Renting Your ADU Successfully

Do you want to manage your unit yourself or have a property manager take care of it for you?  Property managers often charge about 10% of the rent + a month's rent to get someone in the door (which they may use to cover a referral fee they pay for someone who bring in a renter).

If you want to manage your rental yourself: check references, verify income, and do a background check. You can do that online for a cost of about $50 or less and you can ask the applicants to pay for that if you want to.  Price your unit so that you have a choice of possible tenants and can choose the renter(s) you like best. If you price your unit high you won't have the choice of tenants. Low turnover is a key to overall profitability; every time your unit is empty you could lose rental income, so keeping your unit occupied with a steady long-term renter is key.  

Write in your rental contract that you can inspect your unit periodically,  once or twice a year to make sure that needed maintenance is done and things are in good condition. Keep everything in good condition and keep your renters happy so long as they pay the rent on time and take care of your unit.  Learn laws that govern rental property so you know what is required of you.  Your local city likely has materials on that.  Find a good rental contract that defines everything clearly so you and your renter are clear about what is needed.

Pricing your unit: There is a website called rent-o-meter.com which real estate investors often use to determine the going rates for rentals; of course ADUs are not so common so you will need to look around.  Zillow.com also has a link for rental management.  There are other sites also if you want to look around.  You may also be able to talk with someone at your local city offices regarding the value of your rental.  There may be local incentives to keep your rent lower or more affordable so “low income people like teachers” can afford to rent your unit.  Personally, if I were renting an ADU, I would look for someone like a local teacher to rent to. They are educated and have a challenging job to do and they deserve a nice place to live.

Screening your applicants to find & select the best renter is a key to success & happy relationships.  Talk to people and get to know them a little bit. What are their goals?  Are they looking for a short term rental or a longer term rental with a 1 year lease?  

Short term rentals can bring more income however with the higher turnover rate comes the need for more diligence in management and documenting the condition of everything  so if there is a problem you know who to bill for the damage.

It is not currently legal in California to use an ADU for Airbnb or other short term rentals unless perhaps in some areas pre-existing units may be grandfathered in because the owners already have a business license for that. The state wants ADUs to add to the needed housing supply and that is a big reason for the push to encourage building as it is seen as part of the overall solution to the current housing crisis.

As a nation, we have built condos, apartments, and McMansions because that is where the money has been. We have not been building very many small houses.  There is a need for small cozy cottages and other forms of ADUs. I love it that many people, particularly elderly people, have an opportunity to create another stream of income without getting a job, while helping others by providing a place  for them to live!