Are you considering adding an ADU to your residential property in Massachusetts or New Hampshire with the plan of renting it out? Maybe you’re deciding to add an accessory dwelling unit (ADU) to your property so you’ll have extra space to rent out for income, whether in the immediate future, or down the road someday when family members move out. While there are tax and legal implications to consider, renting out your ADU as a vacation rental or long-term living space is an increasingly popular and profitable use for your space.

The potential revenue and benefits of renting out an ADU are infinite, but you need to understand each city and state has their own ADU zoning regulations, HOA restrictions, and building codes, so renting out the ADU can be difficult. For example, the laws surrounding rental ADUs in Ipswich, Massachusetts are not the same as the laws in Salem, Massachusetts. To help you understand everything you need to know, our experts share their top recommendations and best tips regarding how to use your ADU as a rental unit.

What Is An Accessory Dwelling Unit (ADU)?

ADUs, commonly referred to as a guest house or in-law suite, is a secondary dwelling unit either attached or detached to the main home on the property. The space could be a studio apartment above the garage, a granny flat in the basement, or a standalone modern shed in the backyard. 

The function of an ADU is to provide an extra living space for a person or family member. Remember, there are a few different types of dwelling structures that could be defined as an ADU which could include:

  • A freestanding building that is detached from the main house or any other structure located on the property.
  • An attached home addition that can be utilized as an ADU, either connected to the interior of the house, or instead having its own separate entrance.
  • A garage or attic conversion that turns all or part of the space into an ADU. For example, a garage with a second floor could be converted into a garage with an attached apartment.
  • An interior conversion that changes a room in your home into an ADU, such as transforming a basement or large porch into an extra living space. 

What Should I Consider Before Building An ADU To Rent

Before committing to building an ADU with the purpose of renting it out, there are a few factors you need to consider:

  • Understand that although your property value will go up, simultaneously, your property taxes will also increase. The value of your property will be much more valuable with the addition of an ADU, but you have to keep in mind that your taxes are also going to increase anywhere from 1-2%. The building department will subject your property to a “blended assessment,” meaning that your main home’s assessed value won’t change, but the value of the ADU will be added to the property’s overall value. Though, lucky for you, renting out your ADU will probably help offset a decent amount of these expenses.
  • You’ll need to optimize your ADU floor plan and design to be equally functional and beautiful if you want to build a space that tenants want to rent. If you’re constructing an ADU specifically for renting out, you need to let your contractor know ahead of time. The design of your ADU is going to vary depending on your desired use for it. Optimizing your floor plan and amenities will make the unit more attractive to potential tenants. Most ADU contractors have a handful of ready-to-build design templates you can choose from, as well as years of experience creating ADUs that fit the unique lifestyles of their clients, maximizing the value of their property.

How Can I Optimize The Floor Plan Of My ADU?

  1. Be effective with your space. Use open floor plans, a cozy breakfast nook, standard-sized bathrooms, and lots of storage solutions. You want to make using the space comfortable and efficient for your tenants.
  2. Understand important size breakpoints. In most places, If you build an ADU that has less than 750 feet in square footage, even if it has two bedrooms and two bathrooms, if you stay under that threshold you’ll likely save thousands of dollars since there’ll be no assessed state impact fees to pay.
  3. Pick durable and cost-effective finishes. Pick materials like beautiful vinyl plank flooring, recycled glass countertops, and shower inserts. These finishes look stunning, are simple to clean, and are much less expensive than some other options such as hardwood flooring and cedar shake exterior siding. 

What Do Tenants Look For In An ADU Rental?

a single family ADU bedroom

Besides optimizing the functionality and beauty of the design and floor plan, there are certain features that many renters will be searching for when checking out different ADU rentals.

  1. Complete Privacy. For both short and long-term renters privacy is the most important consideration when deciding on an ADU rental, even more important than the cost. To create privacy you need to build some sort of physical barrier that blocks the view of the ADU from the main residence, such as a brick wall or shrubbery. Alternatively, you could install a personal storage shed for the renter that’ll completely hide the ADU from the main home. Any solution that allows the tenant to feel a sense of freedom and separation from the main dwelling. 
  2. Easy access to the unit. Think about how your tenants are going to access the ADU, ensuring there is a path or driveway with clear and easy access to the structure. Assess where the tenants will access the ADU when they park, then, install the exterior entry door where it would be most convenient for them. 
  3. Full Amenities And Utilities. ADU renters desire all the features of a regular home, typically they expect a full kitchen, bath, on-site laundry, as well as an outdoor hangout space. Offering all the amenities of a normal home will make rental life much more convenient for your tenants. Making sure to add these features to your ADU’s floor plan will make a huge difference when prospecting tenants, even allowing you to charge higher rental rates.

How Much Can You Rent An ADU For In Massachusetts And New Hampshire?

In Massachusetts and New Hampshire, ADU rental properties usually cost about the same as available apartments in your area. To compare your ADU rental to a listed apartment, you need to find apartments that have a similar square footage, amount of bedrooms and bathrooms, as well as all the features and finishes as your ADU. Rental websites such as Zillow, Apartment.com, and Craigslist are some of the best places to find current rental listings, that way you can compare your unit to the other available rentals on the market in your area, helping you determine your total possible ADU rental income. Finding rental properties similar to your ADU will give you a clearer picture of what rate you can charge for rent. 

Always Research And Interview Potential Tenants

When finding tenants for an ADU rental, always do your due diligence on potential tenants. Anyone can be on their best behavior during a thirty-minute interview; however, information is a valuable asset. During the screening process, ask your future tenants for a few of their most recent pay stubs, a credit report, references from any previous landlords, and even their current employer’s phone number so you can confirm that they’re still working. Request to follow them on social media, giving you an inside look into their habits and day-to-day life. We recommend keeping the equivalent of six months worth of their rental price in a savings account, that way if your tenant becomes a problem, you’ll have enough money to cover the costs.

Check With Your Local Building Department

The main reason many cities in towns across Massachusetts and New Hampshire have been legalizing ADUs is to help increase the amount of available affordable housing, but there are some municipalities who have explicitly banned them as short-term rentals. If you want to use your ADU as a vacation rental, you’ll potentially need to purchase a business license, as well as meet certain criteria established by your local building department. Please, always double-check with your city’s planning board and building inspectors before listing your ADU on Airbnb or Vrbo. The exact permits you need can depend on whether your ADU is a detached freestanding structure or an interior addition to the main home. You’ll need to research your local and state laws and HOA regulations.

Research Your Local Zoning Laws And Ordinances

The building codes in your local municipality set the standards for the construction of everything on your property. Some building codes, for example, may require any house or structure on a residential lot must setback a determined distance from the property line, mostly to maintain a polite distance between you and your neighbors. 

Obtain All The Permits For Building Your ADU

Your city or planning board will most likely require you to obtain most of the permits before you’re allowed to build your ADU. One single permit may cover the construction, but certain building departments could need separate permits designated to specialized parts of the construction process, such as electrical wiring and waste management. 

The permitting process typically begins by submitting an application to your municipality, along with design plans and other specifications for your planned project. Experienced ADU contractors are experts at efficiently navigating the permitting system. Your signed contract should include verbiage regarding assistance in acquiring the necessary building permits. 

Once your ADU is complete, your city’s building inspector will visit to conduct the final inspection. Either they’ll give you the final approval to move forward or they’ll identify construction issues that need to be corrected.

Learn Your Local HOA Regulations

Potentially, HOA regulations can restrict a homeowner’s use of their property. The laws may affect where on your property you’re allowed to build as well as the maximum height for all residential structures. Most states and local governments have been passing laws that prevent HOAs from banning ADUs, or at least prohibiting HOAs from restricting ADU construction to the point where they become financially impractical. 

Lots of HOAs ask homeowners to submit blueprints for all new additions and other home remodeling projects to be reviewed by a committee. These committees potentially have the authority to reject an ADU plan altogether, at least depending upon your local government’s building laws. HOAs can also give conditional approvals, but these are subject to certain changes and modifications to the structure.         

Design Your ADU To Attract Your Ideal Tenant

what's better a guest house or an ADU?

When you’ve decided to rent out your ADU consider this: the quality, the design, and plenty of privacy is what’s going to attract the best tenants. The space should truly feel like its own home, a private luxurious retreat that could even fit a small family. An ADU rental should be a fully functional home, complete with bedrooms, a kitchen, a bathroom, and a living area.

To create a great ADU rental space, you must first have an in-demand, high-quality, and well-managed product. All tenants have the same desires as any homeowner: a beautiful location, complete privacy, customized home amenities, and hopefully, allowed to have a pet. Lots of renters want ADUs with an in-unit washer and dryer, a built-in dishwasher, and plenty of outdoor space.

Create A Trusted Relationship With Your ADU’s Tenant

If you’re going to share your backyard with someone else who’s renting your ADU it’s crucial to have a mutual understanding between you and your tenant. A strong relationship between a landlord and tenant makes managing your ADU property effortless. Invest your time into getting to know them and you’ll have fewer vacancies, less worries, and possibly even a friend.

Design An ADU that Retains Long-Term Tenants

Even if livable spaces to rent are highly in demand, designing an ADU that keeps long-term tenants is vital to a successful rental operation. Think about things like repainting the interior, shiny wood floors, high-end appliances, and outdoor seating, which can all give tenants and incentive to stay. Also, research your local landlord regulations and vet all your potential candidates thoroughly, making sure they have the income and compatibility to share your property. Difficult tenants who force you to chase them down for rent can cost you tons of time and money, which can become even more frustrating considering they live in your backyard.

Design A Rental ADU With Perry Brothers Construction

the perry brothers construction team

Perry Brothers Construction has the resources, talent, design team, and information you need to get you on the right path towards building your ADU. Define your priorities and intended use for the structure, know exactly what you want to get out of it. If you plan on becoming a successful ADU landlord, leave the construction process to us. Schedule your free ADU planning call with Perry Brothers Construction and see what we can do for your home.