Cheap long range communication?
Making a custom RF system would probably cut down the costs


No, it would not. Developing robust RF systems takes a lot of engineering, because it's a really hard problem. Digi, the maker of Xbee, can slice that cost across a large number of modules, so the cost-per-module is going to be very low.

However, if the budget is $100, then you can easily use two Xbee Pros. Even at retail, with external antenna, an Xbee Pro costs &lt; $50 each, and you only need two to get a bidirectional link. Keep the data rate low (9600 bps, say) to keep distance long and interference tolerance high. Still, depending on the city, and the RF landscape, that may or may not be enough to do 500 meters.

If the Xbee is not sufficiently robust for you, the best option would be to go with cellular data, and pay the monthly charges.