

Long built accordingly. His first housing models were modest two- or three-bedroom ranch homes that ranged from 1,000 to 1,400 square feet. In the 1970s, the average selling price hovered around $16,000, Casey said

"It was developed as the average man's place to live," he said, adding that many of the homes were occupied by military families.

When Hurricane Hugo ravaged the island in 1989, homeowners had an opportunity to either renovate their property with insurance proceeds or sell "as is," said Jimmy Carroll, owner of Isle of Palms-based Carroll Realty.

In more recent years, tightened building standards have made construction almost an all-or-nothing affair.

The Federal Emergency Management Agency has implemented minimum height requirements as part of its flood code since the older ground-level homes were built. And city regulations allow property owners to renovate up to 50 percent of the value of their structure before having to comply with those standards.

That limit pushes many home projects to reach, literally and figuratively, new heights, Carroll said.

"If it meets flood elevations next to a house that's on the ground, it's going to look big no matter what," he said.

Some of the new homes are built for families who intend to live there full time after the sawdust settles.

But Carroll provided numbers that show how often newly built homes are resold as investments: 35 new homes have changed hands since January 2005.

It's not hard to show how investors can turn a sizable profit on an outdated home that's sitting in a highly desirable location.

First, tearing a house down costs about $10,000. Donating the home to charity also can amount to a sizable tax break for owners in higher tax brackets.

The land that remains is the real gem, said Ron Davis, owner of Isle of Palms-based Ron Davis Realtors.

An industry standard for home pricing is that the land is worth 20 percent of the value, and the home structure is worth 80 percent, he explained.

But on places such as the Isle of Palms, it's almost the opposite case for smaller, older homes. Interior lot values typically range between $600,000 and $800,000. Prices can climb to $3 million on the oceanfront.

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