Building an accessory dwelling unit (ADU) at your home is a great way to earn some extra income, without having to buy an expensive investment property. Rent from an ADU can supplement your finances, or shore up your retirement savings.
However, if you’re a first time landlord, the process of renting out your ADU can be daunting — it is in your backyard, after all. What kind of rent should you ask for? How do you find a tenant? What are your responsibilities to your tenant? Is it best to hire a property management company? We’ll answer all of these questions and more in this blog post!
How much rent should you ask for?
When determining how much rent you should charge for your ADU, there are several factors that come into play. First, consider what comparable units are going for in the area — you can research this easily by searching rental listing services, like Zillow or ApartmentList, and setting “ADU” or “guest house” as keywords. Also, Rentometer is an excellent source of local data on nearby rents — all you have to do is enter your address.
It’s good to also consider the tangible and intangible amenities of your ADU project when comparing it to other properties. For example, are you walking distance to a park or grocery store? Will your unit have access to a well-landscaped backyard or common space? Do you have in-unit laundry? These amenities can significantly influence the amount of rent a tenant is willing to pay and should be considered when you’re comparing your unit to others and setting your asking rental price.
What do tenants expect from a landlord?
Tenants expect landlords to provide them with safe, clean living conditions as well as quick responses when they have concerns or questions about their rental unit. This means that you should expect to field calls when something in the unit is broken, such as a leaky sink.
Tenants also expect landlords to abide by all applicable laws pertaining to tenant rights and fair housing regulations. This means researching, understanding, and following all local ordinances regarding rental units, as well as respecting any limitations imposed by fair housing law. Revival Homes has years of experience navigating local housing law, and can help you stay in compliance with all relevant regulations.
Should you hire a property management company?
If managing the day-to-day responsibilities of being a landlord seems burdensome, you can still build and rent an ADU!
Property management companies offer a spectrum of services, including setting asking rent, screening tenants, collecting rent, organizing property maintenance and repairs, and if necessary, carrying out evictions. The level of services can be tailored from light assistance all the way to concierge-level. This means you get to decide exactly how much work you’re comfortable putting in. Hiring a property management company can be especially beneficial if you’re rarely at home.
One should be aware that the cost of property managers, though. In the Los Angeles area, fees can range anywhere from 6-12% of monthly rental income, which may seriously affect the amount you’re able to earn as a landlord.
What should your rental lease terms be?
You’ve got some significant freedom in how you want to set the rules for renting your ADU. You can set lease terms on a long-term basis (>1 year), rent on a monthly basis, or even rent out your ADU on an even shorter term (this is often done on platforms like Airbnb). Shorter-term rentals can generate higher rents, but involve higher expenses associated with tenant turnover and screening.
Some other lease terms to consider:
- Can tenants have pets? Do you want to charge ‘pet rent’?
- Is smoking allowed?
- Will you plan to include utilities in the price of rent (water, electric, etc.)?
- Will you provide parking? How much will you charge?
- Will you require tenants to have renters’ insurance?
Becoming a landlord doesn’t need to be scary!
Figuring out what your goals are early in the process will help ensure that your ADU project meets your expectations. We recommend that if you’re considering building an ADU in order to rent it, you should have an eye to this as early as possible in the design stage. At Revival Homes, we’ve helped many homeowners design with renting in mind, so you can ensure the highest possible ROI.
Revival Homes has the resources to help you plan your ADU project and ensure a successful, low-stress process. Ready to get started? Reach out today for a free ADU planning consultation!