Earning Rental Income with Accessory Dwelling Units

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rental income

Housing norms have changed radically over the past 100 years and are likely to continue changing. For example, today’s society values privacy and independence, which has given rise to the concept of “Granny Pods” as an alternative to a retirement home or shared family space.

As municipalities adapted to this shift, some have amended local zoning and legislation to enable a homeowner to have an “accessory dwelling unit”, or ADU, on their property. An ADU is a secondary dwelling on the property, separate from the main house.

 

If your municipality allows ADUs, here are a few things to consider before deciding to install one on your property.

Land restrictions

Setbacks and vehicular access should be the first thing to consider if you have less than an acre of property.

Setbacks are essentially property margins — rules that state you cannot build permanent structures close to the edges of your property. These vary from place to place. In most cases, setback information can be found in your local zoning codes online. Or if you received a property survey at closing, this might also incorporate setback information as well.

Unfettered driveway access to your ADU is especially important if your unit will one day house an elderly parent who might need an ambulance. And it will reduce problems with renters if they can easily get to their front door. Driveway access may also be a requirement within the zoning, so plan your space accordingly.

Smaller lots may have maximum building square footage limits; for example, a 7,000 square foot lot may have a 2,500 square foot building limit. So pay attention to the combined square footage of your home and the new ADU to make sure no overage occurs.

Use restrictions

There are typically a list of approved uses for ADUs within the zoning ordinance, and some municipalities have banned the kind of short-term rentals typical with companies like Airbnb. The length of time considered “short-term” can vary by community, so if you have planned a lease for less than 1 year or a month-to-month situation, double check your local ordinance for guidance.

You may need to provide a business plan or written statement about what the term of your lease will be. And you may need to assure that you’ll perform diligent tenant screening in the interests of protecting your property and your neighborhood.

Other types of restrictions might prevent you from renting to a small business if the zoning is residential rather than mixed, for example. Most ADUs are required to run through the utilities from the primary residence.

So even if you plan on building your own structure, you might need to include excavation, plumbing, and electrical engineering services in your budget to get your permit approved.

Permitting and exceptions

Once you’ve determined that your ADU won’t violate zoning, setbacks, or square footage requirements, it’s time to begin the permitting process. It’s important to note that even if your municipality doesn’t have a zoning ordinance for ADUs yet, some are willing to grant exceptions on a case-by-case basis.

If your local zoning laws haven’t been updated yet to accommodate for ADUs, your permit application could be the perfect time to discuss changes. The International Residential Code was recently updated with a section on ADUs to help any municipalities that are struggling with best practices, so you can provide this as a starting point to your local authorities.

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