Whether you already have an ADU or are considering building one, you probably know that one of the greatest benefits is the potential for collecting ADU rental income. Not only can ADU rent offset the cost of construction, it can generate a long-lasting passive income stream with minimal effort. But does it have to be from renting to tenants on a monthly basis, or can you turn your ADU into a vacation rental?
In California, the TL;DR is: Maybe. Some jurisdictions allow short term rental ADUs and some don’t. No matter what, no matter where you live in California, you’re allowed to rent your ADU out for 30 days (or more) at a time (so mid-term is a-go!).
But as far as whether you can list your ADU on Airbnb, VRBO, or similar platforms and have short-term vacation renters, it all depends on where you live and what the local laws are.
How Big is the ADU Boom?
These independent living spaces have many names, and you might be familiar with granny flats, in-law apartments, backyard cottages, casitas, or simply, secondary homes (among many others). While most states across the U.S. are still wrapping their heads around what exactly these cute cottages are all about, California is far and away the #1 supporter of ADUs, as they are seen as a viable solution to the state’s vice-tight housing market.
California has the most ADUs in the nation, with the numbers being close to 201,000. That’s one ADU for every 441 Californians. For contrast, there are only 59 California Pizza Kitchen locations in all of the Golden State! (We like CPK, in case you were wondering.)
In Los Angeles alone, more than 26,800 ADU permits were issued in 2022. The demand for ADU construction is backed by the affordability pressure in major cities like San Francisco, San Diego, Sacramento, Berkeley, and Santa Barbara.
Another incentive for the popularity of ADUs is that in pricier states like California, people prefer multigenerational living, like Northern California engineer Todd Kuchta, who built an ADU for his adult son. The terms granny flat and in-law unit refer to the opportunity for housing aging relatives in these self-contained structures. ADUs provide the perfect mix of independence and proximity to relatives who can provide care when necessary.
California State Laws on Building ADUs
California was the first in the nation to adopt statewide legislation to incentivize ADU construction back in 2017. Since then, it’s been much easier for homeowners to build ADUs. Key bills like AB 68, AB 881, AB 670 (2019), SB 9, SB 13 (2021), and the recent SB 1211 and SB 1123 (2024) outline what’s allowed statewide. Overall, here are some of the key highlights and what they mean for you:
- You can build one or more ADUs (attached or detached) on most single-family and multi-family residential lots.
- Garage conversions and other accessory spaces can be turned into living units with no design review needed.
- In many cases, parking and impact fees are waived.
- Cities must approve qualifying ADU applications within 60 days through a simple, fast-track process (Cal. Gov. Code §§ 66317, 66323).
- Under SB 1211, multi-family properties can now add up to 8 detached ADUs on a single lot.
Can You Turn an ADU Into a Vacation Rental?
At last, the moment we’ve all been waiting for!
In California, a short-term rental (STR) refers to a stay of less than 30 consecutive days. It is permissible anywhere in the state to rent an ADU for a period of 30 days or more at a time, but STR’s or vacation rentals are not allowed everywhere.
It’s also necessary to note that in some parts of California, the terms “short-term rental” and “vacation rental” are used interchangeably to mean the same thing, but some markets have specific limitations around only vacation rentals.
In short, local jurisdictions decide whether you can turn your ADU into a vacation rental. If you’re thinking about putting your ADU on Airbnb, you must consult local laws to understand whether it can be advertised there and/or on other platforms like VRBO, Evolve, and Booking.com as an STR.
From there, even if short-term rentals are legal in your local area, you may need to jump through some hoops like permits and registration fees. Here are some examples of the kind of nuance with which cities treat Airbnb ADUs:
- In Los Angeles, you can make your ADU a vacation house if the main house that shares the lot is your primary residence and you’re living in it for at least half the year.
- San Francisco requires the host to live in the unit you’re renting (so, the actual ADU) for 275 nights of the year.
- In San Diego, renting out an entire property as an STR (without living there) requires a special license which is granted through a limited lottery system. While technically legal, non-owner-occupied STRs are hard to operate due to strict licensing limits.
- Sacramento is different. Your ADU can be treated as a vacation rental after registration, compliance check, and TOT tax remittance.
- In Berkeley and Oakland, there is a limit on non-hosted rentals but the exact rules vary by district. County laws can change, so it’s best to check your municipal short-term rental ordinance as it will determine whether your ADU can host guests.
- In Redondo Beach and West Hollywood, using your ADU as a vacation rental is banned completely.
- The city of La Mesa has no restrictions for ADUs on Airbnb.
Short-Term Vs Long-Term Rentals
Many listing platforms like Airbnb allow you to list your property as a long-term rental by setting a minimum stay requirement. You will need to review the pros and cons of this choice before making a decision.
A short-term rental brings in high but also unpredictable income. It can be a lot of work to manage more footsteps and visitors, making your ADU rental less of a passive income stream and more of a side hustle. Renting an ADU on a long-term basis, on the other hand, can earn a more steady but lower income. You don’t have to clean after visitors, and you don’t have to worry about permits and local laws.
Location is the key for short-term rentals because the weather (or the season) will affect the occupancy rate. Only choose an STR if you’re located near a desired vacation destination.
How to Structure Your ADU as a Short-Term Rental?
If you’re thinking that putting your ADU on Airbnb or other platforms as a vacation rental is something you want to do, start by checking your local zoning regulations regarding the use of ADUs. Once you have all the logistics figured out and your plan in place for your ADU rental, you can start the super fun process of designing your dream cottage!
You can’t go wrong with the design, as you can choose vintage, contemporary, or classic options. Certain areas (especially neighborhoods with historic designation) require ADUs to match the same style and use similar building materials as the main house, but if that’s not the case in your neighborhood, having fun and being expressive with the design can be a boon. For an STR, most travelers don’t mind out-of-the-box designs, as they are looking to explore and relax. A memorable (Insta-worthy) design will help you attract more guests through review-based marketing.
To level-up your guests’ experience, Diana, who owns a highly-rated ADU Airbnb in Oakland, told Better Homes & Gardens that she suggests including the kinds of amenities you would find in a luxury hotel room, like fresh linens, a coffee bar and mini fridge.
And as a pro tip, be sure to highlight that your ADU has its own separate entrance, as it is required to by law. Some STRs that are advertised as “private” on booking platforms don’t actually have their own entrance.
If you are looking to create an ADU for rent on a long-term basis, a classic style with neutral shades and minimal design is a great way to go. If your goals change, you can keep the property for personal use in the future, such as a home office, and a simple design choice will help.
And if you already have an ADU you're ready to rent out long-term, list your ADU for rent here! We'll help you find the perfect long-term tenant.
Additional Resources:
https://cayimby.org/wp-content/uploads/2024/01/CAY-ADU_Report-2024-v4.pdf
https://planning.saccounty.gov/applicants/Pages/Short-Term-Rental-Permits.aspx?
