Rent the ADU or rent the main house? I keep landing on different answers depending on which spreadsheet I open

I've run both configurations on small properties and the one nobody warns you about is noise going the other direction. In the main house you hear a cottage tenant twice a week. In the cottage you hear a family of four continuously, including a dog and a washing machine on the other side of 40 feet of yard. That sounds petty until you've done it for fourteen months.

The money case for living in the cottage is real and I'd still tell you the screening asymmetry is bigger than the rent gap. A bad tenant in your three bedroom costs you the higher rent, the longer vacancy, the bigger turn, and in some states a longer process to resolve. A bad tenant in a 500 square foot cottage costs you $1,400 a month and a repaint. Same screening work, very different downside.

Before you decide the layout question, I'd want to know two things you haven't said. Is the cottage separately metered, and is it separately addressed? Both change the tenant experience a lot and they change which unit is easier to rent at the top of the market. A separately addressed and metered cottage rents like an apartment. One that shares a meter and takes mail at the main house rents like a room and the rent reflects that.

The other thing I'd slow down on is the owner-occupancy question you raised at the end. Whether a condition like that exists, and whether it specifies which unit, varies by jurisdiction and sometimes gets recorded against the lot. That's worth a call to planning and a look at your title work before you plan around either configuration.

To fill in the term wren used at the end: an owner-occupancy requirement is a condition some cities and counties attach to ADU approvals saying the owner has to live on the property, in one of the two units, for the unit to be permitted or to stay permitted. Some jurisdictions never had one, some have removed theirs as part of zoning liberalization, and some still apply them. A few record the condition as a covenant against the lot, which means it shows up in title and follows the property to the next owner.

Two practical points. Whether such a condition exists on your parcel, and whether it specifies which unit the owner must occupy, is answered by your local ordinance and by the recorded documents on your title, so ask the planning department and read the title commitment. Recording practice differs by state, so what appears in title in one state may sit only in a planning file in another.

Separately, if you plan to use projected rent from the unit in a loan application, the rules for that come from the lender and the loan program, not from the zoning code. Fannie Mae has a policy effective March 2026 that allows projected ADU rental income to count toward qualifying income on owner-occupied one-unit purchases, capped at a share of qualifying income. Confirm the current terms and the documentation required in writing with your lender before you count on it.

The version of the question I'd want answered first is how long you plan to live there. Two years in a 500 square foot cottage to knock your housing cost down is a completely different decision from ten. wren said 31 and later, which sounds like the answer is already in the post.