15 Reasons to Rent Out Your Accessory Dwelling Unit

Accessory dwelling units (ADU) -- generally defined as a smaller, independent dwelling unit on the same lot as a single-family home -- offer a number of benefits. You can use them as a separate guest suite when friends and family come to town or even as a "mother-in-law apartment" for a longer-term stay. But most importantly, you can rent out your ADU to create another income stream.

There are many types of ADUs. They can be detached from your home or connected; in the basement, a converted attic or upper floor; or even a converted garage.

If you have an ADU or are thinking of getting one, there are a lot reasons to rent them out. Here are 15 of them.

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This might seem obvious, but you don't want to overlook the income potential of renting out your ADU. Depending on where you live, your extra unit might be worth more than you think. If you're in an area popular with tourists or where the rental market is tight, finding a tenant could be worth it.

Similarly, if your area has visitors seasonally, you might want to consider just renting it out on a short-term basis in the high season. You can check sites like Airbnb, Zillow, and Craigslist to get an idea of what asking rents are like in your area.

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Managing an ADU is probably the easiest job you could have as a landlord. Your tenant is staying by your home, so you'll be readily available if there's ever a problem. Of course, that also makes it convenient to find new tenants and show them the place when you're looking to rent it out.

And if you're nervous about, say, a tenant trashing your place, you'll be able to keep tabs on them. Don't want loud parties or friends coming late at night? Put it in the contract.

Managing a property you'll see every day is much easier than one on the other side of town or even in another city.

If it's your home, you're probably already doing things like mowing the lawn, tending to the landscaping, making minor fixes, and monitoring big-ticket items like the roof and the boiler.

In other words, renting out your ADU shouldn't come with any significant additional maintenance, especially if your ADU is attached to your home. Because you're already doing the maintenance, the incremental cost to you is less than it would be with a separate rental unit.

If you're considering buying an income property or building a real estate portfolio, renting out your ADU is a great first step to see whether being a landlord is right for you.

You may find you don't like being on call for problems 24/7, it's more work than you expected, or you simply don't have the time. A bad tenant could dissuade you from going further into real estate.

If you're looking for a low-stakes way to test being a landlord, renting out your ADU is a great way to do it.

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Another bonus of renting out your ADU is that you don't have to commit to a long-term rental like you ordinarily would with an income property.

If you want to keep the ADU available as a guest suite for visitors at times, you can rent it out as a short-term rental on a site like Airbnb or VRBO. You should check local regulations to make sure short-term rentals are allowed, but renting it out this way will allow you to rent it out on your terms rather than being stuck with a tenant when you might not want one.

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Of all the types of rental properties you could have, you'll likely find regulations are loosest on ADUs. That's because you're already living on the property and generally only have one ADU. So, you won't have to worry about laws like rent stabilization that apply to larger buildings. And if you get into a dispute with your tenant, the law is more likely to be in your favor than it would be with a larger landlord. In other words, you face fewer legal hassles than a typical landlord would.

According to some, there is a national housing shortage and a rent crisis right now. So, this isn't just a great time to rent out your apartment financially but also a way to do a good civic deed.

That's one reason restrictions on renting out ADUs are being removed in some parts of the country. It's worth looking into local laws if you're interested in renting out your ADU. You also may be able to advocate for a change in local laws if they're banned. Municipalities are allowing them because they're needed, so a change in the law likely signals pent-up demand for small apartments.

ALSO READ: Could Housing Affordability Cause the Next Housing Crash?

If you're renting out an ADU, you'll also be able to be more selective about your tenants than you would be with a traditional rental.

Say you'd like to know the person renting it out. You can just try mentioning the vacancy to your neighbors and finding someone through word of mouth. Similarly, there might be a certain group of people you're trying to help -- like students, women, or immigrants -- and you could rent the unit specifically to them.

Unless you're strictly renting the ADU to make money, it's worth considering the kind of tenant you'd like to have.

You may want to consider just doing short-term rentals, even if just for one weekend. You could rent out your ADU when you're looking for extra cash or there's some kind of event in town and rental rates are spiking. If you're interested in trying to rent out your ADU long term, you may want to start with renting only short term before committing to a long-term tenant.

Many prospective homebuyers love the idea of owning an income-generating ADU along with the primary home they're buying.

If you have a good track record of renting the property, either long-term or short-term, you can include that information when it's time to sell your property. Something like a popular Airbnb listing attached to the home would likely help it fetch a higher price, especially if the buyer knows they can use that income to help pay down the mortgage.

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With rents soaring across much of the country, you'll probably get a good bang for your buck by renting out your ADU or adding one if you don't have one.

From a landlord's perspective, one advantage of an ADU is that you can get good money per square foot for them if they're in a good location. Typically, single-family homes are in neighborhoods with only other single-family homes around. So, someone who wants to live in an apartment in that area won't have much selection, making it easier for you to dictate the price. The same is true for short-term rentals.

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Even if you don't really need the money, one of the best things you can do with the income from renting out an ADU is pay down your mortgage faster. You might be reluctant to accelerate your mortgage payments if you got a low rate during the pandemic by refinancing or buying a new home. But it will still save you money over the long run and help get you the financial freedom of having your house paid off faster.

As long as you have a cordial relationship with your tenant, one benefit is that someone else is living on the property and can keep an eye on things and even handle small chores.

If you go out of town, for example, your tenant could alert you if anything unusual happens to the house and could take care of basic tasks like watering plants. If you have a good relationship with your tenant, it makes sense to count on them to keep an eye on the property when you can't since they're already there.

Renting out an ADU can also offer tax benefits. Creating an LLC for the ADU is a good way to protect yourself from liability. It will also help you capture some tax benefits from the rental unit -- including startup costs like planning and permitting, if applicable -- and allow you to depreciate the property over a period of 27.5 years, further trimming your tax bill.

In other words, not only can the ADU boost your income, but it can also help cut your expenses.

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With much of the country suffering from a housing shortage and rent crisis, adding an ADU and renting it out can create affordable housing. And that will not only benefit you with rental income but also help a renter who might not be able to afford a full-size market-priced residence.

To put it another way, you'll be doing a good deed for your community, helping one of your neighbors, and doing a small part to fix the affordable housing crisis.

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There are plenty of ways to add an ADU to your home if you don't have one. You can get a pre-fabricated cabin to add to your property for a detached ADU or put one in your garage, basement, or attic for an attached version.

With rents up, short-term rentals are becoming popular. And amid an enduring housing shortage, now looks like a great time to add an ADU. Compared with other types of income properties, there are many reasons ADUs are preferred.

Jeremy Bowman has positions in Airbnb, Inc. The Motley Fool has positions in and recommends Airbnb, Inc., Zillow Group (A shares), and Zillow Group (C shares). The Motley Fool has a disclosure policy.