The Definitive Guide to ADU Rents in Los Angeles 2024

Move closer to becoming an ADU pro with our Definitive Guide to ADU Rents. Learn how to transform your property into a profitable source of rental income.

The Definitive Guide to ADU Rents in Los Angeles 2024
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Fernanda Castillo

Explore the complex web of regulations, legal obligations, and frequently encountered challenges homeowners face when considering building an ADU.

1

ADU Rentals 101: The Basics

2

ADU Rentals: Legal, Permits & Regulations

3

ADU Profiting, Expenses and Taxing

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ADU Rentals 101: The Basics

Can I rent out my ADU in LA?

The short, straight-to-the-point answer is: yes, you can rent your Accessory Dwelling Unit in Los Angeles. 

Understanding the fundamental requirements and guidelines before starting your ADU rental project in this city is crucial. It ensures compliance with all regulations, even though homeowners are typically allowed to rent out their ADUs. This adherence includes obtaining necessary permits and ensuring safety and building code compliance alongside local zoning ordinances, which we’ll review in detail.

Short-term rentals

The City of Los Angeles introduced an Ordinance in July 2019, opening avenues for homeowners to engage in short-term rental activities with their ADUs and properties. In order to participate, hosts are mandated to register with the City, displaying their unique registration number on all rental advertisements. This process involves strict compliance with the requirements outlined by the City’s Home-Sharing Ordinance, and hosts must complete the registration via the online portal.

Only ADUs with an occupancy certificate issued by the Los Angeles Department of Building and Safety (LADBS) before January 1, 2017, are eligible to register. Additionally, if you intend to host for 1 to 29 days, you must obtain a home-sharing permit before publishing your listing.

Further criteria for the Ordinance are the following, as mentioned on the official website: 

  • Primary Residence: To register a short-term rental property online, you need to prove that the apartment or home is your primary residence, where you live for more than six months of the year. To do so, you must provide proof of identification, including a photo ID and proof of residence. The Administrative Guidelines provide a list of acceptable documents that can be used for this purpose. Non-primary homes, however, are ineligible for registration.
  • Restrictions on Affordable and RSO Housing: Note that the property should not be subject to the Rent Stabilization Ordinance (RSO) of the City, which applies to most multi-family units built before 1978. Additionally, it should not have any other affordability provisions, such as an affordable housing covenant. To confirm whether a property is subject to the RSO, please search the City’s web-based mapping tool.
  • Residential Use: Home-sharing is prohibited in non-residential structures (such as parked vehicles, trailers, etc).
  • No Pending Citations: The primary residence or property cannot have any outstanding citations, orders, tickets, or similar violation notices from any City enforcement agency.
  • Landlord Approval: Anyone renting must obtain written approval from their landlord. The written authorization must be signed, notarized, and submitted with the application. The required Affidavit form is available here.
  • Transient Occupancy Tax (TOT) Registration: To avoid registering to pay TOT directly with the Office of Finance in Los Angeles, applicants must exclusively list their primary residence on Hosting Platforms that hold a Platform Agreement with the City (check the Ordinance’s official site for the available platforms). If not, you must complete the Transient Occupancy Residential Certificate requirement through the Online Registration Portal.
  • Registration Number: Beginning November 1, 2019, hosts must possess a valid Home-Sharing registration number. Failure to list with a valid registration number may lead to fines.

If you’re looking to rent year-round, short-term rental opportunities, you can apply for an Extended Home-Sharing permit (EHS), allowing the activity for 365 days a year. This special permit requires hosts to have either registered for six months or hosted for 60 days previously. The EHS comes with a one-year validity and necessitates an annual renewal with a fee of $982.

It’s important to determine the availability of Short-Term Rentals (STRs) in your area to determine whether the city or region falls under an incorporated or unincorporated area.

For areas categorized as unincorporated, the Short-Term Rental Ordinance of Los Angeles County has been enacted, restricting cities within this jurisdiction from offering short-term rentals. It’s advisable to consult local authorities to confirm if you can engage in Short-Term Rental activities in your area.

Long-Term Rentals

For the City of Los Angeles, the Los Angeles Housing Department confirms that if your unit complies with the Rent Stabilization Ordinance and the respective fees are paid on time, you should not face any other issues or requirements. 

However, it’s essential to note that if your property has an ADU/JADU and falls under the RSO jurisdiction, you must pay an annual registration fee of $38.75 per unit. The RSO has specific regulations regarding parking, housing services, rent deductions, and more. To ensure compliance with the Ordinance, it’s best to consult with your local authorities and determine if your ADU is subject to its regulations.

In LA, homeowners can rent out Accessory Dwelling Units for extra income through long-term rentals

Rental Permits & ADU Regulations

Navigating the legal landscape is crucial when planning to rent out your property. This section will explore critical permits necessary and legal considerations for a smooth rental experience.

  1. Home-Sharing Ordinance: If you’re looking to rent short-term (as well as for the extended modality), you need to register on their portal and follow the steps mentioned. You’ll also need to post the home-sharing registration number on all listings.
  2. Rent Stabilization Registration: Registration may be required if your property falls under rent stabilization ordinances.

Now, let’s review the legal aspects of operating an ADU rental in Los Angeles to ensure compliance with the laws and regulations. To avoid any legal issues, it is important to keep the following points in mind:

  • For LA City, short-term rental activities are only allowed through the Home Sharing Ordinance. 
  • Hosts of Home Sharing must register and pay the necessary fees. 
  • If renting for more than 60 days, Home Sharing hosts can apply for Extended Home Sharing.
  • If you live in an area different from LA City, you may need to check with local authorities if STRs are allowed.
  • Your ADU may be subject to the RSO (Rent Stabilization Ordinance) depending on the style of the unit and the year the primary dwelling was built. 
  • It may be necessary to pay annual fees for the RSO.
  • Before starting an ADU rental project in Los Angeles, make sure to check with your local administration, as some areas may not allow it.

Which regulations should I consider before building an ADU to rent?

Embarking on the journey of building an Accessory Dwelling Unit involves understanding and complying with various regulations. These may include zoning requirements, building permits, size restrictions, and even parking considerations. It’s crucial to adhere to all these regulations to ensure a smooth process.

Here are some regulations to keep in mind: 

Zoning Regulations: Ensure your property’s zoning allows for ADUs, and check for any specific zoning requirements or restrictions in your area, as some parts of LA do not allow for ADU construction. 

Permitting and Building Codes: Obtaining the necessary permits for constructing an ADU is imperative, as you might even face penalty fees for construction without permits or for not following the regulations of your zone. Always check your local building codes and safety regulations.

Size and Design Restrictions: Be sure to check any limitations on the size, height, and design of ADUs, as some areas may have restrictions on detached or attached ADUs.

Parking Requirements: Off-street parking for the ADU might be necessary, so always consult the ordinances or codes to comply with this requirement. 

Owner Occupancy Rules: In some jurisdictions, homeowners must reside on the property for at least six months annually, ensuring a solid connection to the community and adherence to local regulations. 

Rental Regulations: Familiarize yourself with local rental regulations, including rent control laws if applicable, as mentioned in previous sections. 

Historic Preservation Rules: If your property is located within a historic district, it is essential to consider any additional rules or approvals that may be required. ADU construction may be allowed in some historic districts depending on the zone or city.

Fire and Safety Requirements: It is vital to adhere to fire safety regulations, including ensuring the emergency exits are accessible, and smoke detectors are correctly installed.

Homeowners Association (HOA) Rules: Even though HOAs can’t legally prohibit you from building an ADU, checking your HOA’s guidelines before building your unit is essential to avoid potential conflicts.

Explore our page on ADU regulations for LA County for an in-depth look at the crucial regulations you need to consider before building an ADU.

ADU with a fully equipped kitchen

Profiting, Expenses, and Taxing

How much should I rent my ADU for?

Multiple factors come into play when determining the rental prices of Accessory Dwelling Units (ADUs) in Los Angeles. Understanding the factors that shape a city’s rental market and affordability is crucial for renting out your ADU or finding suitable housing. 

  • Market Demand: Many factors can influence the demand for Accessory Dwelling Units (ADUs), including population growth, job availability, and housing trends. These factors can cause fluctuations in rental prices.
  • Size and Amenities: The rental price of ADUs can be influenced by their size and amenities. ADUs with larger living spaces, multiple bedrooms, additional bathrooms, private entrances, outdoor areas, and parking facilities tend to cost more.
  • Location: The location of an ADU in Los Angeles can significantly influence its rental price. Areas near amenities, schools, public transport, and popular attractions are more desirable, resulting in higher rental rates.
  • Condition and Quality: The overall condition and quality of the unit can affect its rental price. Well-maintained and modern spaces with high-quality finishes, appliances, and energy-efficient features may have higher rents than simpler units.

We’ve collected data from multiple local listings and created a chart displaying average rent prices based on area and ADU details.

Average ADU Rents In Los Angeles Chart

How Much Can I Profit?

Adding and renting an ADU to your property can be a great way to increase your income. However, the profit you can make from an ADU will depend on several factors, such as its size, location, amenities, and the local rental market conditions.

ADUs can offer a return on investment (ROI) ranging from 5% to 20% or more, depending on the specific circumstances and local housing market. For example, in areas with high demand for rental properties, you can charge higher rents and achieve a higher ROI. Conducting market research and comparing rental rates for similar ADUs in your area can give you a better idea of potential rental income. Also, to increase your income potential, understanding the local rental market trends is crucial for maximizing your profit. By leveraging historical data and projecting future rent increases, you can make informed decisions that enhance your return on investment (ROI).

For a deeper insight into how ADUs can impact your property value and profitability, explore our blog post, “Do ADUs Really Add Property Value?” Discover the potential financial benefits of incorporating an ADU into your property and learn how to maximize your investment.

Utilizing Historical Rent Data
One effective strategy is to analyze historical rent data in your area. Platforms like Rentometer or Zillow provide valuable insights into past rental trends. By examining how rents have evolved over time, you can identify patterns and project future increases. This historical perspective not only adds credibility to your rental projections but also highlights the potential for even higher rents in the future.

Projecting Future Rent Increases
By projecting possible increases, you can also forecast your Net Operating Income (NOI) more accurately and highlight the profitability of your ADU investment. For example, in areas with high demand for rental properties, the possibility of charging higher rents further enhances your ROI.

Conducting Market Research
Conducting thorough market research is essential for determining the optimal rental rates for your ADU. Compare rental rates for similar properties in your area to estimate market demand and pricing trends. This analysis provides valuable insights into potential rental income and helps you set competitive yet profitable rental rates for your ADU.

Recurring Expenses for Landlords

We know that an ADU can be a lucrative investment, but knowing the recurring expenses of a landlord is crucial. As a landlord, you’ll be responsible for various ongoing costs, such as:

  • Keeping your ADU in good condition through constant maintenance and repairs. 
  • Protect your ADU from potential liabilities and property damage by paying insurance. 
  • If you are not interested in managing yourself, you may need to hire a property management company. 
  • ADUs can increase your property’s assessed value, potentially leading to higher property taxes.
  • If you provide utilities to your tenants, you must account for those costs.

How will renting an ADU affect my taxes?

Similar to other types of investments, it is important to understand tax implications when investing in an ADU. Be sure to consult with your tax professional ahead of time.

Full Size ADU bedroom equipped with A/C and remote controlled fan

For personalized guidance and support, connect with Multitaskr – your partner in turning your ADU vision into a reality. Whether you’re a seasoned investor or a first-time landlord, Multitaskr is here to guide you along the way.

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