Having an Accessory Dwelling Unit (ADU) is a great way to bring in some extra income. But before you can start collecting rent from your tenants, you need to find the right people for the job. This guide will show you how to go about finding tenants for your ADU rental. We’ll cover everything from screening potential tenants to understanding the legalities of tenancy. By the time you’ve finished this guide, you’ll have all the information you need to start bringing in rental income with your ADU!

What is an ADU and why rent it out?

An ADU is a perfect option for people looking for extra space or an alternative to traditional housing. It stands for Accessory Dwelling Unit and is basically a living unit that is built on the same property as a single-family home. These units provide extra space and can be used for guest accommodation, rental income, work, or recreational activities. They are typically smaller than standard homes but provide a unique living experience. Renting out an ADU can be a great way to generate income and increase the value of your property. 

An ADU rental can have a tremendous impact on your property value

ADUs can come in a variety of forms, from garage conversions to detached guest houses.  Because they are located on the same property as the primary residence, ADUs offer all the amenities and comforts of home, while also providing privacy and independence for tenants. If you are considering renting out an ADU, be sure to research your local laws and regulations first. Additionally, it is important to find a qualified and reputable tenant who will take good care of your property. By taking these precautions, you can make sure that renting out an ADU is a positive experience for both you and your tenant.

Types of Tenants to Target

When planning to rent out an accessory dwelling unit (ADU), it’s important to consider what type of tenant you’re hoping to attract. Families with young children, for instance, may appreciate the extra space and privacy an ADU offers. Couples who work from home may also be interested in renting an ADU as a dedicated office space. And retirees or empty-nesters looking to downsize may find that an ADU is the perfect solution. 

A happy couple fresh out of university acquires their first ADU rental

By considering your target tenant, you can make sure your ADU is outfitted with the amenities and features that will appeal to them the most. In doing so, you’ll increase your chances of attracting quality tenants and reducing vacancy rates.

Screening Tenants

When renting out an ADU, it is important to screen potential tenants thoroughly. This helps ensure that you find a tenant who will take good care of your property and pay rent on time. When screening applicants, begin by gathering all necessary information, such as proof of income, credit score, rental history, and references. You should also conduct a thorough background check to make sure the tenant has no criminal history or other red flags that could be cause for concern.

Don't forget to perform a background check on your potential ADU rental candidates

You’ll want to consider lifestyle preferences and whether or not the tenant has pets. If you are allowing pets in your ADU, it is important to set clear guidelines and require a pet deposit from the tenant.

This ADU rental has a new tenant

Be sure to check with your local laws and regulations before renting out an ADU. This will help ensure that you are following all applicable rules and regulations in order to protect both yourself and the tenant. With the right screening process in place, you can find a quality tenant who will make a great fit for your property. 

The Lease Agreement Process

Once you have screened and accepted a tenant, the next step is to create a lease agreement. This document should include all relevant information, such as rental terms and conditions, rules for use of the property, and any other pertinent details. Your lease agreement should also include an itemized list of what is included with the ADU (furniture, appliances, etc.)

Have your ADU rental tenants fill out a lease agreement to avoid headaches in the future

Once you have established a lease agreement with your tenant, be sure to review it on a regular basis. This will help ensure that all parties are aware of their responsibilities and can resolve any potential disputes quickly and efficiently. Taking the time to create and maintain a well-written lease agreement is essential for a successful ADU rental experience. 

A successful ADU rental experience

8 things you should include in your lease to make your life easier: 

  1. A clear definition of who is responsible for utilities 
  2. An agreement on the security deposit amount and any applicable refund conditions 
  3. Rules regarding tenant alterations to the ADU 
  4. The notice period required before either party ends the lease agreement 
  5. Any additional fees or deposits associated with renting an ADU 
  6. A clause regarding pets and any required pet deposits 
  7. A clause regarding noise level or tenant behavior 
  8. Any restrictions on the type of use allowed in the ADU (e.g., no overnight guests) 

This couple is in complete agreement with their landlord over their ADU rental rules

With the right tenant screening process, a well-written lease agreement, and clear guidelines in place, you can be confident that your ADU rental experience will be successful. 

Handling Deposits and Other Payments

When renting out an ADU, it is important to handle deposits and other payments in a safe and secure way. When collecting rent or security deposits from tenants, be sure to use a payment service that requires both parties to provide their information for authentication purposes. You should also make sure that all payments are documented and stored securely. 

Ways to streamline your deposits and payment process: 

  1. Use a secure payment processor like PayPal or Venmo 
  2. Automate rental payments with an online billing system 
  3. Offer tenants the option to pay in cash, check, or credit card 
  4. Make sure all payment information is securely stored and documented 
  5. Put an end-of-lease agreement in place to ensure that all payments are collected

don't forget to ask for a deposit on your ADU rental

A reliable payment system will help protect both you and your tenant from potential fraud or other issues. With the right process in place, you can be confident that rental payments will remain secure and on time.

An exceptional ADU master bedroom rented by two lucky tenants

Renting out an Accessory Dwelling Unit (ADU) can be a great way to generate extra income. With the right screening process, lease agreement, and payment system in place, you can ensure that your ADU rental experience will be successful. By following these tips and taking the time to create a safe and secure environment for both you and your tenant, you can rest assured that your ADU rental experience will be both enjoyable and profitable.