Finished the garage apartment myself. By the night or by the year?

The owner-occupied distinction you mentioned is worth pinning down exactly, in writing from the city, before you spend a dollar on furniture. In a number of places the whole legal path for nightly rentals in residential zones runs through owner occupancy, which means the day you move out of the front house the apartment stops being a nightly rental. That's fine if you're staying. It changes what the build is worth to a buyer, and it's the kind of thing I'd want understood now rather than in year six.

Two documents nobody has mentioned. Your homeowners policy, which very likely wasn't written for paying overnight guests on the parcel, and whatever mortgage or construction loan sits on the property. Read the use and occupancy language yourself and then get your carrier's answer on nightly guests in writing.

The reason I care about the insurance more than the revenue split: your kid, your driveway, your fence line, and a stranger with a suitcase. That's a liability question about your own house, not just the rental.

The two options aren't the same kind of number, and that's the part to fix before deciding.

$1,300 a month on an annual lease is a contracted amount with one turnover risk a year. Your nightly figure is a product of three variables you don't control: average daily rate, occupancy, and whether the license keeps being issued. Model it as revenue per available night rather than per booked night. If you take the middle of your range, $120, and you actually achieve 55% occupancy across a full year, that's $24,000 gross. Then subtract turns. At an average stay of 2.3 nights, 55% occupancy is roughly 87 bookings, and 87 cleans of your own labor is real even if you don't invoice yourself for it. Add supplies, the utility increase on a unit where the thermostat is somebody else's problem, platform fees, license and lodging tax remittance, and furniture you replace faster than you expect. Operators commonly find 25 to 35% of gross goes to operating cost before any repair.

So the honest comparison is something like $16-18k net nightly, done by you, against $15,600 done by nobody. That gap is a wage for a part-time job, and whether that job is worth it is the actual decision.

The assumption carrying the whole thing is your 55%. In a market 15 minutes from downtown, competing with hosts who are walkable to it, second-ring units often sit well below the market average. Count what comparable units in your own ring have actually booked over the last twelve months, not what the market average says.

The owner-occupancy rule @meridian raised is the one to confirm with the city in writing, since it determines whether nightly use exists at all for you.

If you ever want to borrow against this, know that lenders treat the two income types differently. Annual lease income on a signed lease is straightforward to document. Nightly revenue underwrites less cleanly and some lenders will discount it or want two years of tax returns showing it. Terms vary by lender and change, so ask yours directly what documentation they'd accept and get it in writing. It won't decide this for you, it just means the lease version is easier to turn into the next thing.

Different angle: you built it yourself and you're 15 minutes from an event-driven downtown. Have you looked at furnished mid-term, 30 to 90 days? Traveling medical, relocations, people between houses. Rates land between your two numbers, turns drop to one a month or less, and in a lot of cities the short-term ordinance doesn't reach stays over 30 days, though that threshold is written differently in different places so check yours. Fewer strangers in your driveway per year, which given the kid seems to matter to you.