Monetizing an ADU in Germantown—Without Missteps

Thinking about creating an accessory dwelling unit at your Germantown home to generate steady income? You are not alone. With the right plan, an ADU can help offset your mortgage and support long-term value. The key is following Montgomery County rules so you avoid delays, fines, or costly do-overs. In this guide, you will learn the steps to make your ADU legal, what it costs, how to set rent in Germantown, and the missteps to avoid. Let’s dive in.

Know the Montgomery County rules

Montgomery County treats ADUs as a second dwelling unit that is subordinate to your single-family home. ADUs can be interior (like a basement), attached, or detached, and the county allows only one ADU per lot. Review the county overview of what qualifies and how the rules work in practice at the Montgomery Planning resource on accessory dwelling units.

Either your main home or the ADU must be your primary residence. This owner-occupancy requirement is part of the ADU license. Also, short-term rentals are not allowed for ADUs in Montgomery County. If you plan to rent, you must rent long term and follow licensing rules. See the DHCA Class 3 ADU guidance for owner-occupancy and licensing, and the county’s Short-Term Residential Rental page for the prohibition on ADU STRs.

Size and parking caps also matter for your budget and design. Attached ADUs are generally capped at 1,200 square feet. Detached ADUs are capped at the lesser of 50 percent of the main home’s footprint, 10 percent of the lot, or 1,200 square feet. Most properties must provide one additional on-site parking space, with exemptions if you are within one mile of certain transit stations. The DHCA Class 3 ADU guide explains these limits.

The licensing and permit path

• Confirm zoning and eligibility. Make sure your property type and lot allow an ADU and check setbacks, coverage, and size. The Montgomery Planning ADU overview is a helpful starting point.
• Apply for the DHCA Class 3 ADU license. This includes owner attestations, simple drawings, fees, and a short public notice period. Do not advertise the unit until you have the license.
• Pull building and trade permits with DPS. Construction, electrical, plumbing, mechanical, and any fire protection work must be permitted and inspected. Start with the DPS accessory structure process to plan your path.
• Coordinate utilities as needed. Plumbing tie-ins may require coordination with local utility agencies.

Safety and inspections you must pass

Montgomery County will inspect for core life-safety items. Plan for these from the start:

• Egress: Every bedroom must have an approved emergency escape and rescue opening sized to code, with correct sill height.
• Fire and protection: Expect proper fire separation in attached units. Detached units often require enhanced fire protection; your plans and inspections will confirm what is needed.
• Smoke and CO alarms: Install code-compliant smoke and carbon monoxide detectors.
• Electrical and GFCI: Kitchens and bathrooms need GFCI protection and dedicated circuits where required.
• Minimum sizes and heights: Bedrooms must meet minimum area and ceiling height standards.

DPS provides the permit and inspection framework for residential accessory structures. Build to code the first time to avoid costly rework.

Costs, taxes, and financing

Construction budgets vary by type and scope. Nationwide and Mid-Atlantic benchmarks often land in these ranges: basement conversions around $80,000 to $200,000, garage conversions around $60,000 to $150,000, and new detached ADUs from about $120,000 to more than $300,000 depending on size, finishes, site work, and utilities. Always get local bids to refine your budget.

Plan for county fees and licensing. The DHCA ADU application package and first-year license total is listed at $615, with separate building and trade permit fees through DPS. Details appear in the DHCA Class 3 ADU guidance.

Adding a permitted ADU usually increases your property assessment, which raises property taxes. Review county tax and assessment basics, and ask about reassessment timing. When you begin renting, you must report rental income and follow IRS rules for allowable deductions. See IRS Publication 527 for guidance.

Update your homeowner insurance before you rent. Using your ADU as a rental increases liability exposure, and your insurer may require a landlord or rental endorsement.

Financing has become more ADU-friendly. FHA now allows lenders to count ADU rental income in underwriting and supports ADU construction under certain programs like 203(k), and Fannie Mae’s guide provides ADU eligibility direction. Check the HUD announcement and confirm product availability with your lender.

Setting rent in Germantown

To price your ADU, start with nearby 1-bedroom or studio comparables. Recent aggregator snapshots show Germantown 1-bedroom averages commonly in the $1,600 to $1,900 per month range. This is only a starting point; your actual rent depends on location, finishes, privacy, separate entrance, and parking.

Montgomery County’s rent stabilization law may apply to licensed units that meet age thresholds. If your property is old enough and the ADU qualifies, the law limits annual increases unless you pursue specific petitions. Review DHCA’s Rent Stabilization page before you set rents and renewals.

A practical pricing approach:

• Pull local comps for similar size and transit or parking profile.
• Adjust for finish level, private entrance, laundry, and whether utilities are included.
• Budget for license fees, insurance changes, maintenance, expected vacancy, and any tax increase when you calculate your break-even and return.

Missteps that cost owners

Avoid these common pitfalls that trigger fines or delays:

• Renting without the required licenses. You need the DHCA Class 3 ADU license and the rental license before you advertise or lease.
• Listing the ADU as a short-term rental. County rules prohibit STRs for ADUs.
• Skipping permits or failing inspections. DPS must permit and inspect all work.
• Overlooking lead rules in older homes. Pre-1978 homes must pass Maryland lead inspections as part of licensing.
• Ignoring rent stabilization and deposit rules. If covered, you must follow DHCA limits and Maryland’s capped, regulated security deposits.

Step-by-step checklist

• Pre-feasibility: Confirm zoning, lot coverage, and setbacks; review the Montgomery Planning ADU overview. Check any HOA rules privately.
• Design and approvals: Meet with DPS for a pre-application discussion and plan your permits. Prepare the two drawings for DHCA and submit the Class 3 ADU application with fees and owner documentation.
• Construction and inspections: Pull DPS permits for building and trades. Schedule inspections and address corrections promptly.
• Licensing to rent: After final approvals, obtain the ADU license, then your rental license. Do not advertise until both are issued.
• Operations: Verify rent stabilization status, set compliant rent increases and deposits, maintain escrow and records, and report rental income per IRS Publication 527.

Pro tips for smooth leasing

• Screen tenants consistently and use a written lease that meets county standards.
• Keep a maintenance reserve and plan for seasonal repairs.
• Track all income and expenses, keep security deposits in a compliant escrow, and return them on time per Maryland law.
• Review DHCA rental license guidance for ongoing landlord responsibilities.

Plan your ADU with local guidance

If you want a second set of eyes on feasibility, pricing, or resale impact in Germantown, our team is here to help. We pair local market expertise with investor-savvy analysis so you can plan with confidence and avoid missteps. Connect with The Agency DC | The AG Group to talk through your ADU goals and next steps.

Montgomery Planning ADU overview

DHCA Class 3 ADU requirements and application

Short-Term Residential Rental rules for Montgomery County

DPS accessory structure permits and inspections

County taxes and assessment information

IRS Publication 527 on rental property

HUD announcement on ADU-friendly financing

Germantown 1-bedroom rent snapshots

Montgomery County Rent Stabilization

FAQs

Can you use a Germantown ADU for Airbnb or nightly stays?

• No. Montgomery County prohibits short-term rentals of ADUs. You must license the unit and rent it long term under county rules.

Do you have to live on the property to rent an ADU in Germantown?

• Yes. Either your main home or the ADU must be your primary residence to obtain and maintain the ADU license.

How much does it cost to build an ADU in Germantown?

• Budgets vary by type and scope. Many basement or garage conversions range from tens of thousands into the low hundreds, and new detached units often cost into the six figures depending on size, finish, site, and utility work. Local bids will refine your budget.

How much rent can a Germantown ADU earn?

• Recent 1-bedroom averages often fall around $1,600 to $1,900 per month in Germantown. Your actual rent depends on finish level, privacy, entrance, utilities, and parking.

Will adding an ADU raise my Montgomery County property taxes?

• Most likely. A permitted ADU is an improvement that typically increases assessed value, which increases your property tax bill.

Do you need an extra parking space for a Montgomery County ADU?

• Usually one on-site space is required, with exemptions near specified transit stations and possible waivers in limited cases. Confirm the rule that applies to your address before you design.