Thinking about building an ADU in Menlo Park for rental income? You are not alone, but the rules here are specific. The city requires longer leases for most ADUs, and short stays come with added taxes and compliance steps. In this guide, you will learn how the 30‑day minimum works, what the transient occupancy tax (TOT) means, what it costs to build, what you might earn, and simple ROI examples to help you plan. Let’s dive in.
Menlo Park’s 30‑day minimum for ADUs
Most ADUs in Menlo Park must be rented for at least 30 days. The city’s ADU guidance states that ADUs constructed after January 1, 2020 require a minimum 30‑day lease term, and the city uses a tenancy acknowledgement for many newer ADUs. There are nuanced rules for JADUs and units permitted before that date, so confirm your property’s details with planning staff. Review the city’s ADU page for the specifics and date‑based differences in policy. See Menlo Park’s ADU guidance.
How state law fits in
California’s ADU laws have enabled ADUs statewide while allowing cities to require rental terms of 30 days or longer. That is why Menlo Park can prohibit short‑term vacation rentals in ADUs while still supporting ADU development overall. For a plain‑English summary of recent state changes, review this legal overview of California’s 2024 housing laws. Read the 2024 housing law summary.
Short‑term rentals and TOT in Menlo Park
If you rent for 30 days or less, the city treats it as transient occupancy. That triggers Menlo Park’s transient occupancy tax (TOT), which voters approved to phase up to 14% in 2025 and 15.5% in 2026 under Measure CC, along with registration and reporting requirements. This makes operating true short‑term rentals more costly and administratively involved. Review Menlo Park’s TOT rules and rates.
What ADUs can rent for in Menlo Park
Menlo Park rents are high relative to state averages. Recent snapshots show typical one‑bedroom rents commonly in the low‑ to mid‑$3,000s per month, depending on the neighborhood and unit quality. You can use this range as a conservative starting point for a well‑designed studio or one‑bedroom ADU, then refine with current comps. Check current Menlo Park rent ranges.
What it costs to build an ADU
Costs vary widely by unit type and site work:
- UC Berkeley’s ADU Owner Survey found a statewide median construction cost near $150,000 and a Bay Area median around $177,500, with significant variation by type and scope. Review the UC Berkeley ADU survey.
- In practice, Bay Area garage conversions and smaller prefab builds often land in the mid‑$100k to $300k range. See a prefab case study.
- Custom detached ADUs with substantial site work can exceed $300k to $500k. Explore a high‑end cost example.
Soft costs also add up. Utility upgrades, grading, seismic work, and professional fees can add tens of thousands before construction starts. Plan a buffer in your budget and confirm assumptions with your design team.
Simple ROI examples for Menlo Park
These scenarios use typical Menlo Park rents and Bay Area cost ranges to illustrate outcomes. Adjust with your property’s specifics.
Example A: Mid‑range build, long‑term rental
Assumptions:
- Build cost: $300,000 (detached ADU typical for the Bay Area). Source
- Rent: $2,800 per month for a 1‑bed unit. Local rent context
- Vacancy: 10%; Operating costs: 12% of gross rent
Results:
- Annual gross rent: $33,600
- Estimated NOI: $33,600 × (1 − 0.10 − 0.12) ≈ $25,968
- Simple cash‑on‑cost: 25,968 / 300,000 ≈ 8.7%
- Simple payback: 300,000 / 25,968 ≈ 11.6 years
Example B: Lower‑cost conversion or prefab
Assumptions:
- Build cost: $130,000 (conversion or smaller prefab)
- Rent: $2,400 per month
- Vacancy: 10%; Operating costs: 12% of gross rent
Results:
- Annual gross rent: $28,800
- Estimated NOI: ≈ $22,248
- Simple cash‑on‑cost: 22,248 / 130,000 ≈ 17.1%
- Simple payback: 130,000 / 22,248 ≈ 5.8 years
Notes:
- For 30+ day leases, TOT does not apply. For any stay of 30 days or fewer, TOT would apply and significantly change your net.
- Financing can change results. Some lenders may consider ADU rental income in underwriting, which can expand budgets and affect cash flow.
Compliance checklist for Menlo Park owners
Before you start building or listing an ADU, work through this:
- Confirm your unit’s lease‑term rule and any date‑based exceptions. Review the city’s ADU FAQ and, for edge cases, contact planning directly. Menlo Park ADU guidance
- Check CC&Rs or HOA rules. Private covenants can restrict rental use, including short‑term rentals.
- If you are considering any stay under 30 days, review TOT registration, collection, and reporting requirements, and the current enforcement approach. Menlo Park TOT info
- Pull permits, pass inspections, and meet building and fire‑life safety standards. Wait for final sign‑off before listing.
- Plan for operations: parking considerations, insurance, property management, repairs, and vacancy.
Tips to boost rent and reduce vacancy
- Design for livability: natural light, storage, privacy, and efficient layouts attract quality applicants.
- Include durable finishes and in‑unit laundry where feasible to support higher rents.
- Offer clear house rules and a smooth application process to minimize turnover.
- Price with current comps and be responsive to inquiries to reduce days on market.
Is an ADU right for you?
If you want reliable, long‑term rental income, Menlo Park’s 30‑day minimum aligns well with that goal. Your returns depend on build cost, unit design, and accurate rent assumptions. With good planning and compliance, an ADU can add flexible space, steady income, and long‑term value.
Have questions about ADUs, rents, or ROI on the Peninsula? Reach out to the Gevertz Group for a local, data‑driven perspective tailored to your property.
FAQs
What is Menlo Park’s 30‑day rule for ADUs?
- Menlo Park requires most ADUs permitted after January 1, 2020 to be rented for 30 days or more, which means vacation‑style short‑term stays are not allowed for these units.
How does the transient occupancy tax affect short stays?
- Stays of 30 days or fewer are subject to Menlo Park’s TOT, which phases to 14% in 2025 and 15.5% in 2026, and also require registration and compliance.
What are typical ADU construction costs in the Bay Area?
- A wide range is common: roughly $150k to $300k for many conversions or prefab builds, and $300k to $500k or more for custom detached units, depending on site work and finishes.
What rent can a 1‑bed ADU command in Menlo Park?
- Many one‑bedroom units lease in the low‑ to mid‑$3,000s per month, with actual rent driven by size, condition, and location within the city.
Does TOT apply to 30+ day ADU leases?
- No. The city’s TOT applies to transient stays of 30 days or fewer, not to longer‑term rentals.
What else should I check before renting my ADU?
- Verify HOA or CC&R restrictions, complete all permits and inspections, confirm parking and life‑safety compliance, and budget for vacancy and maintenance.
