Accessory Dwelling Units (ADUs) have become one of California's fastest-growing paths to boosting rental income. They're driven by a wave of new pro-housing laws and a growing demand for affordable living. But, are they worth the investment for landlords? Unfamiliar with ADUs? Let's cover what they are and the need to know basics. You'll also want to understand pertinent laws and how to get started. Finally, we'll share how a property manager can help your ADU journey be more smooth and profitable.
What Is an ADU?
An Accessory Dwelling Unit (ADU) is a self-contained living space with its own kitchen and bathroom facilities. They're located on the same lot as a primary residence. They're sometimes called "granny flats," "in-law units," or "backyard cottages" and can be:
Detached (separate from the main house)
Attached (physically connected)
Conversion (e.g., garage conversion)
California also recognizes Junior ADUs (JADUs). These are smaller units (max 500 sq. ft.) carved out within an existing home with their own entrance and efficiency kitchen.
Are ADUs Worth It for Rental Income?
Yes. In California’s tight housing markets, accessory dwelling units (ADUs) can be a reliable tool for generating income. Many ADUs in Los Angeles and surrounding areas rent for prices that rival full-size apartments. This can add anywhere from several hundred to a few thousand dollars a month in passive income. This cushions monthly expenses and can make homeownership more attainable for some families.
Another reason homeowners are jumping into the ADU game is resale value. Buyers increasingly look for properties that come with an “income potential”. A well-designed ADU can set a listing apart in Culver City or other sought-after LA neighborhoods. Whether a buyer wants to rent it out, use it for extended family, or simply hold it as a flexible space, an ADU often translates into stronger offers when it’s time to sell.
The flexibility of an ADU also makes it appealing. Some owners use the space for long-term tenants. Others prefer short-term leases or even housing their relatives. As lifestyles and financial needs evolve, ADUs give homeowners options that a traditional single-family setup cannot.
Challenges to Consider
Of course, ADUs aren’t without hurdles. Upfront construction costs can be steep. They often range from $100,000 to over $300,000. Of course, this depends on the size, finishes, and site conditions. While California has rolled out financing options and grant programs to make ADUs more accessible, most projects still need careful financial planning.
Legal compliance is another major concern. Los Angeles has streamlined its ADU approval process in recent years. But, homeowners still need to navigate permits, inspections, and zoning regulations. For example, parking requirements, setbacks, and height limits vary depending on the neighborhood. Every city has its own layer of rules that differ slightly. Missing a step here can lead to costly delays or fines.
Finally, first-time landlords must be aware that California’s strong tenant protection laws apply fully to ADUs. That means once a tenant moves in, the same rent control, eviction rules, and habitability standards apply. In areas like Westside Los Angeles, where rent caps are in effect, property owners must carefully balance income goals with compliance obligations.
Key California Laws for ADU Landlords
Rent Control: Most ADUs are covered by California’s rent cap law (AB 1482), meaning rents can only increase up to 5% + inflation (max 10%) annually. Older single-family home ADUs may be exempt if the owner is not a corporate entity. Violating rent control laws can lead to grave penalties.
Security Deposits: As of July 2024, security deposits in California are capped at one month's rent, with slight exceptions for small landlords.
Eviction Protections: Tenants who have lived in an ADU for 12+ months are protected under just cause eviction rules (AB 1482), requiring a legally valid reason for eviction (nonpayment, owner move-in, etc.). No-fault evictions also require one month’s rent as relocation assistance or rent waiver.
Owner-Occupancy: Most new ADUs are not subject to owner-occupancy requirements. California ADU laws had prohibited local agencies from imposing “owner-occupancy” conditions on ADUs between Jan. 1, 2020, and Jan. 1, 2025. Assembly Bill 976 extended the prohibition indefinitely. However, this is not the case for JADUs.
Local Ordinance Differences:
Check whether your city has extra design requirements, rental registry rules, or unique incentives. Local housing department websites are the best for specific details.
Be wary of trying short-term rentals. Many cities restrict using ADUs for short-term (Airbnb-style) rentals. For example, it isn't allowed in Los Angeles, Pasadena, or Glendale.
Renting Out Your ADU: How to Get Started
1. Legal Permitting
You need to secure local building permits. These ensure the ADU meets statewide and local building codes. Unpermitted ADUs are now easier to legalize. As of 2025, you can bring many older ADUs up to code without hefty penalties. In fact, Assembly Bill 434 required all California cities and municipalities to have an ADU plan in place by January 1, 2025.
2. Understand Zoning and Unit Limits
California law allows at least one ADU and one JADU per residential lot. As of 2025, you can have up to eight detached ADUs on some multifamily properties... as long as they do not exceed the total number of existing units. However, you always check with your city for local ordinances. What's legal in one city or county could get you into major trouble elsewhere.
3. Rental Licenses
Confirm requirements with your city's housing department. Some cities (like San Diego and Pasadena) require special rental licenses or certificates of occupancy before leasing your ADU. Many offer assistance in achieving those requirements. However, Pasadena's second unit ADU program is currently no longer available.
4. Tenant Screening & Lease
Use a thorough screening process. Even though a verbal lease is binding in California, a written lease is ideal. It's easier to make sure you're complying with all state regulations, including security deposit limits.
How a Property Manager Can Help
For many homeowners, the solution is professional property management. A good manager will help you understand local building and rental licensing requirements. These can differ significantly between Los Angeles, Culver City, and nearby cities like Santa Monica or El segundo. They can also screen tenants, collect rent, handle maintenance, and ensure all communications comply with California’s strict laws. The Martin Feinberg team guarantees our service quality.
Just as important, property managers stay on top of constantly shifting regulations. With California passing new housing laws almost every year, and Los Angeles regularly adjusting local rental ordinances, having expert guidance can be the difference between a profitable investment and a legal headache. For first-time landlords or those juggling multiple properties, the peace of mind alone often makes management services worth the cost. If you're interested in help managing a property, contact Martin today.
