Can You Rent Out Your ADU?

smiling couple shaking hands with a landlord
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To buy, to build, to rent, to reside. So many options when it comes to an accessory dwelling unit (ADU)

What Is an ADU Anyway?

An ADU is a term that defines a secondary living space on the same land as a primary residence. An ADU can take myriad forms, from a garage conversion to an apartment in an outbuilding or a freestanding structure in the backyard.

What Do I Need to Know About ADUs?

Zoning and building regulations are the primary guiding force behind the building and use of ADUs. The local planning department will have all the information about the size, style, location, and occupancy requirements for an ADU.

Are ADUs Expensive?

Yes and no. It depends on your situation. While an ADU has all the primary components of a home, like a bathroom, kitchen, and living spaces, it’s typically much smaller.

However, if you build one from scratch, you’ll discover the process mirrors that of a complete house build, and the costs add up accordingly.

Plus, an ADU can increase your property taxes, cost you in maintenance, and will raise your utility bills.

What Are ADUs Used For?

Although equipped for living in, ADUs can be used as a crash pad for guests, a music or art studio, a gym, an office, or whatever else you need some space for.

Most often, though, homeowners build ADUs for one of two reasons. The first is as extra living space for adult children, senior parents, or other family members.

The second is as a potential rental income opportunity.

Can I Rent Out an ADU?

Whether you planned to rent from the get-go or if your situation changed somewhere along the line, the answer is--probably.

Refer back to the introduction where we mentioned the overlords at the planning department. Every locality is different, so there’s no one right answer here.

Hopefully, however, whoever put the ADU in place did their footwork to ensure it’s a legal, livable, and rentable space.

If zoning and building are all up to code, occupancy may be the primary issue. Many regulations stipulate the owner must live in the primary residence on the same property.

Some financing criteria will also outline residency requirements.

With that in mind, there are a few ways to go about renting your ADU.

ADU tiny home with natural design

Live In Primary, Rent the Secondary

The most common setup sees you comfortable in your home and a renter in your ADU.

An ADU can be a separate building altogether, so you won’t need to interact with your renter very often. It’s a nice situation for someone looking for privacy in a small space.

Even if the ADU is attached to the house, another common option, the resident would have his or her own access, so it feels separate and still a distinctly defined space.

A third type of ADU is an interior space. Again, it has its own access and privacy. This typically takes shape as a garage or basement conversion.

With any of these setups, your renter is detached from your spaces, so you can continue to enjoy your home while receiving rental income.

Live In Secondary, Rent Primary

It may be your initial intent, or it may happen subsequently after some life changes, but another option is to live in your ADU and rent out your primary home.

Again, you’ll need to check with local lending regulations to see if it falls within the approved guidelines, but there are many benefits to this arrangement.

For example, if you travel often or divide your time between two or more locations, it might make sense for you to reside in the smaller home and benefit from the higher rent in the main home.

In fact, the situation can open up a lot of financial freedom as a way to quickly pay off either or both structures.

Own Two, Rent Both

If your location and situation allows it, you can rent out both homes. Perhaps you’re leaving for an extended period, working abroad, or moving to care for an aging parent.

These and other situations could be the perfect reason to rent out your main home and your ADU. The rental income can cover costs for loans, taxes, and maintenance while giving you flexibility.

family approaching rental home

Home Design

The best case scenario is to know how you plan to use the space before you ever begin work. If you get in on the planning stages, you can be the puppeteer of size, shape, style, color, and interior design in order to optimize rental potential.

Depending on the location of pipes and wiring, windows, and doors, try to make the space as segregated from the house as possible. This means placing sleeping spaces furthest from the main house, especially if there is a shared wall.

It also means providing window coverings, installing thick landscaping as a barrier, and soundproofing where necessary.

In order to maximize energy efficiency, consider using natural light as much as possible, use quality insulation and efficient windows.

The building or renovation stage is also a good time to incorporate solar panels, radiant-heated floors, or other systems.

You can also make your space more appealing to a variety of people or just make it more useful for yourself with some thoughtful design elements. Since most ADUs are small, make effective use of space by practicing minimalism. Keep the design style clean and clutter-free.

Make sure everything in the space serves a purpose--maybe more than one. A futon can double as a spare bed, and an adjustable table can be used for dining or as a desk.

Make effective use of space with a Murphy bed, opening shelving in the kitchen, and storage underneath the stairs.

You may also want to incorporate ADA elements into the home, especially if you plan to use it for elderly or disabled persons.

Even if you’re not sure you’ll need it, inclusive touches like even floors, wide doorways, and an accessible shower can increase interest in your rental unit.

In fact, throughout the design process, think about ways to make your ADU flexible for the inevitable changes the years, and the needs of different tenants, will bring.

Short Term Vs. Long Term Rentals

Once you’ve decided to rent out your ADU, you have another choice to make. Will you rent it as a short-term rental or a long-term rental? Each comes with its own list of pros and cons.

A short-term rental is a home you would rent as a vacation rental for weekend visitors or those who need a place for a week or two.

If you have a home in a desirable location a short-term rental will net you a lot more income on a regular basis. Even if you only rent it out a few weekends a month you’ll likely be able to charge an amount similar to a full month’s rent.

However, it’s a lot of work to cycle people through a short-term rental. There’s advertising, maintaining a calendar, correspondence, and contracts to monitor. You’ll also need to clean and prep the home after each guest, or hire and pay someone else to do it.

If you pay for a service such as VRBO or AirBnB you’ll pay fees, however you can reach a lot more people with your listing.

With a short-term rental, it’s much easier to gain access to your own home, making it a good choice if you plan to stay there part-time.

Choosing to rent out your ADU long-term means being willing to accept a lower rate, but it nets you more consistent income.

It’s a lot less hassle to manage a long-term rental, assuming you have a stable tenant situation.

Either way, you’ll want to make your rental as appealing as possible.

rental property with deck and furniture

Extra, Extra!

Those extra touches go a long way toward attracting both renters and a top-dollar rate.

Install the highest-quality materials and appliances you can afford. Not only will they look nice, but they’ll typically function longer and be more durable. That’s a combination that will save you time and money in the long run.

Make room for as much storage as you can. Add shelves to the spaces inside the water heater closet, use a wardrobe as a kitchen pantry, add a cabinet to the laundry room, and use storage benches that double as seating.

Put an emphasis on a functional kitchen. People typically spend a lot of time in the kitchen, so make sure it flows properly, with the traditional triangle between the stove, fridge, and sink.

In the bathroom, make sure there’s adequate lighting and outlets to plug in hair dryers and electric razors. Put in a few luxury touches like an upgraded showerhead and spotless, quality towels.

Add closet organizers to get every ounce of space out of the bedrooms. Make sure beds are comfortable and linens are impeccable.

If you can squeeze it in, try to include a washer and dryer set. It might be wedged into a hall closet or it could be a stackable unit in the bathroom if you can’t designate a room for it.

Will an ADU Increase the Value of My Home?

Usually, yes. However, that value is difficult to quantify. There are different measurements of value. The first is its value as additional space. Your ADU may be a home for your child or parent. It may be the solution for a traveling professional, provide a relaxing space for travelers, or be just right for a local college student.

The point is, part of the value isn’t monetary.

A rental income is of obvious value, whether it's additional money you wouldn’t normally have, or if it covers the one or both mortgage loans.

The real answer to the question comes down the road when you sell the home, however. A buyer looking for a second living quarters will pay more for your setup than someone who loves the main home, but doesn’t have a need or desire for an ADU. In other words, if you find the right buyer, your ADU can be quite valuable.

In general an ADU should add value to your home, as long as it’s legal, upkept, and usable.

home with second unit

Is It Worth It to Rent Out an ADU?

There are countless factors to consider in the answer to this question. The first is in regards to the cost of your investment. If you have a completed basement your kid or parent was living in, it’s pretty easy to turn into a short or long-term rental. Same goes for an out building or room above the garage.

However, if you’re at the starting gate, you need to decide whether you want to start a process that can run you tens of thousands of dollars, or even hundreds of thousands.

There will be costs associated with permits, inspections, contractors, materials, appliances, maintenance, and more.

While an inside ADU is the most affordable, an attached ADU saves costs over a detached ADU.

On the other end of the budgetary spectrum, however, the more separation from the main house there is, the higher the rent will likely be.

While you may have originally created the ADU space to keep family close, you’ll need to ask yourself whether you’ll want a renter that close.

For some, it adds a sense of security and can create a micro-community where you have a built-in neighbor who can feed the cat when you’re out of town. For others, the lack of privacy or the extra responsibility doesn’t feel like it’s worth it.

Are ADUs Popular?

When our country first started, people would offer guests a spot in the barn or allow them to stay in the kids’ beds. We’ve always found a way to accommodate those who are traveling through or looking to stay stationary for a while. ADUs are the modern version of the carriage house.

But, even at that, ADUs are probably more popular than ever. Part of the reason is our level of mobility. On the go for work or play, ADUs are a great way to avoid hotels and immerse in the local community. As long-term rentals, they help alleviate the crushingly stressed housing market by providing affordable solutions.

Plus, they’re a great option for those returning to multi-generational living.

For the smallest ADUs learn more about What Defines a Tiny Home? and Modular, Prefab Tiny Homes.