ADUs and lot splitting are two of the simplest ways to increase cash flow on a single property.
You don’t need more deals. You just need to get more units out of the deals you already have.
Some states make this easy. Others make it almost impossible.
Below is a list of states where laws are already in your favor. If you’re serious about scaling, these are the places to focus.
Top States for ADU and Lot Splitting
- California — Most active ADU market in the US. SB9 allows lot splitting statewide, ADUs can be sold separately as condos in some areas, no owner-occupancy or parking requirements, and ADUs under 750 sq ft are exempt from impact fees.
- Washington — Requires urban municipalities to allow at least 2 ADUs per residential lot, removes owner-occupancy requirements, and ADUs can now be sold separately from the primary residence.
- Oregon — Requires most cities to allow at least one ADU on any single-family lot, eliminated owner-occupancy requirements, development fees, and parking requirements.
- Arizona — HB 2720 (signed May 2024) and its county-level expansion HB 2928 (signed May 2025) created one of the more straightforward ADU frameworks in the country. Autonomous.ai
It requires qualifying cities to permit ADUs as a matter of right — no special use permits, variances, or public hearings required. Autonomous.ai
Also notable: HB 2721 requires cities over 75,000 to allow duplexes, triplexes, fourplexes and townhomes within one mile of a city's central business district. Arizona Capitol Times
- Colorado — Zoning updates in multiple cities encourage ADUs with strong rental demand supporting investor ROI.
- Texas — Several major markets are ADU-friendly, allowing backyard cottages and garage conversions on many residential lots.
- Florida — Multiple cities allow up to two ADUs per residential lot with no additional parking, owner-occupancy, or special permit required.
- North Carolina — Straightforward ADU ordinances with no additional parking, minimum lot size, or special use permit required, with short and long-term rental allowed.
- Vermont — Statewide policies encouraging ADU construction with strong affordable housing incentives.
- New Hampshire — Statewide policies supporting flexible ADU development and multigenerational living arrangements.
- Georgia — Pilot programs and local initiatives testing ADU-friendly zoning reforms across the state.
If you want to target corner lot properties in these areas, that will give you more parking and street access for this strategy. Click here for the system we created for targeting corner lots.
How Investors Actually Use This Strategy
Most investors stop at one unit. That’s the mistake. Here’s what this looks like in real numbers:
- You buy a property for $250,000
- It rents for $1,800/month
That’s fine. But now add one ADU.
- ADU build cost: $120,000
- New rent from ADU: $1,200/month
Now the same deal produces:
That’s a 66% increase in income from one decision.
Lot splitting takes it further. If you split a lot and build or sell the second parcel, you create a second exit:
- Keep both and double the rental income
- Sell one and recycle your capital
- Build and refinance both
This is how investors scale without constantly chasing new deals. Check out the video below for how Thach Nguyen and the Springboard to Wealth community uses this strategy.
What to Look for Before You Buy
Not every property in these states will work. You still need to be selective.
Focus on these factors:
1. Lot size and layout: You need enough space to build without fighting setbacks and access issues.
2. Corner lots: These make everything easier. Better access. Easier permitting. More parking options.
3. Local enforcement: State laws help, but cities still control timelines and interpretation. Some are fast. Some are not.
4. Utilities: Check sewer, water, and power early. This can change your costs quickly.
5. Exit strategy: Know your plan before you buy. Are you going to hold it for the extra cash flow or split it and sell?
Frequently Asked Questions