Living in ADU and long term tenant in main home?

Question

Hello BP Community!

I'm look at purchasing a property that has an ADU. Wanted to hear your opinion on me living in the ADU while renting out the main home to a long term tenant. The total expenses for the main home come out to ~$4000/mo, and I can rent it out for ~$3,500/mo. My goal is to simply mitigate my living expenses, not looking to cash flow right now.

The ADU is a separate home that is 30 feet away from the main home in the backyard. I can imagine that some perspective tenants might scratch their head if they find out I'll be living in the backyard.

Any potential landmines that I should consider before putting in an offer? Has anyone done this before?

Appreciate any feedback/opinions that you have!

Christopher Jason Lloyd · Answer

I househacked a property like this. Some things I learned:

1. Check the zoning. Not just what the lot is zoned as, but if it is a non-conforming structure/use. Mine was zoned singlefamily, but the city recognized it as a duplex and grandfathered in which gives me more flexibility with property improvements but also some restrictions that I need to be aware of in terms of types of rentals for the city (AirBnB vs. Long term).

2. Check how they are metered. No worries if they are together or separate but make sure you have adequate power to the ADU and if you need to include utilities, research if RUBS is legal in your area or build it into the rent.

3. Make sure it was permitted

4. The ADU should have its own hot water heater, HVAC, Kitchen, Full Bath, AND Laundry. Make sure either they have these or you have a plan to get them installed since when you eventually move out, it will realistically need to be done to rent out. I used a small apartment washer and infrared heater/window unit when I lived in mine but that didn't fly with prospective tenants when I moved out, LOL.

Just be aware of those but don't let it deter you. I own one like this, have helped multiple buyers acquire these and they are incredibly profitable when done right! Mine cash flows a ton and I LOVE IT!!

Karen Margrave · Answer

Is there possibly an alley behind the ADU for access? If not, I would definitely fence off the ADU so that the main house has more privacy.

Nathan Faselt · Answer

People also scratch their heads about the car warren buffet drives and the house he lives. I commend you for considering such a unique strategy that can potentially fast-track your path to financial freedom. Renting out the main home will help you significantly and if you are willing to do this I would imagine you live below your mines as well. Perhaps you get a tenant in the main home for some time and eventually change that in time when you have a spouse or life changes. But while you can easily do it definitely go for it.

You will just want to clearly lay out the rule on things like parking and yard usage in the lease.

Andrew Postell · Answer

@Lucas Hunt yeah, many people do this or some combination of it. Some people will STR both units and just live in the one that didn't come up for rent that week/weekend, etc. Keep in mind that your utilities, parking (as suggested above), and even the yard are all shared. You may have to rent it for slightly less since there are these shared spaces. As long as the potential tenant has the right expectations when renting the property you'll be ok.

Hope all of that helps in some way.

Irving Casas · Answer

@Lucas Hunt

I would make sure that parking and use of shared spaces, is clearly understood on a lease agreement by you future tenants! This is a great way to reduce your monthly living expenses.

Jaron Walling · Answer

@Lucas Hunt This can be a lucrative strategy especially if the neighborhood supports and has STR demand. My friend bought a nice property a few years ago and did the same thing. He loved the networking opportunities with guests, easy self management (primary residence), and rental income which more than covered his mortgage. Given today's interest rates and high prices cash-flow may not be realistic but cutting living expense will be.

Ever lived somewhere for free? It's a great position to be in. If you're eager to learn PM or STR strategy go for it! Cheers.

Ever lived somewhere for free? It's a great position to be in. If you're eager to learn PM or STR strategy go for it! Cheers.

Irving Casas · Answer

@Christopher Jason Lloyd If the home is going to be a long-term hold for you. I say invest in appliances that will attract the best tenants. At my duplex I use window A/C. As I start to plan my next investment, I see that I have to upgrade to a mini-split(I look at comparable rentals). It would have been nice to enjoy the mini split the last two summers and pass it on to a tenant who will take good care of it.

Gil Vaisman · Answer

I've had a lot of clients build an ADU to live in them and I think its absolutely sensible to do so! It's not any different than someone living in a multifamily property with the owner occupying one of the units. I would look to fence off the access so there's added privacy for both yourself and the tenants.

Living in ADU and long term tenant in main home?

Living in ADU and long term tenant in main home?

Most Popular Reply

8 Replies