Can an ADU be Rented Out?

Accessory dwelling units (ADUs) have increased in popularity to account for decreasing availability of affordable housing across the US.

Some homeowners will choose to build an ADU to provide more space for more family members to live together or as an additional investment opportunity. Renting an ADU can serve those who need housing and provide extra income.

The ability to rent out an ADU is dependent on local and state laws, with many communities allowing rentals across the country. Homeowners associations (HOAs) typically dictate if you are able to rent an ADU; if there is no HOA in your community, refer to the city, county, and state for laws and restrictions.

If you are interested in building an ADU or using an existing one to rent out, you will first need to check with your local jurisdiction’s laws. Renting your ADU can be an excellent source of income and help to address the growing issue of housing shortages across the country. We will address considerations and guidelines that must be met if your community allows for rentals.

How to Rent Out an ADU?

The qualifications and regulations for renting an ADU will vary by laws and guidelines in individual communities. You should be checking with your HOA, city, and county for restrictions that may be placed on both building and renting out an ADU. There are some general guidelines that should be followed to ensure compliance with laws that exist in most ADU-friendly areas.

These are some of the steps you will need to take in order to rent out an ADU:

HOA guidelines: Homeowners associations are typically responsible for providing the rules for renting out ADUs. If you live somewhere without an HOA, your city or state law will determine your course of action. Reading and becoming familiar with these specific guidelines will give you all the necessary info for the next steps in renting. Some new laws, such as in California, are making it easier for ADUs to be rented despite HOA restrictions.
Types of rental: Local laws may determine what kind of rental is permitted, ranging from short-term (a couple of weeks or months), long-term, or vacation rentals. This will impact the offerings you must provide related to landlord support and physical guidelines on the ADU. A short-term rental can make more money but may require more work with renter turnover. California rentals require a minimum of 30 days.
Code compliance: Make sure that all zoning and building codes are up to date with local regulations. Zoning codes include adherence to specific ADU dimensions, lot requirements, parking spaces, and utility requirements. You will need to get a building permit if you plan to rent the property; this ensures that you are complying with local codes and laws.
Rental insurance: To protect yourself in a lawsuit against a tenant, you should obtain a rental insurance policy. These are directly tied to your legal rental of the ADU, so you will also want to obtain certificates of occupancy and all needed documents based on local law.
Owner-occupied: For legal rentals, it is required by most jurisdictions that your property is owner-occupied. This means that the owner resides on the property. This will vary depending on where you live in the country.
Screen tenants: You will want to carefully screen tenants to ensure there is little disruption to both your life being in close proximity to the ADU and the overall neighborhood. Many HOAs have restrictions in place to avoid these issues, and you can help by finding tenants that will not only fulfill their monetary obligations but take good care of the home and area.
Local rental laws: Aside from ADU specifics, you will want to make sure you are adhering to all local rental laws and upholding landlord-tenant law for a successful rental relationship.

Many people choose to rent their ADUs ‘illegally’ without adherence to local code compliance. We do not recommend this as it is risky for the landlord. It could not only present safety concerns, but if discovered, the tenant may be eligible for a full refund of their rent. Many choose to do this as there may be large changes required for compliance.

We do not recommend building an ADU on your property for rental purposes unless you have checked your local guidelines for compliance. ADUs are large investments that you will want to make sure you will get a return on. If your ADU does not comply with laws and cannot be easily fixed, this can be an expensive expenditure.

Where to Find Local Rental Information for ADUs?

As we have mentioned, renting an ADU is dependent on your local jurisdiction. Understanding where to find these laws is an important first step in making sure you can adhere to them. Your HOA or city website should provide you with the links to their specific ADU laws as well as regulations on rental properties.

Consider looking at the US Department of Housing and Urban Development (HUD) website that has links to individual laws for states as a resource. This is a great place to start for looking at rental and property law as it relates to the ADU you plan to rent. Regulations may be frequently updated, so using these websites as a resource will give you the most relevant information.

Contacting your HOA or using their website or handbook is often the best resource because they are often the ones determining your ability to rent out an ADU.

You should cross-check this with your city and state laws in the event that they override the HOA restrictions that make it harder to build. This has been the case in some states, including specific guidelines in California.

Why Rental ADUs are Important

Especially in densely populated states, housing security is becoming a greater problem with increased pricing in rentals. ADUs offer an affordable solution for families and renters to obtain secure housing. States like California have updated their laws to increase protections for renters and offer a larger number of affordable housing options across the state.

These laws have been instated to help combat homelessness and give more Americans the opportunity for home and rental stability. There have been studies by universities that have pointed to the many benefits the building and renting of ADUs provide:

Affordable housing: The small homes are often simple and modest, making them cheaper than other rental properties.
Environmental impact: ADUs built on the same property take advantage of using similar utility sources and make better use of existing infrastructures and lots as opposed to clearing new land for housing. Sharing resources with the primary home and the ADU can be beneficial to both parties and serves as a ‘green’ solution.
Increase property value: Placing an additional living space on your property increases the value as there are more assets and useable space on the property.
Additional income: For those looking for additional or passive income, renting an ADU can be a great way to do so. If your property already has an ADU or you have the space and opportunity to build, this can be a simple and consistent stream of income.

Wrapping Up

More and more communities are allowing for ADUs to combat the housing issues that the United States face. If you are thinking of renting out an ADU, make sure that your property complies with your local laws to ensure you can charge market-rate rent prices and provide a safe housing option for future tenants.