Accessory dwelling units—often called ADUs—are quickly becoming one of the most versatile and profitable ways for homeowners to generate passive income. Whether you’re envisioning a cozy short-term vacation rental, a long-term backyard cottage, or a flexible space for multigenerational living, ADUs offer exciting new possibilities for property owners.
With roughly 32.6 million Americans now working remotely, domestic travel on the rise, and demand for affordable housing at historic highs, the market for alternative rental options has never been stronger. And thanks to updated zoning laws, streamlined approvals, and even grants aimed at expanding affordable housing, many U.S. cities are making it easier than ever to build one.
But not all markets are equally supportive—and location is key when it comes to maximizing your ADU’s potential. Below, we’ve highlighted some of the best U.S. cities where homeowners face fewer barriers to backyard construction—and where demand for detached rentals, whether for short-term stays or long-term housing, continues to grow.
Los Angeles, California
Los Angeles may be known as the “City of Dreams,” but in recent years, it’s also earned another title: one of the top U.S. cities people are leaving due to skyrocketing housing costs. To combat this trend and address staggering housing costs, the city has rolled out several initiatives designed to make building accessory dwelling units (ADUs) easier and more appealing for homeowners. These programs often include reduced permitting fees, streamlined approvals, and even property tax exemptions for ADU owners, particularly those willing to rent to low- to moderate-income tenants.
Even if income-restricted rentals aren’t part of your plan, it’s worth noting that Los Angeles remains one of the most desirable places in the country—if not the world—to live and visit. As the heart of the entertainment industry and home to world-famous attractions, beaches, and cultural landmarks, the city draws roughly 49 million visitors each year. This constant flow of tourists means ADU rentals here aren’t just practical—they’re highly profitable. Whether you’re catering to vacationers seeking a short-term stay near Hollywood or local professionals searching for affordable long-term housing, a well-designed ADU in Los Angeles offers a reliable path to steady passive income and increased property value.
Portland, Oregon
Second only to California, Oregon is one of the most ADU-friendly states in the country. Homeowners in many cities, from the southern valley to the central high desert and Portland in the north, can take advantage of ADU-specific grants, low-interest financing programs, permit fee waivers, and reduced building costs. Of all these cities, however, Portland offers the strongest potential for homeowners looking to profit from an ADU rental, especially those catering to short-term visitors or local professionals seeking flexible housing.
One of the biggest reasons to build an ADU in Portland is its thriving tourism and short-term rental market. Visitors are drawn to distinctive, detached accommodations—from tiny homes and backyard cottages to converted garages tucked into quiet residential neighborhoods. In fact, many of Portland’s most desirable destinations are found in its vibrant Northeast and Southeast districts, where walkable streets, quirky shops, and craft breweries make staying in an in-neighborhood ADU particularly appealing. For homeowners, that demand translates into consistent bookings and an opportunity to generate meaningful passive income while adding long-term value to their property.
Seattle, Washington
Like Oregon, Washington is an incredibly ADU-friendly state, with the region allowing up to two ADUs per lot, removing strict owner-occupancy requirements, and easing parking restrictions in many urban areas. Seattle, in particular, has embraced these changes and streamlined the process of building backyard cottages and basement apartments, opening the door to new income opportunities for homeowners.
Combine that with the city’s thriving tech-driven economy, persistent demand for affordable housing, and steady influx of professionals seeking flexible living options, and it’s easy to see why Seattle is one of the most promising markets for ADU investment. For property owners, building an ADU here means reliable rental income, added property value, and a chance to help shape the future of housing in one of the Pacific Northwest’s fastest-growing cities.
Denver, Colorado
Over the past two decades, Denver has transformed from a laid-back mountain city into one of the fastest-growing urban hubs in the country. A surge of new residents in the 2010s—drawn by the city’s strong job market, access to outdoor recreation, and desirable semi-arid climate—fueled impressive economic growth and rapid urban development. However, that same boom has also driven housing costs sharply upward, creating challenges for both buyers and renters.
In response, accessory dwelling units have emerged as a mutually beneficial solution, helping homeowners offset rising housing expenses by generating rental income while expanding access to standalone, flexible housing for local professionals and new arrivals. Whether you’re purchasing property in Denver or already own a home within city limits, adding an ADU offers a proven way to boost your property’s value and contribute to the city’s broader push for more affordable housing.
Where Will You Build Your ADU?
No matter where you live, accessory dwelling units represent one of the most flexible and forward-thinking ways to generate passive income and add lasting value to your property. As cities across the country continue to embrace ADUs as part of broader housing solutions, opportunities for homeowners are more abundant than ever.
While Los Angeles, Portland, Seattle, and Denver stand out as some of the best cities to invest in an ADU rental today, they’re far from the only places worth considering. Smaller cities like Bend, Oregon, and Portland, Maine, are making headlines with streamlined permitting processes and rising demand for alternative housing, while Southern California as a whole remains a powerhouse market for vacation rentals and backyard units thanks to its year-round tourism and generous ADU incentives.
With the right location and thoughtful planning, your ADU can become more than just extra space—it can be a lasting investment that builds equity and adds value for years to come. Ready to explore your options? Our team is here to help. Request a personalized quote or call us at (888) 975-2057 to speak to a representative and start planning your ADU project today.
