How to Build an ADU and List it on AirBnB

My wife and I prefer long-term tenants over short-term because it is lower maintenance and consistent rental income. However, we felt that one of our properties had enough room in our rear yard to add an Accessory Dwelling Unit (ADU) that we could try renting on AirBnB.

Related Post: Afford a home in the Silicon Valley with an ADU

An Accessory Dwelling Unit, more commonly referred by its acronym ADU for short, is a secondary housing unit on a single-family residential lot with a primary residence. Other names for an ADU include cottage, secondary unit, in-law unit, and granny flat. It can be attached or detached from the primary residence where main utilities (electrical, water, gas) are shared. An ADU unit should provide independent living facilities for one or more persons that includes permanent provisions for living, sleeping, eating, cooking facilities, and sanitation on the same parcel as the primary residential dwelling unit.

What is a detached ADU?

Most homeowners prefer building a detached ADU. A detached ADU is a free-standing structure but it is not the only type that a homeowner can build. An ADU can be detached, attached, or converted from an existing space such as attic, basement, or garage.

How much does an ADU cost?

Prefab companies such as prefabadu.com or abodu.com can build a detached ADU for $150 to $350 per square foot. A small 300 square foot detached ADU can cost between $45,000 to $105,000 depending on permits and design finishes. Best to find a prefab company that offers complete service where permits and utilities (electrical, water, gas) are inclusive with price. It is always worth paying more for a good contractor who will get the job done.

Can I have an ADU on my property?

Most single-family and multi-family homeowners can build ADUs on their lot given that some restrictions are followed but it is best to first check with your state law. For example, since I live in the state of California, California Department of Housing and Community Development has created laws that allow homeowners in single-family neighborhoods to start building an accessory dwelling units as long as there is room for it on their property. However, “room” is interprets differently per city such as:

• An ADU built in the City of San Mateo can occupy 50 percent of the rear yard. With a size maximum ADU floor area of 640 square feet.
  • City of San Mateo ADU info page: https://www.cityofsanmateo.org/3907/Accessory-Dwelling-Unit-ADU
• An ADU built in the City of San Jose can occupy up to 40 percent of the rear yard. With a size maximum ADU floor area of 800 square feet.
  • City of San Jose ADU info page: https://www.sanjoseca.gov/business/development-services-permit-center/accessory-dwelling-units-adus
• An ADU built in the City of San Carlos can occupy up to 50 percent of the rear yard. With a size maximum ADU floor area of 1,200 square feet.
  • City of San Carlos ADU info page: https://www.cityofsancarlos.org/government/departments/community-development/planning/accessory-dwelling-units-adu

Parking requirement for ADU

Homeowners who live within a half-mile of public transportation can skip the requirement of providing parking for an ADU. If you are converting a garage into an ADU, sharing the driveway is an easy solution.

ADU Permit in California

The first step is to research permit requirements for Accessory Dwelling Unit in your city which will help to decide what type of unit you can build. Due to exorbitant rent costs, Bay Area city officials are now encouraging homeowners to build ADUs as a solution to providing more affordable housing. Therefore most Bay Area city officials have created ADU programs to help facilitate building requirements and expedite planning permits.

• For example, the City of Fremont generally has large property lots (>6,000 sq ft) therefore not many restrictions are necssary for ADUs. An ADU that exceeds 120 square feet requires a building permit (you will still need a permit for plumbing, mechanical, and electrical).
  • City of Fremont ADU info page: http://www.fremont.gov/558/Accessory-Structure-Permit
• However, the City of San Francisco requires that the ADU stay within the existing envelope of the building and cannot take space from the primary residence. Therefore many San Francisco homes have garages on the first floor that converts nicely into ADUs while the primary residence remains unchanged on the second floor.
  • City of San Francisco ADU info page: https://sf.gov/see-if-you-can-add-new-units-your-residential-property

Planning my ADU

My wife and I decided to build a detached studio ADU instead of anything bigger for a few reasons:

• We wanted a small building footprint since this ADU is going to be detached and built on our existing lot. My kids still enjoy the backyard and we like our deck =).
• Building a studio is cheaper in terms of building material and finishes. Plus my wife and I thought it would be more fun to squeeze high-end finishes into a small space.
• The ADU plumbing and electrical connects back to the main home. I had to ensure that my existing plumbing and electrical had enough room to absorb the amperage and water waste.

Building my ADU

After agreeing on the placement and size of our ADU we solicited a few bids from contractors for the work. It is important to find good contractors that are dependable and skilled for this ADU build. The success of my ADU unit on AirBnB starts with having plumbing, electrical, and design finishes done with care. If you have sloppy tile work in your shower, the guests will notice. Sloppy work will negatively affect your AirBnB host rating. If your circuit breakers constantly trip and your toilet floods it will cost more just to maintain the ADU.

Here are some more photos of my ADU construction for my readers to enjoy. Being DIY person myself, I enjoy the journey of house construction as much as the finished product.

Does an ADU increase property value?

Many readers have asked me if building an ADU will increase the value of their property. This topic can go in many directions and is not obvious. The most logical answer I can provide is it depends on who you are and where you live.

value [val-yoo] noun

the regard that something is held to deserve; the importance, worth, or usefulness of something.

example: “your support is of great value”

https://www.dictionary.com/browse/value

Most homeowners are older and can be classified as Baby Boomers who were born between 1946 and 1964. Growing up in that generation meant that part of the American dream was to own your home.

“In 2000, baby boomers made up 43.5% of all homeowners. The percentage dropped only 1.5%, resulting in 42% ownership in 2010. Almost ten years later (~2010), the percentage remains at 41% even though the oldest of baby boomers are approaching their mid-seventies, an age well past the average age of retirement.”

https://econreview.berkeley.edu/baby-boomers-and-the-future-of-homeownership-in-the-united-states/

As the Baby Boomer generation continues to retire from work, the next generation of homeowners could desire a home where they can take care of their parents or grandparents in an ADU.

More affluent areas are encouraging to build ADUs where rent costs are high due to overcrowding. California state officials are encouraging homeowners to build ADUs as a solution to providing more affordable housing.

Does an ADU increase my property taxes?

An ADU unit is defined as livable square footage addition and therefore taxable square footage as per city and county laws. Most cities will perform a property assessment annually therefore a homeowner can expect to have their property tax increase when building an ADU.

Not In My Backyard (NIMBY)

Not all cities and counties are fully on-board with the ADU movement and can further customize state regulations to some extent. The Los Angeles County Board of Supervisors have approved an Accessory Dwelling Unit Ordinance however cities such as Santa Monica, Glendale, Pasadena, and Long Beach have placed city-specific guidelines and restrictions for ADUs which make it slightly more difficult but not impossible to build.

Local governments can further restrict setback and size requirements for ADUs. For example, Pasadena’s rules ensure that a detached ADU cannot be built less than 10 feet from the rear of a parcel, as opposed to the 5 feet defined by the state of California.

Can you rent out ADU?

Renting out an ADU is one of the primary benefits of owning a home with an ADU. Most cities allow renting of an ADU for long-term rentals defined as renting for 6-months out of the year to the same tenant. The rent can be used to pay the mortgage which makes the home more affordable.

For short-term rentals defined as renting for less than 6-months out of the year are sometimes met with resistance from city officials. Many vacation rental companies such as AirBnB or VRBO have popularized the ability to offer short-term rental products targetted at second homeowners or vacation homeowners. As a result, neighbors have grown frustrated with how easy it is to list short-term rentals that invite inappropriate guest behavior that can create dangerous situations such as parties. Cities have already taken measures to prevent such situations from happening. For example, Los Angeles has barred any type of short term rentals except for the primary residence. Los Angeles homeowners are required to register their rental units and pay fees while being limited to only be allowed to rent for 120 days a year.

Listing my ADU on AirBnB

For those who are not familiar, AirBnB is a website platform that uses network effects to provide housing to travelers/renters looking for alternatives to hotels and hostels. There are many nice units for rent listed on AirBnB. As a result my wife decided we had to provide not just bathroom facilities but also laundry. That meant that the ADU plumbing had to include a water drain for the washer. After some research, I found that an upflush toilet called the Saniflo SaniBEST: Macerating Upflush Toilet Kit (with Standard Bowl) has auxiliary connections for all the fixtures that we wanted which included shower, toilet, sink, and laundry to drain water into its tank to be discharged.

Related Post: I installed an Upflush Toilet in my ADU

Final results

I think the laundry strategy has proven itself to work. For the first 1.5 months after listing on AirBnB we had an occupancy rate of 92 percent. However, we quickly learned that maybe it is better to aim for an occupancy rate closer to 80 percent. The reason why is you want to give yourself enough time between guest reservations to clean the unit. The biggest lesson from being a first-time AirBnB host is learning how to set the preparation time to “Block 1 night before and after each reservation”. We had a couple reservations that were back-to-back where departure of previous guest and arrival of next guest were on the same day. My wife and I were literally scrambling to clean the unit within a couple hours before the next guest arrived.

Overall my ADU listing on AirBnB has performed well in a very short period of time. We have a perfect 5-star rating where the unit has averaged $114.56 per night. I have met friendly travelers who visit for all sorts of reasons that include baby shower, wedding, work, holiday. The most interesting stories so far have been a couple moving cross country so they needed to wait for their moving van to arrive with furniture and a small bakery business owner who gifted me some gluten free pastries. You can check out his bakery here called Misfits Bakehouse https://www.yelp.com/biz/misfits-bakehouse-palo-alto.

Let me know in the comments if you have an ADU listing on AirBnB where we can compare notes. Was building an ADU on your property worth the effort? Have you ever stayed inside an ADU?