Renting an ADU: How Much You Can Earn from an ADU in Los Angeles

In Los Angeles, renting an ADU (Accessory Dwelling Unit) has emerged as one of the most effective ways for homeowners to generate passive income, boost property value, and build long-term financial security. As housing demand surges and construction regulations continue to favor ADU development, more homeowners are realizing that their own backyards offer a smart solution —typically underutilized spaces that provide the perfect footprint for building a private, rentable dwelling without sacrificing the main home’s functionality. This guide will show you exactly how much you can expect to earn—and how to maximize every dollar.

At NEO Builders and Design, one of the top general contractors in Los Angeles, we specialize in helping homeowners design, permit, and build high-performing, rental-ready ADUs from start to finish. If you're considering renting out an ADU in one of the county’s most competitive and lucrative housing markets, contact us today to schedule your free ADU consultation. 

Why Renting an ADU in Los Angeles Is Gaining Popularity

Los Angeles faces one of the most severe housing shortages in the country. As home prices climb well beyond $1 million for even modest sized homes and rental demand surges, renting an ADU has become a smart financial strategy for property owners. 

In recent years, California’s progressive housing legislation—including SB 1211and AB 68—has streamlined the approval process, making it easier than ever to add a second, third, and sometimes even an eighth dwelling unit to a residential property. With the combination of high rental demand and relaxed zoning laws, homeowners who invest in an ADU today position themselves for strong, stable income streams tomorrow.

Understanding the Basics of Renting an ADU

Renting out your ADU means leasing a legal secondary housing unit to a tenant on a long-term basis—typically for periods longer than 30 days. Short-term rentals like Airbnb are heavily restricted or outright banned for ADUs in Los Angeles, because city and state laws prioritize using ADUs to expand permanent housing rather than vacation rentals. Homeowners must ensure their ADU is fully permitted, up to code, and compliant with local regulations before leasing it. Getting these basics right ensures your investment delivers returns without legal headaches.

For a deeper dive into current regulations, check out Breaking Down the Latest ADU Laws for 2025: What You Need to Know.

How Much You Can Earn from Renting an ADU in Los Angeles

How much can you rent an ADU for in Los Angeles? It depends on factors like size, quality, location, and amenities—but the potential earnings are impressive.

Average Monthly Income for Different Types of ADUs

Studio ADUs: $1,800–$2,500/month

One-bedroom ADUs: $2,200–$3,000/month

Two-bedroom ADUs: $2,800–$4,000+/month

Attached ADUs: $2,000–$3,000/month

Detached ADUs: $2,500–$4,500+/month

Two-story ADUs: $3,500–$5,000+/month

Junior ADUs (JADUs): $1,200–$1,800/month

Garage Conversion ADUs: $2,000–$3,000+/month

Detached and two-story ADUs often command rental rates at the higher end of the range because they offer tenants more privacy, independence, and access to private outdoor spaces—features that are highly valued and highly scarce in Los Angeles’ competitive rental market.

Factors That Influence ADU Rental Income

Several key factors influence how successful renting an ADU can be:

• Location relative to job hubs and universities

• Privacy features like fencing and separate entrances

• High-end finishes and amenities

• Parking availability

• Access to outdoor areas

Rental Income Comparison: ADU vs Traditional Rental Units

A well-designed ADU often outperforms traditional apartment units on a per-square-foot rental basis. Tenants value the privacy, modern amenities, and the "single-family feel" an ADU provides, often paying premium rents compared to high-rise apartments. According to Zumper, the median rent for a two-bedroom unit in Los Angeles is $3,250, but detached ADUs in high-demand areas can often command similar — or even higher — rents thanks to their independent living features.

Key Benefits of Renting an ADU

Beyond just monthly cash flow, renting an ADU offers several major benefits for Los Angeles homeowners.

Steady Passive Income

Long-term ADU rentals offer a dependable source of passive income, often generating between $2,000 and $5,000 per month depending on the size, design quality, and location of the unit. For many Los Angeles homeowners, this rental income is enough to cover a significant portion—or even the entirety—of their monthly mortgage payment. Over the course of a year, a well-located ADU can bring in $30,000 to $60,000+ in gross rental income, providing a powerful financial cushion. This steady cash flow can be used to offset property taxes, fund home improvements, accelerate mortgage payoff, or fuel other investment opportunities. By creating a consistent income stream, a rental ADU transforms your property from a passive asset into an active wealth-building tool.

Boosting Property Value

Adding a legal, rentable ADU can increase your home’s value by 20–30%—sometimes more in competitive markets like Los Angeles. This is because an ADU adds livable square footage and expands the property's use potential for future buyers. Homes with fully permitted ADUs are often appraised higher and sell faster, as they appeal to both investors and families seeking flexible housing solutions. 

Flexible Usage Over Time

Today’s rental unit could be tomorrow’s guest house, home office, or multigenerational living space. As your needs change—whether it’s accommodating aging parents, hosting extended family, or creating a private workspace—an ADU gives you options without needing to move or remodel the main home. Over time, this built-in flexibility can enhance both your lifestyle and your property’s long-term value. By partnering with NEO Builders, the fastest ADU builders in Los Angeles, you can be confident your vision will be built quickly, efficiently, and to the highest standards.

Long-Term Rental Options for Your ADU in Los Angeles

Typical Lease Terms and Lengths

Standard leases for ADUs are usually 12-month agreements, often set up to renew automatically year after year unless either party provides notice. This structure offers stability for both the homeowner and the tenant, locking in rent amounts and terms for a fixed period. Month-to-month rental options are also possible but are less common for ADU owners focused on maximizing rental stability and minimizing turnover risk.

A lesser known agreement that is a perfect in-between option is a mid-term lease, usually lasting three to six months. For a city like Los Angeles that holds multiple large hospitals and universities, a mid-term lease is a great idea to host traveling professors, nurses, and students that often need flexible, furnished housing without the long-term commitment. These tenants are looking for convenience—making them ideal candidates for ADUs or smaller rental units.

Target Tenant Types for Los Angeles ADUs

ADUs attract a diverse range of tenants, including:

• Young professionals seeking private, modern spaces

• Students attending local universities

• Seniors downsizing but wanting to stay close to family

• Corporate transferees seeking furnished units

• Healthcare workers (such as traveling nurses and medical residents) needing long-term housing

• Remote workers looking for independent, flexible living spaces

• Small families or single parents seeking affordable rental homes

• Relocating families needing temporary housing while searching for a permanent home

Legal Requirements for Renting an ADU in Los Angeles

Can you rent an ADU legally? Yes—but only if you follow all local requirements.

Zoning and Permit Regulations

Your ADU must have proper permits and meet key zoning requirements outlined in Los Angeles’ municipal code. These include setback rules (typically requiring four-foot side and rear setbacks), maximum height limits (16 feet is the guaranteed maximum height, but certain conditions may allow you to build even taller), and lot coverage limits to prevent overcrowding depending on your neighborhood. There are also restrictions on ADU sizes, but many homeowners find these limits to be more than enough to accommodate their needs. For example, a two-bedroom ADU can be up to 1,200 sq ft.

If you want to dive deeper into the specific requirements, you can review Los Angeles’ Accessory Dwelling Unit Ordinance and the California HCD ADU Handbook for a full overview of local and statewide rules.

Navigating these rules correctly is critical—unpermitted units can face fines or removal orders, but Los Angeles has programs in place to help homeowners get their ADUs up to code without penalty. NEO Builders ensures every ADU we design and build is fully permitted, compliant, and optimized to fit the unique zoning standards of your property, helping you avoid costly legal issues and construction delays.

Rental Licenses and Registration

Some jurisdictions in Los Angeles County require property owners to register rental units, including ADUs, with local housing authorities. While the City of Los Angeles itself does not currently require a separate rental license for ADUs used as long-term rentals, landlords must still comply with rental registration under programs like the Los Angeles Rent Stabilization Ordinance (RSO) if applicable. Additionally, certain nearby cities—such as Santa Monica, West Hollywood, and Pasadena—have their own rental unit registration or licensing requirements. Failing to register a rental unit where required can result in penalties or delays in renting. Always check with your local housing department before listing your ADU to confirm whether registration, inspection, or local rental licensing applies.NEO Builders helps clients understand and navigate these administrative steps so you can rent your ADU legally, quickly, and with full peace of mind.

Understanding Tenant Rights and Rent Control

California’s AB 1482 introduces rent caps and just-cause eviction protections for many rental properties—but newly constructed ADUs built after January 1, 2017, are exempt from statewide rent control for the first 15 years after they receive their certificate of occupancy. (For non-exempt rental units, annual rent increases are generally limited to modest percentages tied to inflation under California law.) However, it’s important to review whether your primary residence might still be subject to local or state rent regulations. Always know the applicable rules before signing any lease.

Insurance Considerations for ADU Rentals

Homeowners renting out ADUs should upgrade from standard homeowners insurance to a landlord policy. This covers tenant-caused damage, legal liability, and rental income loss in case of disasters. Consult a rental insurance expert early to avoid gaps in protection.

Common Pitfalls to Avoid When Renting an ADU

Even great rental properties can become a hassle without proper planning and management. Avoid these common mistakes to protect your income, minimize legal risk, and keep your ADU operating smoothly.

Ignoring Legal Compliance

Operating an unpermitted or illegally rented ADU can trigger severe penalties—including heavy fines, forced eviction of tenants, stop-work orders, and even mandatory demolition. Every ADU must be properly permitted, fully inspected, and rented in compliance with local and state housing laws. Skipping this step can cause irreversible damage to your property value and rental income stream.

Further, if your tenant is injured in your unpermitted ADU, you may be found liable for their medical bills. 

Underestimating Maintenance and Operational Costs

Even high-earning ADUs require ongoing investment to stay profitable. Routine expenses like landscaping, appliance repairs, cleaning between tenants, pest control, and system maintenance (HVAC, plumbing, electrical) should be built into your budget. Neglecting small issues can snowball into larger, more expensive repairs, eroding your rental returns over time.

Also, keep in mind that staying up to date with maintenance and handling repairs in a timely manner will leave a positive impact on your tenant, and they’ll be more likely to renew the lease. Consistent upkeep not only protects your investment, but also builds trust and encourages long-term, stable tenancy, which will play off in the long term.

Mispricing Your ADU Rental

Setting your rental price too high can leave your ADU sitting vacant; setting it too low means leaving money on the table. Pricing should be based on comparable rentals in your area, the quality of your unit, included amenities, and seasonal demand. Using professional tools—or working with a local expert—can help you strike the right balance to minimize vacancy and maximize income.

How to Optimize Your ADU to Attract High-Quality Renters

​​Renters are willing to pay more for spaces that feel like true homes—spaces that offer comfort, privacy, and thoughtful design.

Choosing the Right Layout and Size

Open floor plans, efficient kitchens, and bright natural lighting maximize perceived space—key selling points for renters seeking a livable, welcoming environment.

Essential Amenities Tenants Expect

In-unit laundry and air conditioning are no longer luxuries—they’re expectations. Properties that lack these basics often sit longer on the market or command lower rents.

Privacy, Kitchens, Outdoor Spaces, and Parking Access

Create separation between your main house and the ADU with fences, landscaping, or dedicated pathways to give tenants a true sense of independence. Outdoor patios or decks can significantly boost rental appeal by expanding usable living space—an especially valuable feature in Los Angeles' year-round sunshine. Adequate parking access, whether on-site or nearby, can also be a major deciding factor for prospective tenants.

Finishes and Features That Command Higher Rent

Stylish, durable materials like quartz countertops, luxury vinyl plank (LVP) flooring, and stainless steel appliances make a powerful first impression—and reduce long-term maintenance costs. NEO Builders integrates these premium design elements into every project to ensure your ADU stands out and commands top-market rents. 

Want to see what’s possible when you partner with us? Explore our ADU property tours and see real examples of spaces we’ve transformed and remodeled.

How Much Do ADUs Rent for in Different Areas of Los Angeles

Rental rates vary dramatically based on the neighborhood, with factors like proximity to job centers, beach access, school districts, and local amenities all influencing monthly pricing.

Rental Rates in West Los Angeles

In Santa Monica, Culver City, and Westwood, expect one-bedroom ADUs to rent between $2,800–$3,500+ per month.

Rental Rates in San Fernando Valley

Sherman Oaks, Valley Village, and Studio City ADUs generally rent for $2,200–$2,800 depending on size and finish level.

Rental Rates in South Bay and Coastal Cities

Redondo Beach, El Segundo, and Manhattan Beach ADUs can easily command $3,000–$4,200 monthly rents.

Curious if we build in your area? Check out all the locations we serve for garage conversions and ADUs across Los Angeles.

Long-Term ROI Potential

A well-designed rental ADU typically pays for itself within 5–8 years through rental income alone, depending on rental rates and initial construction costs. After breaking even, it continues producing returns indefinitely—providing passive income, increasing property value annually, and offering significant wealth-building potential over time. In a high-demand market like Los Angeles, ADUs are one of the few real estate investments that can offer both consistent cash flow and long-term appreciation.

Navigating Taxes When Renting Out Your ADU

Turning your ADU into a rental property means adjusting your tax strategy.

Increased Property Assessment

The county will reassess your property to include the value of the new ADU—but thanks to Proposition 13, your existing home’s assessed value remains protected and can only increase by a maximum of 2% per year. Only the newly constructed ADU portion will be added at current market value, resulting in a blended property tax assessment.

Tax Deductions for Rental Properties

You can deduct expenses like insurance, repairs, maintenance, utilities (if included in rent), property management fees, and mortgage interest tied to the ADU.

Depreciation and Other Tax Strategies

Depreciating the cost of your ADU over 27.5 years can significantly lower the amount of rental income you have to pay taxes on each year, making your investment even more profitable. 

To fully maximize the financial advantages of your ADU, consult a qualified tax advisor—and when you're ready to design a rental-ready unit built with returns in mind, NEO Builders is here to help.

FAQs About Renting an ADU

Is Renting an ADU Legal in Los Angeles?

Yes, if the ADU is properly permitted and rented for terms of 30 days or longer.

How Much Can I Realistically Earn Renting an ADU?

Depending on the size, location, and quality of the unit, Los Angeles homeowners typically earn anywhere from $1,800 to $4,000+ per month renting out an ADU.

Does My ADU Need to Be Furnished for Rental?

Not necessarily. Long-term tenants usually prefer unfurnished units unless you're targeting corporate relocators.

Are ADUs in Los Angeles Subject to Rent Control?

Generally no—for 15 years after completion, ADUs are exempt from LA’s rent control laws under AB 1482.

Can NEO Builders Help Me Design an ADU Specifically for Rental Income?

Yes. We specialize in designing and building rental-ready ADUs that balance maximum livability with strong income potential.

How Long Does It Take to Build an ADU with NEO Builders?

Most projects take between 4–8 months depending on design type, permitting timelines, and site conditions. 

What Size ADU Is Best for Maximizing Rental Income?

Typically, 500–750 square foot 1-bedroom units strike the best balance between cost, demand, and rentability.

Can I Rent Both My Main House and ADU at the Same Time?

Yes, California law allows homeowners to rent both the main residence and the ADU simultaneously, with no owner-occupancy requirement for new ADUs. 

Build an Income-Generating ADU with NEO Builders Today

At NEO Builders, family is at the heart of everything we do. We started this business as two brothers who believed homeowners deserved a builder they could trust — someone who would treat their project like their own. We lead every build with honesty, care, and a real commitment to helping families change their lives with an ADU that creates lasting value. For us, it’s never just about putting up a second unit — it’s about giving you a property that works for you for years to come. If you're thinking about building, book your Free ADU Consultation today. We’d be honored to help you bring your goals to life.