Building an ADU in backyard of current rental

[Varinder Kumar]

So my current rental is doing great. I am looking to building a 300-400sqft additional dwelling unit in the backyard. I called the city already in regards to this an waiting for them to call me back. We are going to discuss what their laws and regulations are as far as setbacks and zoning. I would like to know from my fellow BP'rs their insight on this project. Has anyone done this before? I am looking to Air BnB the unit. For the unit itself with will be something along the lines of:

Sleeps 4, one queen bed and another sofa bed, small kitchen and bathroom. 

My backyard is pretty big, I want to divide the yard in half and build the unit on one side where it already has its own entrance to the side of the home. As far as my current tenants are concerned. I am yet to speak with them about it- any advice on this also would be great! I won't raise their rent and have not raised their rent in the 2 years they have been there.

And I plan on marketing the unit for $99 a night, the home is close to theme parks, malls, gyms, shopping and restaurants. 

I look forward to the replies on here, thanks! in advance.

[Account Closed]

It's funny that someone said "no one is doing this" because everyone is already doing this in Portland. So much so that hosts are dropping their rates in line with LTR rents just to attract business. At that rate, it makes more sense to do LTR. 

Which brings me to the kitchen. I'm an architectural designer/landlord. I highly suggest designing/building this unit in the most flexible way possible. So even if you anticipate just needing a hot plate, leave a dedicated 24" cabinet and counter space with more counter space on each side so you can slide in a 24" range later. Even better would be to get the 240V wiring all set up and tucked away in a junction box. 

When your market gets saturated with STRs, you'll still be able to rent your place as a LTR with minimal hassle and expense.

FWIW, I'm using an induction hot plate right now as my cooktop until my cooktop is installed. It's super inconvenient to only be able to cook with one pan at a time. 

Lastly, unless the yard is specifically excluded from your current tenant's lease, doing a year long construction project and then losing half their yard will, at best, annoy your tenants. At worst, you could be breaking the agreement/landlord-tenant law. I HIGHLY encourage you to talk about your idea with your tenants and (if you want them to stay) let them at least feel like they have some input. You don't want your LTR tenants to resent your STR tenants, or to sabotage your business because they feel you treated them unfairly.