Can You Rent Out an ADU? A Guide to ADU Rentals

You know how important it is to make the most out of your available square footage. If you’ve got a big enough lot, accessory Dwelling Units (ADUs) can be a great way to maximize your property’s earning potential. 

Beyond increasing property value (and driving up your resale price), ADUs are also a way to provide affordable housing to your community. 

ADUs also make great short-term rentals. When you rent out your ADU to residents in the area, you’ll generate passive income that can be put toward costs like property taxes or even mortgage payments. (You could even put this money toward your retirement savings). All you’ll have to do is list your property and draft a rental agreement. 

Whether you’ve recently added one or are considering building one, the idea of renting out an ADU for extra income is an attractive option – that is, depending on where you live. 

Fair warning: Not all states make it easy to build or rent out your ADU.  So, be sure to confirm you aren’t subject to HOA regulations that prohibit ADU construction or ADU rentals before you get started on any home improvement projects. 

States That Permit ADU Rentals

These states have adopted policies or legislation that generally encourage property owners to construct and rent an ADU (also known as an accessory dwelling unit). In many cases, these policies have been drafted in response to affordable housing shortages. 

1. California
2. Oregon
3. Washington
4. Colorado
5. Hawaii
6. New York
7. Illinois
8. Massachusetts
9. Maryland
10. Vermont
11. Rhode Island
12. Connecticut
13. Michigan
14. Alaska
15. Nevada
16. Minnesota
17. Virginia
18. New Jersey
19. North Carolina
20. Arizona
21. Florida
22. Utah
23. Georgia
24. Oregon
25. Pennsylvania

States That Restrict ADU Rentals

These states have more restrictive city laws and place less emphasis on promoting ADUs. 

Local governments in these areas often impose stricter ADU zoning restrictions that make it difficult or expensive to build and rent ADUs. These states may also prioritize single-family zoning or urban sprawl – so building beyond your primary home will be challenging. 

1. Texas
2. North Dakota
3. South Dakota
4. Mississippi
5. Louisiana
6. Kansas
7. Missouri
8. Indiana
9. Kentucky
10. Alabama
11. Tennessee
12. West Virginia
13. Idaho
14. Montana
15. Wyoming
16. Arkansas
17. South Carolina
18. Nebraska
19. North Dakota
20. Iowa
21. Delaware
22. New Hampshire
23. Florida
24. Wisconsin
25. Oklahoma

If you live in one of the above states, be sure to review your local zoning laws in depth. 

Types of ADUs and Their Rental Potential

So, you’ve learned that you can rent out ADUs in your state. Once you’ve researched local laws and confirmed that an ADU rental unit is legal in your city or state of residence, it’s time to start researching the earning potential of your rental property. 

Note: Even if an ADU will only marginally increase your property value, the rental income generated over the course of several years could offset the initial construction costs. From there, 

The rental earning potential can vary depending on the type of ADU, location, and amenities. 

Here are some of the most common types of ADUs and the rental income you can expect from each.

Detached ADUs

Detached ADUs are separate structures that stand alone from the primary residence and are typically built in the backyard. Like a guest house, this kind of rental unit will offer more privacy, which makes it appealing to renters. 

• Average Monthly Rent Earnings: $1,200
• Cities with Highest ADU Rent Prices: San Francisco, Los Angeles, Seattle
• Cities with Lowest ADU Rent Prices: Phoenix, Detroit, Salt Lake City 

Note: Detached ADUs are in high demand in urban areas, but the rental income can vary significantly depending on the location.

Attached ADUs

Attached ADUs are units that are physically connected to the main home but have their own entrance. These units are often converted basements, attics, or additions to the main house.

• Average Monthly Rent Earnings: $1,000
• Cities with Highest ADU Rent Prices: New York City, Chicago, Portland
• Cities with Lowest ADU Rent Prices: Indianapolis, Denver, Tampa

Attached ADUs are popular in cities where space is limited and are typically more affordable to rent than detached ADUs. However, they can still generate a decent income.

Above-Garage ADUs

Above-garage ADUs are units built above an existing garage. 

Average Monthly Rent Earnings: $1,200

• Cities with Highest ADU Rent Prices: San Diego, Austin, Denver
• Cities with Lowest ADU Rent Prices: Cleveland, Salt Lake City, Louisville

Renters like the space and privacy these units offer. Landlords like an above-garage ADU because they can build on top of existing property, without needing to purchase more land. 

Garage Conversion ADUs

Garage conversions involve turning an existing garage into a livable space. These ADUs can be relatively inexpensive to build since they often use existing structures.

• Average Monthly Rent Earnings: $900
• Cities with Highest ADU Rent Prices: Los Angeles, San Francisco, Miami
• Cities with Lowest ADU Rent Prices: Pittsburgh, Indianapolis, Buffalo

Garage conversion ADUs can be a good option for homeowners on a budget, but the rental income will vary based on location and the overall appeal of the converted space.

In-Law Suites

In-law suites are often a separate living area within a larger home, typically with a private entrance. They can be in basements, attics, or even converted rooms.

• Average Monthly Rent Earnings: $1,000
• Cities with Highest ADU Rent Prices: Boston, Washington D.C., San Diego
• Cities with Lowest ADU Rent Prices: Detroit, Houston, Dallas

In-law suites can provide a great rental income and they can also serve as additional guest space when needed.

Home Additions (One or Two-Story Pop-Outs)

Home additions, such as one- or two-story pop-outs, are often used to add extra square footage to a home. These can be rented out as standalone units or as part of the main home.

• Average Monthly Rent Earnings: $1,400
• Cities with Highest ADU Rent Prices: San Francisco, Los Angeles, Seattle
• Cities with Lowest ADU Rent Prices: Oklahoma City, St. Louis, Louisville

Home additions are a great way to add livable space to your property.

Tiny Homes

Tiny homes are becoming an increasingly popular form of ADU. These small, mobile units can be placed in a backyard or other available space on your property.

• Average Monthly Rent Earnings: $800
• Cities with Highest ADU Rent Prices: Portland, Denver, Austin
• Cities with Lowest ADU Rent Prices: Albuquerque, Phoenix, Tucson

While tiny homes generally have lower rental rates compared to other types of ADUs, they can still provide a steady stream of income 

How Much Can You Earn Renting Out an ADU?

The rental income you can earn from an ADU depends on several factors, including:

• Location: Cities with high demand for housing will lend to higher rental rates.
• Type of ADU: Detached ADUs and above-garage units tend to offer the highest rental income.
• Amenities: Offering extras like parking spaces, outdoor areas, or access to the main house can increase the rent price.
• Market Demand: The local rental market will determine how much you can charge for your ADU.

In general, you can expect to earn anywhere from $800 to $1,400 per month from your future tenants, depending on these factors. To maximize your earnings, research your local rental market to find out what similar properties are renting for.

Alternatives to Renting Your ADU

If your ADU remains vacant for extended periods, consider renting it out as storage space on platforms like Neighbor.com, a peer-to-peer platform that connects homeowners with renters needing storage. 

But you don’t need to construct an ADU to generate passive income on Neighbor’s platform.  You can rent out vacant lot space, a driveway, or a garage as vehicle storage. The cool part about Neighbor is they guarantee your payment, even if your tenant doesn’t pay.

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