An accessory dwelling unit (ADU) is a self-contained residential unit located on the same lot as a primary single-family home, taking the form of a detached backyard cottage, converted garage, basement apartment, or above-garage suite. ADUs have become a popular vehicle for STR investment because they can generate rental income without requiring a separate property purchase. Many US states, including California, have streamlined ADU permitting to address housing shortages, though local STR regulations may still restrict or prohibit ADU rentals in some jurisdictions. A well-positioned ADU in a high-demand market can achieve occupancy rates comparable to dedicated vacation rental properties while keeping operating costs low.
Why this matters for property managers
An ADU adds a rental income stream on land already owned, often at a lower cost than buying a separate property. Local zoning, permitting, and owner-occupancy rules heavily determine whether it can be rented short term and at what return. Where permitted, it can raise the property's value and diversify income.
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