There are many reasons to buy a smaller home—or to downsize from your present home—but sometimes, the idea that “less is more” is what propels homeowners to buy a smaller home.

When asked why they might want to purchase a smaller home, 69% of homeowners who have downsized in the past said saving money was their primary reason for doing so.¹ But, of course, these reasons can vary.

While it’s true that we live in a society that often holds that “bigger is better,” it can be worthwhile to shift your thinking and consider whether a smaller home would actually serve you and suit your lifestyle.

Key Takeaways

• Downsizing can increase your cash flow, lower your utility bills, and reduce the time you spend on maintenance and upkeep. 
• The downsides to downsizing include having less room for guests and having to get rid of belongings to fit into a smaller space. 
• In general, it’s better to sell your current home before buying a new one, but discuss the possibilities with your agent for specific advice.

Potential Advantages of Downsizing

• Increased cash flow: If you’re spending less on your mortgage payment, you are likely to have money leftover every month to allocate for other needs or desires. Or perhaps you could pay cash for a smaller home from the proceeds of your existing home.
• More time: Fewer rooms and smaller spaces cut down on the time expended to clean and maintain. Smaller homes can reduce the time spent on household tasks, leaving more hours in the day to do something else more enjoyable. In fact, when asked about their primary reasons for downsizing, 36% of baby boomers, 18% of Gen Xers, and 19% of millennials said they did so because their previous homes were too difficult to maintain.¹
• Lower utility bills: It costs a lot less to heat or cool a smaller home. Typically there is no wasted space, such as vaulted ceilings, in a smaller home. Less square footage decreases the amount of energy expended. Reducing energy is better for the environment and helps to keep your home green.
• Reduced consumption: If there is no place to put it, you’re much less likely to buy it. That means you may acquire less clothing, food, and consumer goods.
• Minimized stress: Less responsibility, smaller workload, increased cash flow, and greater flexibility—added together, they all reduce stress. Homeowners who have successfully downsized sometimes appear happier when they’re no longer overwhelmed by the demands of a larger home.

Potential Disadvantages of Downsizing

• Fewer belongings: Moving to a smaller home would probably result in selling, giving away, or throwing out furniture, books, and kitchen supplies. You’d have to sort through and empty out the garage, basement, and attic. Some people form emotional attachments to stuff and can’t part with any of it.
• No room for guests: Hosting a huge holiday dinner might be out of the question in a smaller home. Out-of-town guests might need to stay at a hotel when they come to visit.
• Space restrictions: Some homeowners report feeling cramped because there is less space in which to maneuver. It’s hard to get away from other family members and enjoy private, quiet time because there are fewer rooms to escape to when needed.
• Less prestigious: Sometimes appearances are more important than comfort levels. For homeowners who place a great deal of importance on how they are perceived by others, a smaller home might not project a coveted image of financial success.
• Lifestyle changes: Especially for long-term homeowners, trading down means changing a lifestyle, and some people are resistant to change. There is a certain comfort level obtained by staying with what is familiar.

Market Timing

The financial edge to downsizing, whether it’s a hot, cold, or neutral market, makes little difference overall. But one could argue that downsizing in a seller’s market would give the homeowner more cash on hand after closing. However, the trade-off could be a higher sales price for the smaller home.

For example, say in a neutral market that an existing home is worth $500,000, encumbered by a $200,000 mortgage. Not counting closing costs, which may include commission and title fees, the net proceeds would be $300,000. Let’s also assume that a seller could buy a smaller home for cash at $250,000, putting $50,000 in the pocket.

If it’s a seller’s market, however, and prices have jumped 10%, the existing $500K home might be worth $550,000. Meaning the smaller $250K home could be purchased at $275,000 in cash, resulting in $75,000 cash remaining.

If it’s a buyer’s market, say, and prices have fallen 10%, then the existing home could be worth $450,000. The smaller $250K home would be priced at $225,000, resulting in $25,000 cash to put in the bank.

The best of both worlds would be to sell in a seller’s market and buy elsewhere in a buyer’s market. Either way, a seller could end up owning a free-and-clear smaller home, so take your pick of markets. Realize, though, that you can’t really time the market.

Buy or Sell First?

Sellers often ask whether they need two agents to buy and sell. First, consider similar comparable sales and your home pricing. Second, is it located in a neighborhood where out-of-area agents are shunned by local agents? It’s not supposed to happen, yet it does. But if your home is easy to price, and the agent has contacts in that area, it doesn’t really matter where the agent is located. Sometimes agents will negotiate the commission if they are handling two transactions.

Should you sell first and then buy, or buy first and then sell? Generally, it’s better to sell your existing home before buying a new home. The reason is it keeps your emotions in check. But some markets will dictate that it’s better to buy before you sell. Discuss this strategy with your real estate agent.

Article by ELIZABETH WEINTRAUB

Elizabeth Weintraub is a nationally recognized expert in real estate, titles, and escrow. She is a licensed Realtor and broker with more than 40 years of experience in titles and escrow. Her expertise has appeared in the New York Times, Washington Post, CBS Evening News, and HGTV’s House Hunters.Learn about our editorial policies

As a homeowner, it’s your job to care for and protect your property, but home insurance companies offer policies that can help you with the protection part. Tree damage may not be the first thing that comes to mind when choosing coverage levels for your homeowner’s insurance, but if a tree falls on your home, it can damage your house and your possessions and cause financial devastation. The endless ‘what if’ scenarios can feel overwhelming, but as far as tree damage is concerned, it’s best to pick coverage rooted in caution and practicality.

Much like the Lorax speaks for the trees, we’ve outlined preventative measures you can take to care for or remove trees and protect your property from tree damage. We’ve also outlined scenarios where your home insurance might or might not cover damage caused by trees. Understanding the nuances of a standard homeowners insurance policy could help ensure you know what is covered if a tree wreaks havoc on your property and what damage you might be responsible for out of pocket.

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Key statistics

• 2% of homeowner’s insurance losses were caused by property damage in 2019. Over a third of that property damage was due to natural causes, specifically wind and hail. (Insurance Information Institute (Triple-I)
• Insurance companies paid an average of $4,110 for settled tree claims. Seven percent of these claims were as a result of a fallen tree. (Consumer Reports)
• If a tree located on your neighbor’s property damages your house or property, your insurance company may try to collect from their insurance company. If successful, you could be reimbursed for your deductible. (Triple-I)
• If you have particularly valuable trees on your property, you should consider how much it would cost to replace them when determining how much homeowners insurance you need. (Triple-I)
• Standard homeowners insurance typically covers damages to trees and shrubs due to disasters or accidents like fire, lightning, vandalism and theft, but this coverage is typically limited to five percent of the amount of insurance on the structure of your home, and insurers will also usually cap coverage for any one tree, shrub or plant. (Triple-I)

Does homeowners insurance cover tree damage?

Whether or not a homeowners insurance policy covers tree damage depends on the situation. In order for the damage to be covered, the cause of the tree falling must be due to a covered peril. Many homeowners know they can usually file a claim if a tree damages a covered structure, but you may not know that many home insurance policies also cover at least some portion of damage to the actual trees, shrubs or plants, as long as the damage was caused by a covered peril.

So if a tree falls in your yard but does not damage your home or any other structure on your property, some portion of it may be covered by your home insurance policy. According to the Triple-I, this type of coverage will generally be capped at a certain percentage of your dwelling coverage limits. It’s important to note that most home insurance companies will not pay for tree or shrub removal, except in some cases where it is blocking a driveway or handicap access.

Every policy is different, however, so you should consider speaking with your insurance agent about what is and is not covered in your policy — before tree damage occurs.

Tree damage causes typically covered by home insurance:

• Storms
• Hail
• Ice
• A fire caused by lightning (and other apocalyptic events)

Tree damage causes typically not covered by home insurance:

• Rot
• Age
• Flood
• Earthquake

Does homeowners insurance cover tree removal?

Homeowners insurance typically covers the removal of trees if they have fallen due to a covered peril and onto a covered structure, like your house, or if the tree is blocking an access point. Some situations where tree removal may be covered are:

• If a tree falls on an insured structure, such as your home itself or a garage
• If a fallen tree is blocking a driveway
• If a fallen tree is blocking a handicap-accessible ramp

Situations where tree removal is not covered under your insurance policy should be carefully considered. If your home hasn’t been damaged by a fallen tree, but you want to preemptively remove trees on your property, it is unlikely to be covered — and could even have negative consequences.

For example, if the person responsible for removing the tree is injured during the process, you may risk legal repercussions as the property owner. Bodily injury liability is one of the more infrequent causes for insurance claims, but can be one of the most costly. From 2015-2019, according to the Triple-I, bodily injury and property damage was the second severest homeowner’s insurance claim, costing an average of $29,752.

Insurance companies consider your justification for tree removal to determine if it will be covered. They will likely not cover the removal if you’re worried about your yard aesthetic and find the tree unsightly. If an insured structure was hit, insurance providers may reimburse you for tree removal up to a specified dollar amount, usually ranging from $500-$1,000. If a covered structure was not hit, your insurance company is unlikely to pay for its removal, except, possibly, in the circumstances mentioned above. It’s important to check your policy and ask your agent to determine your exact coverage.

What to do when someone else’s tree damages your property

A standard homeowners insurance policy should cover a tree that falls on your house, regardless of who owns the tree.

In some cases, the insurance company may try to collect the money needed to cover the damage from the neighbor’s insurance company in a process called subrogation, which may also cover the deductible for the homeowner whose property was damaged.

However, if your neighbor’s tree has not fallen on your house, but it’s encroaching on your property, do you have the right to cut it?

Usually, it depends on whose yard has the tree trunk. If your neighbor’s tree branches and leaves cover portions of your yard, but the tree trunk is in his yard, it belongs to your neighbor. In that case, your local laws or HOA governance will likely determine whether overgrown trees that encroach on your property must be maintained by their owner.

Tree removal in these cases can lead to disputes between you and your neighbors who have differing opinions on the matter. Your HOA may get involved, or worse — your neighborhood Facebook page could become the battleground for the tree removal debate.

Another risky ‘what if’ is if your tree is damaging your neighbor’s property. It could cost you and your insurance provider to compensate for the damages, not to mention your reputation in the neighborhood. That’s why regular care and maintenance of your trees is typically a good idea.

How much to expect from the insurance company

The payout from your insurance company after tree damage depends on several factors, including what type of property was damaged. If a covered peril causes damage to your house, you may be eligible to receive up to the limit of your policy’s dwelling coverage, depending on how much damage was done.

You can usually also file a claim for your personal belongings, if they were damaged, up to certain limits. Different categories of possessions have individual limits and high-value items may not be covered at all, unless you have added them with scheduled personal property insurance. You can choose to increase these limits, but it will likely cause your homeowners insurance premium to go up.

How much you are reimbursed for your belongings and dwelling coverage also depends on whether you have actual cash value (ACV) or replacement cost value (RCV) on your policy.

If the tree itself that caused damage to your home was valuable, you might also be able to file a claim to replace it. As mentioned earlier, not all policies will cover the actual tree, and the ones that do will likely have certain coverage caps in place, so you will need to look at your policy or speak with an agent to see how much is covered.

Once a claims adjuster creates an estimate for each claim category, the insurance company subtracts your policy deductible from the amount you receive. Many homeowners insurance policies also cover some living expenses, such as hotels, up to certain limits if your home is uninhabitable while the damage is repaired.

How to prevent tree damage

It is your responsibility as a homeowner to maintain your trees properly. Damage caused by dead or rotting trees is not likely to be covered by homeowners insurance, and if a tree owned by you causes damage to someone else’s property or person, you might get sued. Here are a few things you can do to prevent trees from causing damage to structures and property:

• Trim any trees on your property regularly, especially those with long branches.
• Check for signs your trees are dead or dying (not on Healthline) by observing a year-round lack of leaves or hollow trunks.
• Look for mushrooms, cracks or holes at the base of tree trunks to rule out rotting.
• Consider removing trees that are leaning off-center that have a higher potential to fall.
• Pay extra attention to trees that hang over your roof, driveway or power lines.
• Consider having a tree expert examine the trees on your property periodically to look for signs or disease or rot, or to recommend preventative maintenance.

Frequently asked questions

What is the best home insurance company?

Finding the best home insurance company depends on a lot of factors. It is a good idea to compare quotes from some of the top home insurers in the country using criteria like customer service scores from J.D. Power, financial strength ratings from AM Best and average premiums. Not every homeowner has the same needs, so it is smart to look at several options and speak with a licensed insurance professional.

Does homeowners insurance cover diseased tree removal?

Diseased tree removal is generally considered routine maintenance and is not typically covered by a standard homeowners insurance policy. It is your responsibility to track the health of your trees and treat them when needed.

If a falling tree damages my roof, will that be covered by homeowners insurance?

A roof can be expensive to replace, but most standard policies will cover tree damage to a roof if the following perils caused it:

• Fire or lightning
• Windstorms and hail
• Explosions
• Riots, vandalism or theft
• Damaged caused by aircraft or vehicles
• Smoke
• Volcanic eruptions
• Falling objects
• The weight of snow, ice or sleet

In most cases, roof damage from a tree felled by floods or earthquakes is not covered. It is a good idea to purchase a separate policy to cover these perils if you live in an area prone to either. Note that insurance companies will typically only cover your roof if it is in good repair. If you are unsure of the specific coverages included in your policy, turn to your agent or insurance company for clarification.

Do trees add value to my home?

Arbor Day Foundation finds that planting trees in residential areas can increase property values anywhere from three to 15 percent. Trees can really spruce up a neighborhood and appeal to potential buyers.

Removing dying or rotting trees can also increase the value of your home by eliminating that risk for future residents, according to Realtor.com. Remember that the cost of removing trees, even if diseased or rotting, is considered routine care and maintenance and is usually not covered by insurance.

What types of trees are the safest?

It’s typically a good best practice to select trees that don’t forget their roots — literally. If you’re considering planting a tree or evaluating the type of tree on a property you’re looking to buy, look for healthy, strong roots. Bonus points if the tree is relatively low-maintenance.

Some of the best trees for this can include oaks, maples, hickories and elm trees, according to Realtor.com. You might want to consult with a landscape expert to determine what trees are the best for your climate and property type.

What types of trees can’t be trusted?

Simply put, trees that ain’t from ‘round these parts are better avoided. Experts advise picking trees best-suited for your environment and considering their native location. For example, non-native tree types like black locusts and box elders, native to the Southeast and Central/East regions, generally wouldn’t thrive in the desert climate of the Western U.S., according to Realtor.com.

It’s also usually a good idea to avoid trees that attract invasive species of insects or trees with invasive roots. These types of trees can bring unwelcome visitors to your home or shift the foundation of your house entirely.

Trees with these types of roots include willows, hybrid poplars and silver maples, all of which have the potential to invade your sewer lines and drain pipes.

Again, speaking with an ISA Certified Arborist or landscape professional might be the best idea to determine what trees are right for your home.

Written by Lauren Ward

Read more From Lauren Lauren Ward has nearly 10 years of experience in writing for insurance domains such as Bankrate, The Simple Dollar, and Reviews.com. She covers auto, homeowners, and life insurance, as well other topics in the personal finance industry.

Original Article Posting: https://www.bankrate.com/insurance/homeowners-insurance/does-homeowners-insurance-cover-fallen-trees/

New listings post smallest year-over-year decline since mid-November; pending sales rise 1%.

Home-selling activity is finally gaining some steam. The number of homes newly listed for sale during the four weeks ending February 20 was down just 2% year over year, the smallest decline since mid-November. More new listings were met with hearty demand. Pending sales rose 1%, the first increase since mid-January. The market again set new record highs for home sale prices, asking prices, buyers’ mortgage payments and the share of homes selling within days of hitting the market. We also saw a new all-time low for the total number of homes for sale.

”The good news for homebuyers is that each week more homes are being listed for sale,” said Redfin Deputy Chief Economist Taylor Marr. “There is growing evidence that January’s dramatic drop in new listings was only a temporary blip driven by heavy winter storms and the spike in Covid cases, so homebuyers may have some hope for better selection in the coming spring season.”

Key housing market takeaways for 400+ U.S. metro areas:

Unless otherwise noted, the data in this report covers the four-week period ending February 20. Redfin’s housing market data goes back through 2012.

Data based on homes listed and/or sold during the period:

• The median home sale price was up 15% year over year to a record high of $358,750. This was up 32% from the same time in 2020.
• The median asking price of newly listed homes increased 15% year over year to an all-time high of $385,327. This was up 27% from the same time in 2020.
• The monthly mortgage payment on the median asking price rose to an all-time high of $2,014. This was up 24% from a year earlier when mortgage rates were 2.97%, and was up 34% from the same period in 2020 when rates were 3.45%.
• Pending home sales were up 0.8% year over year, the first increase since the four-week period ending January 16. Sales were up 32% from the same period in 2020, just prior to the start of the pandemic.
• New listings of homes for sale were down 2% from a year earlier. This was the smallest decline since the four-week period ending November 14. Compared to 2020, new listings were down 9%.
• Active listings (the number of homes listed for sale at any point during the period) fell 25% year over year, dropping to an all-time low of 452,000. Listings were down 49% from the same period in 2020.
• 58% of homes that went under contract had an accepted offer within the first two weeks on the market, an all-time high. This was up from the 51% rate of a year earlier and 43% in 2020.
• 45% of homes that went under contract had an accepted offer within one week of hitting the market, an all-time high. This was up from 39% during the same period a year earlier and 30% in 2020.
• Homes that sold were on the market for a median of 28 days, down from 37 days a year earlier and 58 days in 2020.
• 43% of homes sold above list price, up from 32% a year earlier and 20% in 2020.
• On average, 2.7% of homes for sale each week had a price drop, up 0.4 percentage points from the same time in 2021, but down 0.6 percentage points from 2020.
• The average sale-to-list price ratio, which measures how close homes are selling to their asking prices, rose to 100.5%. In other words, the average home sold for 0.5% above its asking price.

Other leading indicators of homebuying activity:

• Mortgage purchase applications decreased 10% week over week (seasonally adjusted) during the week ending February 18. For the week ending February 24, 30-year mortgage rates fell slightly to 3.89%, the highest level since May 2019.
• Touring activity through February 20 was 17 percentage points ahead of 2021 and 2 points behind 2020 relative to the first week of January according to home tour technology company ShowingTime.
• The Redfin Homebuyer Demand Index rose 6% during the week ending February 20 and was up 15% from a year earlier. The seasonally adjusted Redfin Homebuyer Demand Index is a measure of requests for home tours and other home-buying services from Redfin agents.

Refer to our metrics definition page for explanations of all the metrics used in this report.

Capital gains tax is the income tax you pay on gains from selling capital assets—including real estate. So if you have sold or are selling a house, what does this mean for you?

If you sell your home for more than what you paid for it, that’s good news. The downside, however, is that you probably have a capital gain. And you may have to pay taxes on your capital gain in the form of capital gains tax.

Just as you pay income tax and sales tax, gains from your home sale are subject to taxation.

Complicating matters is the Tax Cuts and Jobs Act, which took effect in 2018 and changed the rules somewhat. Here’s what you need to know about all things capital gains.

Who pays capital gains tax?

In a nutshell, capital gains tax is a tax levied on possessions and property—including your home—that you sell for a profit.

If you sell it in one year or less, you have a short-term capital gain.

If you sell the home after you hold it for longer than one year, you have a long-term capital gain. Unlike short-term gains, long-term gains are subject to preferential capital gains tax rates.

The primary residence tax exemption

Unlike other investments, home sale profits benefit from capital gains exemptions that you might qualify for under some conditions, says Kyle White, an agent with Re/Max Advantage Plus in Minneapolis–St. Paul.

The IRS gives each person, no matter how much that person earns, a $250,000 tax-free exemption on capital gains from a primary residence. You can exclude this capital gain from your income permanently.

“So if you and your spouse buy your home for $100,000, and years later sell for up to $600,000, you won’t owe any capital gains tax,” says New York attorney Anthony S. Park. However, you do have to meet specific requirements to claim this capital gains exemption:

• The home must be your primary residence.
• You must have owned it for at least two years.
• You must have lived in it for at least two of the past five years.
• You cannot have taken this exclusion in the past two years.

If you don’t meet all of these requirements, you may be able to take a partial exclusion for capital gains tax if you meet certain exceptions (e.g., if your job forces you to move before you live in the home two years). For more information, consult a tax adviser or IRS Publication 523.

What’s my capital gains tax rate?

For capital gains over that $250,000-per-person exemption, just how much tax will Uncle Sam take out of your long-term real estate sale? Long-term capital gains tax rates are based on your income (pre-2018 it was based on tax brackets), explains Park.

Let’s break it down.

For single folks, you can benefit from the 0% capital gains rate if you have an income below $40,400 in 2021. Most single people will fall into the 15% capital gains rate, which applies to incomes between $40,401 and $445,850. Single filers with incomes more than $445,851, will get hit with a 20% long-term capital gains rate.

The brackets are a little bigger for married couples filing jointly, but most will get hit with the marriage tax penalty here. Married couples with incomes of $80,800 or less remain in the 0% bracket, which is great news. However, married couples who earn between $80,801 and $501,600 will have a capital gains rate of 15%. Those with incomes above $501,601 will find themselves getting hit with a 20% long-term capital gains rate.

• Your tax rate is 0% on long-term capital gains if you’re a single filer earning less than $40,400, married filing jointly earning less than $80,800, or head of household earning less than $54,100.
• Your tax rate is 15% on long-term capital gains if you’re a single filer earning between $40,401 and $445,850, married filing jointly earning between $80,801 and $501,600, or head of household earning between $54,101 and $473,750.
• Your tax rate is 20% on long-term capital gains if you’re a single filer earning more than $445,851, married filing jointly earning more than $501,601, or head of household earning more than $473,751. For those earning above $501,601, the rate tops out at 20%.

Don’t forget, your state may have its own tax on income from capital gains. And very high-income taxpayers may pay a higher effective tax rate because of an additional 3.8% net investment income tax.

If you held the property for one year or less, it’s a short-term gain. You pay ordinary income tax rates on your short-term capital gains. That’s the same income tax rates you would pay on other ordinary income such as wages.

Do renovations reduce capital gains?

You can also reduce the amount of capital gains subject to capital gains tax by the cost of home improvements you’ve made. You can add the amount of money you spent on any home improvements—such as replacing the roof, building a deck, replacing the flooring, or finishing a basement—to the initial price of your home to give you the adjusted cost basis. The higher your adjusted cost basis, the lower your capital gain when you sell the home.

For example: if you purchased your home for $200,000 in 1990 and sold it for $550,000, but over the past three decades have spent $100,000 on home improvements. That $100,000 would be subtracted from the sales price of your home this year. Instead of owing capital gains taxes on the $350,000 profit from the sale, you would owe taxes on $250,000. In that case, you’d meet the requirements for a capital gains tax exclusion and owe nothing.

Take-home lesson: Make sure to save receipts of any renovations, since they can help reduce your taxable income when you sell your home. However, keep in mind that these must be home improvements. You can’t take a deduction from income for ordinary repairs and maintenance on your house.

Capital gains on inherited homes

What if you’re selling a home you’ve inherited from family members who’ve died? The IRS also gives a “free step-up in basis” when you inherit a family house. But what does that mean?

Let’s say Mom and Dad bought the family home years ago for $100,000, and it’s worth $1 million when it’s left to you. When you sell, your purchase price (or “basis”) is not the $100,000 your folks paid, but instead the $1 million it’s worth on the last parent’s date of death.

You pay capital gains tax only on the difference between what you sell the house for, and the amount it was worth when your last parent died.

What if my home sells at a loss?

If you sell your personal residence for less money than you paid for it, you can’t take a deduction for the capital loss. It’s considered to be a personal loss, and a capital loss from the sale of your residence does not reduce your income subject to tax.

If you sell other real estate at a loss, however, you can take a tax loss on your income tax return. The amount of loss you can use to offset other taxable income in one year may be limited.

How investors avoid capital gains tax

If the home you’re selling is not your primary residence but rather an investment property you’ve flipped or rented out, avoiding capital gains tax is a bit more complicated. But it’s still possible. The best way to avoid a capital gains tax if you’re an investor is by swapping “like-kind” properties with a 1031 exchange. This allows you to sell your property and buy another one without recognizing any potential gain in the tax year of sale.

“In essence, you’re swapping one investment asset for another,” says Re/Max Advantage Plus’ White. He cautions, however, that there are very strict rules regarding timelines and guidelines with this transaction, so be sure to check them with an accountant.

If you’re opting out of the rental property investment business and putting your money in another venture that does not qualify for the 1031 exchange, then you’ll owe the capital gains tax on the profit.

If you’re a homeowner looking to create a separate space from your home for a mother-in-law suite, workspace, or rental opportunity, building an accessory dwelling unit, or ADU, may be the perfect option. The potential uses and benefits of an ADU are endless, but building one can be difficult with every city having its own zoning restrictions, HOA regulations, and building laws. Laws surrounding ADUs from San Francisco, CA are completely different from the laws in Providence, RI.

To give you some clarity, we asked ADU experts to share their best tips and tricks that will help you successfully build an ADU. Keep reading to see what they had to say.

1) Make sure your property is suitable for an ADU

In addition to ensuring your ADU design can be built within your budget, you also need to ensure your property is suitable for the ADU. The first step in determining where the ADU can be built is to understand local ADU regulations, including setbacks, zoning, and HOA requirements. Work with an experienced contractor to understand what will be required to create a “buildable pad” for your ADU, as these site work costs are the most variable element of the construction project. – Snap ADU

2) Build on your own property

If you already own the property, the land is already priced in. Meaning, if you were looking for an investment property (like a lot to build multifamily or finished units on) you would have to pay a premium for the land by itself. Land in central Oregon and in all different parts of the country is at an all-time high. So why not invest in building an ADU on land you already own? Building an ADU on your own property can give you more bang for your buck. – ADU Advice

3) Hire professional help

It can be chilling to start the process of building an ADU. It’s always better to hire local experts to plan and build your ADU. This goes for architects, contractors, designers, and real estate agents. Make sure you find a local contractor who specializes in accessory dwelling units. – ADU Insider

4) Utilize standardized plans

In addition to prefab or custom ADU options, there is a third overlooked technique known as pre-spec. It stands for pre-specified which gives you some of the prefab benefits in planning, selection, and cost savings, yet it is still customizable to satisfy differing city requirements and HOA guidelines. Similar to the way tract homes are packaged and standardized, pre-spec ADUs can offer a variety of elevation options for adapting to the architecture of an existing residence/community. – TruPlans ADU

5) Consider building an attached ADU

Many people think of ADUs as separate detached units or garage conversions, but ADUs can also be attached to a home or existing garage. This option preserves yard space, allows for more square footage, and eliminates the cost of solar, which is required for most detached ADUs in California. – Superior ADUs

6) Calculate your potential ROI

One of the most compelling pros of owning and renting out an ADU is having a portion of your mortgage covered by a renter, yet retaining the capital appreciation that makes this a tax–efficient investment, all while increasing the housing supply. I founded ADUROI to help others evaluate the potential return on investment when adding an ADU. For example: In 2018, if I paid $730k for a single-family home, invested an additional $130k to convert the garage into an ADU then as of today, the rent from the ADU generated a 51% ROI. – ADUROI

7) Save money with a panelized ADU builder

ADUs don’t have to cost an arm and a leg. Between choosing an architect, contractors, financing, drafting plan sets, and securing permits – it adds up fast. You could pay half the cost of a traditional stick–built ADU by hiring a panelized ADU builder. Your ADU will look like your primary home, quality will be high, and the ADU could be completed on-site in 30 days. – Conrad Kimball, Co-Founder of ADU Works

8) Check if your state has ADU design restrictions

Because ADUs are based on California state law, local jurisdictions are limited in their ability to require design review for these projects as compared to any other project type. As long as the structure is no taller than the existing main house and is generally similar in style and material to the existing structure, months of design review hearings and costs associated with that effort are saved. To understand how this applies to your particular project, feel free to get in touch. – Bildsten Architecture and Planning Inc.

9) Do your research and ask yourself important questions

Make sure there are no pending liens or pre-sale inspection steps you missed during escrow. If you miss things, you can probably still build an ADU or convert existing space into an ADU, but it may require that you move on the city’s timeline which may be faster or slower than you had anticipated. When converting existing space into an ADU, check permits to see if the space is already legal or not. It may be legal when it comes to square footage, but not legal to be used as a living space. Checking permits will allow you to finish the project quicker and may lead to a lower total cost. Finally, always analyze the cost–benefit before you start. Ask yourself questions like, what is the total payment of all cash used to create ADU vs estimated monthly rent? Am I cash flow positive? Is that cash flow worth it to me to lose privacy and parking? How long will it take to recoup my investment? Could investing funds in a different project give me better returns? These are all important questions to ask before you decide to build an ADU. – IET Real Estate

10) Evaluate the pros of building an ADU

Building an ADU is one of the smartest business decisions a homeowner can make. If the ADU is built for a loved one with special needs, they are a much less expensive alternative to a care facility. Alternatively, several clients have been able to pay for their ADU or backyard home and their mortgage with the additional income generated by renting their ADU. – CA Backyard Homes

11) Decide whether to build an ADU or buy an existing one

We recommend you purchase a home that has the option of building an ADU. Building an ADU can cost anywhere from $80k to $200k. But if you factor in the rents you will get, the payoff is amazing and can pay for itself in 5-10 years, depending on your rents. Keen on buying an existing ADU? Do it, it will assist you to open the doors to spend a little more money on a home and have the cushion of added rents to cover your mortgage. Both options are a win-win. – Monique Carrabba Carrabba Group | Compass Beverly Hills

12) Experience vs. experiment

Many builds using a variety of prefab methods have taught me that making all the decisions upfront makes the cost to build very predictable such that the contract price is the actual price. Experience is necessary to see all the items needed on the front end. While this may not give you the best quote price, an experienced builder can validate that price through previous clients. Great solutions come from companies with a range of products that fit every size, need, and price range – from full builds to some DIY options. – prefab ADU

13) Be thoughtful with design

ADUs make a great space for an in-law suite for aging parents by providing privacy, more independent living, and more space, all while keeping those you love close by. Make sure your design consideration allows for graceful aging – larger doorways for easier movement, curbless showers for ease of use, and induction cooktops for safe cooking. – Third Street Architecture

14) Have your septic system checked

Your current septic system may not be able to handle the increase in discharge from your new ADU. It’s best to have a professional from your county’s health department check your existing system to understand if it can handle the ADU or if a new unit is required. If a new unit is required, it may be different from your existing system as regulations often change and become more stringent – Acuantia

Originally published on Redfin.com