ADUs are in high demand right now as rent prices for traditional apartments, condos, townhomes, and single-family homes skyrocket. With the right approach, you could definitely get top dollar by becoming a landlord and renting out your ADU.
Here’s what you need to know:
How To List and Advertise the Property
In order to rent out your ADU, you need to list and advertise the property so that prospective tenants can find it, check it out, and apply for it. The best place to list your property is definitely online, and there are so many different platforms you can use.
For instance, you could use Zillow, Apartments.com, Zumper, Trulia, and Hotpads. You could also use other platforms such as Facebook Marketplace, Craigslist, Nextdoor, or even Airbnb.
If you want to go the old school route, it never hurts to put a sign on the street in front of the property with contact and application information.
What Should You Look for in a Tenant?
Your actual tenants can really make or break your experience as a landlord, which is why it’s so important to find responsible tenants.
So what should you look for in a tenant?
- An extensive employment history with consistent income that can easily cover the rent
- A good rental history with positive references from previous landlords
- A good credit score without a history of missed payments, defaults, bankruptcies, etc.
- A clean background check without a history of convictions
How Much Rent Should You Charge?
This is often one of the hardest things that landlords deal with. On the one hand, you don’t want the rent to be so high that it’s hard to find a qualified tenant. On the flip side, you don’t want the rent to be so low that you’re losing money at the end of the day after paying for property taxes, home insurance, and maintenance issues.
So how can you determine how much rent you should charge? The best thing to do is to take a look at other similar units in the area. See how much they are charging and see how your property compares to theirs.
For instance, if your property has better upgrades, a better location, more space, free parking, allows pets, includes utilities, etc., then you should feel comfortable charging more in rent as a result.
How Will You Collect the Rent?
Collecting rent is definitely one of the best parts of being a landlord. However, you still need to consider how you’re actually going to do this as there are several different methods to choose from.
If you accept checks or money orders, do they need to be mailed to you, or can they be hand-delivered to another location? If you accept electronic payments, what system are you going to use?
No matter which collection method you choose, just make sure that it works for both you and the tenant. Also, make sure to keep a paper trail of all your rental income as it will come in handy come tax time.
What Should Your Lease Terms Be?
Most landlords choose to execute a written lease agreement with their tenants. This approach safeguards both sides by clearly outlining what is expected of each of them.
And while a lease agreement may seem pretty straightforward, there are actually a lot of different things to consider:
- What date is the rent going to be due? How long is the grace period for paying the rent? What are the late fees for late rent?
- How long is the lease term going to be? Some landlords prefer long-term leases that span a year or longer. Other landlords prefer short-term leases or month-to-month leases.
- Are utilities going to be included in the rent? If so, which ones? If not, how does the tenant set up these utilities?
- Are pets allowed on the property? If so, what kinds? Are you going to charge extra pet rent or charge a cleaning fee upon move out?
- Is parking going to be included in the rent? Where can tenants park on the property? Do they need a special permit to do so?
- Is smoking allowed on the property? If so, are you going to charge an extra cleaning fee upon move out?
What Are Your Responsibilities as a Landlord?
As a landlord, you have certain responsibilities to your tenants that you are required by law to meet.
These responsibilities include:
- You are required to maintain safe and habitable premises for your tenants to live in.
- You must abide by the agreements made in the least or the rental agreement — whether it is written or oral.
- You must follow federal, state, and local fair housing laws the prevent illegal discrimination against individuals on the basis of age, sex, race, religion, etc.
- You also must follow stipulations in the Americans With Disabilities Act that requires landlords to make reasonable accommodations for tenants with disabilities.
- You must respect your tenants’ privacy by only entering the property with notice or in an emergency situation.
- You must make required disclosures to rental applicants and tenants regarding things like lead-based paint, smoke detectors, carbon monoxide detectors, etc.
- You must not retaliate against tenants by shutting off utilities as a response to certain tenant behaviors.
While you have responsibilities as a landlord, you also have rights, including:
- The right to choose who will live in your rental properties using screening criteria so long as it’s not illegal, retaliatory, or discriminatory.
- The right to set the terms of the tenancy meaning that you can choose to ban pets, smoking, etc.
- The right to collect rent from your tenants in exchange for letting them live at the property.
- The right to evict tenants who fail to pay rent or otherwise break the terms of the lease by acting illegally.
- The right to sell the property or move into the property and no longer use it as a rental.
How Should You Manage the Property?
Since you’re responsible for maintaining a safe and habitable space for your tenants, being a landlord is more than simply collecting rent. Instead, you need to manage the property and deal with any issues that come up during the course of the lease agreement.
For instance, say a leak occurs in the middle of the night. How are you going to deal with this? Many landlords choose to use a property management company that handles these issues for them.
This is more of a hands-off approach that will make your life a lot easier, but it will also cost you. Most property management companies will charge around 8% to 12% of the monthly rent collected for their services.
If you want to take more of a hands-on approach to your rental and save some money in the process, you’re still going to need some professionals to help you out along the way. It’s recommended that you maintain a list of professionals that you can call in the event of an issue. Specifically, you need a plumber, electrician, roofer, exterminator, and general handyman.
Final Notes To Read
Based on all this information, you’re ready to become a landlord by renting out your ADU! If you need any guidance or assistance throughout your ADU landlord journey, feel free to check out some of our other resources about ADUs.