As a homeowner, you may be wondering if renting out your ADU is the right decision for you. After all, there are a lot of things to consider when making this decision. But, in many cases, renting out your ADU can make a lot of sense. You can list it on Airbnb or other short-term rental websites, and you may be surprised by how much demand there is for this type of accommodation. In addition to the extra income, renting out your adu can also help you build equity in your home.
While this can be a great way to make some extra money, there are some things you need to keep in mind before moving forward.
1. Be Sure of Your Area Regulations
First and foremost, make sure you understand your local zoning regulations and permitting cases. Depending on where you live, you may need to apply for a special permit in order to rent out your ADU.
In the past, California state law required that ADUs be owner-occupied, but a moratorium on these requirements was enacted in 2020. This means that generally, homeowners can now build an ADU on their property and rent it out, without having to live there themselves. Though some homeowner’s associations have rules that restrict the use of properties for rental purposes, some cities and counties have ordinances that limit the use of residential properties as short-term rentals.
If you want to know if your area requires special permits, we can help you inquire about it. Reach out to us in the form below:
An ADU can typically be rented for periods of 30 or more days, as required by California state law. However, some municipalities have waived this requirement, including Los Angeles and San Francisco. If you want to rent your ADU on a platform like Airbnb or the like, you can set a minimum rental period to help you comply with the law.
Note: The Fair Housing Act protects people from discrimination when looking for housing. This includes rental or purchase of a home, getting a mortgage, seeking assistance from housing agencies, and other housing-related activities. Discrimination can be based on factors like race or ancestry, religion, disability, sex, sexual orientation, gender identity, and marital/familial status.
When advertising an ADU for rent or sale, it is important to avoid using discriminatory language like “for college students” or “preferably female tenants.” Keep your listing simple and focus on the features of your ADU.
2. Know Your Landlord Responsibilities
As a landlord, you have some responsibilities that you should keep in mind. This includes being the first point of contact for repairs, complaints, upkeep, etc. It’s best to have a list of professionals that you can contact for help with various tasks. Some of these professionals include plumbers, electricians, gardeners, roofers, and general handymen. You should also consider hiring an exterminator to take care of any pests that may be present in the unit.
If you’re not able to handle all of the responsibilities by yourself, you can hire a property manager. They will be in charge of preparing leases and getting them signed, repairs, advertising and finding tenants, collecting and depositing checks, and pretty much everything else. In return, property management companies usually charge 5-10% of your rental revenue for their services, so make sure to think about it before deciding whether or not to hire them. If you’re capable of handling the responsibilities on your own, then you can probably skip on hiring a property manager.
3. All Terms Must be in Black & White.
When drafting your lease, you will want to consider things like when rent is due, the amount of security risk, the responsibility limitations of the landlord, the length of the lease, whether or not pets are allowed, and parking availability. This will help avoid any future conflict between you and your tenants.
Some things to keep in mind when drafting your lease agreement include the type of tenant you are hoping to attract and what is important to them. For example, if you live close to a college campus, you may want to consider adding a clause that allows for short-term leases. Additionally, if parking is at a premium in your area, you may want to offer free parking as an incentive for potential tenants.
There are many things to consider when drafting a lease agreement, so be sure to read over any templates that can be found online carefully and edit as needed. If you’re not confident in drafting your own lease agreement, you can always get a lawyer or a property management consultant to take a look at it.
4. Your Taxes will Increase But...
The addition of an ADU to your property will result in both a higher value and increased taxes. The ADU will be assessed at a separate value, which will be added to your overall property value for tax purposes (blended assessment). You can learn more about it in our earlier blog entitled, “How Your ADU Affects Your Property Tax”. However, renting out your ADU may offset some of these costs.
ADU.Works is committed to alleviate the housing crisis in California – one family, one ADU, one neighborhood at a time. We hope these reminders helped you in your plans of renting out your ADU. If you’re still thinking about building an ADU in your property, we’d love to help you identify your ADU goals.
Please don’t hesitate to book a free consultation with us or give us a quick call through our number +1 (650) 227-4810. We would be happy to help you get started on this exciting project!