Building an ADU for Airbnb in California

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November 29, 2023Backyard Living

An accessory dwelling unit (ADU) is a self-contained living space with a kitchen, bathroom, and sleeping area. Not only do ADUs increase property value by around 30%, but they also provide the opportunity to make rental income.

ADU rentals work like apartments, where homeowners lease out their private property to renters. If you plan on renting out your ADU, consider if you prefer a long-term or short-term rental and if your city has regulations regarding short-term rentals.

Can I Airbnb an ADU in California?

To encourage using ADUs as long-term primary residences rather than vacation rentals, California rental laws require short-term ADU rentals to be a maximum of 30 consecutive days. Local governments can adopt ADU ordinances, so rental regulations vary between cities.

Some cities encourage renting out ADUs on Airbnb for extra income, while others restrict or completely ban using Airbnb and other short-term rental sites. In cities enforcing the 30-day-maximum short-term rental rule, Airbnb hosts can set a maximum 30-day stay to comply with the state law.

California law used to allow local agencies to require owner-occupancy of the primary house or ADU on a short-term rental. Updates to state law do not allow local governments to impose owner-occupant requirements on any units permitted between January 1, 2020, and January 1, 2025.

When the exclusion expires on December 31, 2024, local agencies cannot retroactively require owner-occupancy for ADUs permitted during this period. If a property has both an ADU and Junior ADU, then California state law does require owner-occupancy of either the single-family residence or JADU.

Do I need a permit to rent my ADU as an Airbnb in California? 

California doesn’t require a permit for short-term rentals at the state level, but most cities require Airbnb hosts to obtain a business license or permit. Each town has unique rules, so requirements vary.

Some cities like Los Angeles call for hosts to register and post their home-sharing registration number on their Airbnb listing. California Airbnb hosts are considered business owners and expected to pay taxes, including a Transient Occupancy Tax (TOT).

TOT rates typically range from 6 to 14% of the Airbnb listing price, including any cleaning fees. In most California cities, Airbnb will collect and pay taxes on behalf of hosts.

Does my ADU qualify for short-term rental on Airbnb?

California state law requires short-term rentals to be no more than 30 consecutive days, but short-term rental regulations vary from city to city. Cities like Redondo Beach and West Hollywood have banned using Airbnb altogether.

San Francisco requires Airbnb hosts and all short-term rental owners to be full-time residents, meaning you live there at least 275 days per year. On the other hand, the city of La Mesa has no restrictions when listing your ADU on Airbnb.

Airbnb allows hosts to set minimum stays to comply with state law. Check your city’s short-term rental laws to determine if your ADU qualifies for short-term rental on Airbnb.

Does my ADU qualify for long-term rental on Airbnb?

Long-term rental regulations also vary by city. For example, Los Angeles requires you to rent your property on Airbnb for no more than 120 nights per year unless you register for “extended home-sharing,” which allows you to rent year-round.

San Francisco allows full-time residents to rent out their units for no more than 90 days total in a calendar year. In San Jose, you can rent your ADU on Airbnb 365 days a year if you are present on the property or 180 days a year if you are not on-site.

Can you rent out your ADU as an Airbnb in San Jose? 

The city of San Jose adheres to California state law requiring maximum short-term ADU rental periods of 30 days, including for Airbnb rentals. So, you can rent your ADU on Airbnb in San Jose as long as you set the maximum stay to 30 days.

San Jose regulates the number of short-term renters in a space. When the host is on-site:

  • You can rent your property short-term throughout the year.

  • You can rent to up to three guests per single-family dwelling.

  • You can rent to up to two guests per dwelling in a multi-family home.

If the host is not present:

  • You can rent your short-term rental for up to 180 days.

  • You can rent to up to two guests in a studio.

  • You can rent to up to three guests in a one-bedroom unit and two guests per additional bedroom.

  • The total number can be a maximum of ten guests.

San Jose does not require Airbnb hosts to get a short-term rental license or permit, but the city does call for hosts to obtain a general business license and pay business tax. San Jose also requires hosts to pay a 10% TOT tax, which Airbnb collects from renters and settles on your behalf.

Can you rent out your ADU as an Airbnb in Los Angeles? 

Yes, you can rent out an ADU at your primary residence as an Airbnb in Los Angeles. “Primary residence” means that you live in the main house at least six months out of the calendar year. Eligibility requirements state rental units cannot be rent stabilized or have income restrictions, affordable housing covenants, or pending citations. LA property owners can only operate one rental unit at a time.

LA regulations state that if you host for 30 days or more, you can rent without registering your ADU for a home-sharing permit. On November 1, 2019, LA implemented the Home-Sharing Ordinance, which requires anyone advertising or engaging in short-term rental periods of 1 to 29 days to register with the city and display the registration number on all listings.

Home-sharing registration requires a $192 fee that homeowners must renew annually. The extended home-sharing application fee is $1030 as of June 30, 2023.

Property owners and renters alike can apply for home-sharing permits, but renters must get permission in the form of an affidavit signed by the property owner. If you are renting your ADU and your tenants want to leave and rent it short-term on Airbnb, you can allow them to do so with notarized written permission.

Los Angeles requires vacation rental owners to get a Transient Occupancy Tax Registration Certificate within 30 days of starting business. LA imposes a 14% TOT tax and a $3.10 per night administrative fee for reservations of 30 nights or less. Airbnb collects and remits these on behalf of hosts.

Can you rent out your ADU as an Airbnb in Santa Clara? 

The city of Santa Clara requires short-term rentals to be no more than 30 days or more. New legislation may be in the works, but there are few regulations for short-term rentals, so you can list your ADU on AirBNB and set the minimum stay to 30 days. Anyone renting rooms for lodging, living, or sleeping must collect and remit Transient Occupancy Tax. Santa Clara’s TOT rate is currently 11.5% and will increase to 12.5% effective January 1, 2024.

The process of building an ADU to rent on Airbnb 

Abodu makes the ADU building process simple. Every ADU project is unique, but Abodu follows the same steps for each build.

1. Discovery call and showroom tour

Discuss your ADU budget and design with one of our experts. We’ll perform a preliminary remote site assessment to determine how an ADU will fit in your backyard. Make an appointment or visit our showroom for an in-person tour of our models and ask any questions you may have.

2. On-site consultation

Our experts will determine the best place to put your Abodu, how to connect utilities, and discuss your ADU installation.

3. Contract review

Finalize the cost and design plans with your sales manager before signing your contract.

4. Construction 

Your Abodu team will build your ADU in a dedicated factory to minimize disruption to your life.

5. Permitting

While we build your Abodu, our team will obtain all necessary permits for your ADU to ensure your unit adheres to all California ADU laws.

6. On-site work 

We’ll handle the site prep, which includes excavating or removing obstructions from your backyard, setting the foundation, and setting up utilities so your Abodu has water, electricity, and sewage.

7. Installation

Once we finish constructing your prefab ADU and preparing your property, all that’s left is to deliver your unit right to your backyard via crane. Installation is a quick one-day process, and then you’re ready to enjoy your new ADU!

A few things to consider before renting out your ADU

City requirements 

While you can rent out your ADU in California, the applicable laws and regulations will depend on your city and the kind of rental you’d like to run. Some towns require homeowners to only rent out their primary home or their ADU at certain times. Look into your city’s legislation so you can make an informed decision before committing to building your ADU.

Potential increase in property taxes when you add an ADU 

When you build an ADU, your property value will increase, so your property taxes will also increase. Once your unit is complete, a county tax assessor will do a “blended assessment,” where they estimate the value of the ADU. This estimation does not involve reassessing the value of your primary home. ADU property tax rates usually fall between 1 to 1.5% of the ADU’s construction cost, so if your ADU costs $200,000 to build, then your property taxes might increase by about $2,000 a year.

Optimize your rental property 

If you’re building an ADU to rent, there are a few considerations to optimize your rental. A space-efficient layout with an open floor plan, an eat-in kitchen, and lots of storage will appeal to renters. Choose durable materials that are easy to clean and affordable to replace, if needed. Quartz countertops, luxury vinyl plank flooring, and ceramic tile generally hold up well.

Short-term vs long-term rental 

There are pros and cons to both renting short-term and long-term. Short-term rentals can be highly profitable if you live in a high-traffic area near a concert hall or vacation destination. They can also be a lot of work, and cities can govern if and how you can rent on a short-term basis.

Long-term rentals have fewer city regulations and provide consistent income. There is the risk of a long-term tenant damaging your unit or failing to pay rent. Ultimately, the choice between having a short or long-term rental comes down to your city’s legislation and your personal preference.

Choose the perfect prefab Abodu and start renting today

Whether you build an ADU for short or long-term rental, Abodu’s range of prefab ADU designs makes permitting, building, and installing your unit simple. Abodu’s experts will help get your dream ADU in your backyard so you can start making rental income. Book a call or showroom tour today.

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