CityStructure - Feasibility Study simplified
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The Biggest Factors That Make or Break Your ADU Rental

Many assume that renting out an Accessory Dwelling Unit (ADU) is as simple as building the unit and listing it. However, landlords who enter the market without a strategy often encounter high tenant turnover, unexpected maintenance costs, and long vacancies that reduce profitability.

A well-executed ADU rental strategy focuses on two key lessons:

  1. Projected cash flow means nothing if turnover and maintenance costs eat into profits.
  2. The success of an ADU rental depends more on the tenant than the property itself.

Choose the Right ADU for the Right Tenant

A well-designed ADU means little if it doesn’t attract the right tenant. The goal is to rent to someone who will stay long-term, take care of the property, and pay on time.

To maximize the chances of securing reliable tenants, an ADU should be built in an area where high-quality renters already live. This means selecting a location that aligns with tenant demand whether it’s professionals seeking affordable housing, or a couple looking for a smaller space.

The tenant stability improves when an ADU meets the living preferences of its target renters. Detached ADUs can be up to 1,200 square feet, making them ideal for individuals or couples seeking private, single-level housing. Attached ADUs, limited to 50% of the primary home’s size, may work better for house-sharing arrangements.

Smart Tenant Screening is Non-Negotiable

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Even if an ADU is in the perfect location, choosing the right tenant is essential. A property manager skilled in selecting reliable tenants can save thousands in lost rent and repairs.

Many landlords prioritize credit scores, but that alone doesn’t guarantee a good tenant. For example, some tenants may have low FICO scores due to medical debt but a solid history of on-time rental payments. Conversely, a high FICO score doesn’t prevent frequent moves, excessive maintenance requests, or lease violations.

Beyond credit scores, tenant screening should consider:

  • Rental history: Have they stayed in previous rentals for multiple years?
  • Income stability: Do they have a consistent job history with sufficient income?
  • Property care: Do references from past landlords indicate responsible behavior?

Skipping proper tenant screening increases the risk of late payments, frequent turnover, and property damage, all of which hurt cash flow.

Why ADU Type and Location Matter

Most cities allow both detached and attached ADUs, but choosing the right type is essential. Detached ADUs offer complete privacy, making them attractive to professionals or small families. Attached ADUs may appeal to elderly tenants who prefer living close to relatives while maintaining independence.

Local regulations also play a role in ADU's success. Understanding setback requirements, maximum unit sizes, and utility connection rules helps ensure the ADU is designed in a way that appeals to the target tenant segment while remaining compliant with city laws.

The Bottom Line

The biggest mistake landlords make with ADU rentals is assuming that just having a unit means it will be profitable. A well-planned ADU investment considers tenant stability, location demand, and rigorous screening.

In many cases, a smaller, well-placed, and properly managed ADU can outperform a larger but poorly located unit. Choosing the right property and the right tenant is the difference between a high-maintenance rental and a reliable income stream.

The key isn’t just owning an ADU, it’s knowing who will live there and making sure they’re the right fit.


ADUs can increase the value of your property. Learn how much they could add.