Creative ways to make money off an ADU?

Question

Let's say I have a property with an ADU in the back. What are some ways to generate income from this?

1) Rent as a separate unit (obviously the best return)
2) Add to the main unit as "extra storage or workshop" space. Could add 200-400/month?
3) Rent as storage unit to separate tenant

Dan H. · Answer

Condoize the ADU.   Sophisticated value add if allowed.

In San Diego city and unincorporated San Diego this is allowed by right. Our prices are crazy but a detached ADU that looks like its own property but is condoized can go for nearly the same if it was a detached home (average cost about $1m. So buy house wit( detached ADU for ~$1.2m, condoize the ADU, sell the ADU for nearly $1m. End up with a SFH at a very attractive price for my market.

Good luck

Richard F. · Answer

Accessory DWELLING Unit pretty well defines possible use. The only thing to check locally is whether that is restricted to family, or J.Q. Public. If the latter, then also is STR, or MTR, possible in addition to LTR. I'm not sure what type of "storage" unit of the same size would generate greater income than a residence...in a residential neighborhood.

Jimmy Lieu · Answer

Great question, Asish. You’ve hit the main options I’d consider. If the ADU is legally permitted for residential occupancy, renting it separately is usually the first option I’d run the numbers on. If it isn’t approved as a dwelling, storage or workshop space could still create some additional income without treating it as a residential unit, assuming local zoning, insurance, and lease rules allow it. Another possibility is including it with the main rental and charging a premium for the extra space, which can be attractive to tenants who need an office, hobby room, or storage. I’d be careful about renting it separately for storage because you now have two unrelated tenants accessing the same property, so parking, utilities, security, access, liability, and insurance all need to be thought through. Before choosing a strategy, I’d verify exactly what the ADU is legally allowed to be used for and then compare the extra income against the added management and liability. Happy to connect and answer any questions you have!

Diana Khan · Answer

@Asish Balu, one thing I’d check first is what the ADU is actually approved to be used for. Just because the space could work as a separate rental does not always mean it can legally be rented that way.

If a separate rental is allowed, I’d also look at the lease setup, utilities, insurance, and access before deciding what makes the most sense. As a Maryland real estate attorney, broker, and investor, I think the best option is the one that works both financially and from a property-use standpoint.

Sarah Jones · Answer

Thanks for laying those out—solid starting point. One angle to weigh: converting it to a workshop/storage might limit future flexibility if you later want to go back to a full unit. Have you checked your local zoning on separating utilities or egress for Option 1 versus the others?

Creative ways to make money off an ADU?

Most Popular Reply