An accessory dwelling unit (ADU) can be a flexible and rewarding way to get started generating income from rental property. Whether you’re looking to secure a long-term financial asset or dip your toes into property management, ADUs offer plenty of advantages. We break down three benefits of renting out an accessory dwelling unit so you can see if this could be the right move for you.
Lower Initial Investment
One of the biggest reasons ADUs appeal to aspiring landlords is their affordability. Converting a garage or building a smaller unit in your backyard often costs significantly less than buying an entirely new property. This lower entry point makes ADUs a feasible choice for many looking to break into real estate.
Additionally, many states and cities offer incentives, such as relaxed zoning regulations or financing options, to encourage homeowners to build ADUs. These policies help reduce costs even further. Compared to the complicated process of securing a new property, ADUs can help you start generating rental income with fewer obstacles and financial strain.
Additional Income Stream
For many homeowners, the biggest benefit of renting out an accessory dwelling unit is the additional income stream. To determine if owning an ADU is right for you, consult with local real estate agents for market insights and city planning offices for regulatory guidance.
Here are some indications that an ADU has strong rental potential in your area:
- There’s a housing shortage in your region, increasing demand for affordable rental options like ADUs.
- Your property is in a high-demand area with a strong rental market.
- Comparable ADUs in your area have consistently high occupancy rates.
- Your ADU is located near employment hubs, schools, or public transportation, making it attractive to renters.
- The local economy is stable, with job growth supporting a steady stream of renters.
The ADU’s design will also attract tenants by appealing to their lifestyle needs. For example, a two-bedroom ADU is likely to attract small families or roommates who need extra space for living and working. It can also appeal to couples looking for a guest room or home office, providing flexibility for various lifestyle needs. Due to the likelihood that the ADU will house more people, one of the tips for renting out a two-bedroom ADU faster is to ensure it has modern appliances that make life more convenient.
Learning Experience
For those considering jumping into real estate investment more broadly, renting out an ADU is a great way to gain hands-on experience. Managing an ADU allows you to learn how to handle tenants, maintain living spaces, and deal with property-related challenges. Your proximity to the ADU can make it easier for you to keep valued tenants happy, such as by making repairs promptly.
This experience also provides valuable insights into the financial management side of real estate. You’ll learn how to document expenses, handle rent payments, and improve your property’s profitability.
With its lower construction costs, an ADU in the right market creates a practical way to break into real estate while producing dependable rental income. Thoughtful ADU design will help you target tenants and maintain high occupancy rates. Beyond the financial gains, managing an ADU equips you with essential property management experience, preparing you for broader real estate ventures if you wish to pursue them.
