The Considered Landlord: Income Property in San Diego

ADU, long-term lease, or licensed short-term rental — a current guide to what San Diego allows, what it costs, and what the numbers say before you convert equity into rental income.

Sooner or later, most San Diego homeowners run the landlord math. Sometimes it begins with an under-used garage and a contractor's number on the refrigerator. More often it begins with a move: the next house is in sight, the current one carries a mortgage rate you may never see again, and selling feels less like a transaction than a concession. Whether income property actually makes sense here is not a question of enthusiasm. It is a question of arithmetic and regulation — both intensely local, and both changed materially in the past three years. Here is the current state of play.

The case for (and against) becoming a landlord here

Start with what the asset earns. San Diego's median rent stands at $2,790 a month as of June 2026 — 43 percent above the national figure, per Zumper — and detached houses command a median of $4,295. By any national standard, this is an expensive place to rent, which is precisely what makes owners curious.

Now the other column. Redfin puts the city's median sale price near $954,000 as of May 2026. Set the medians side by side — a $954,000 purchase, a $4,295 monthly house rent — and gross income lands around $51,500 a year, a touch over 5 percent of price before property taxes, insurance, maintenance, vacancy, and management have their say. After they do, the cash yield on a newly purchased rental is modest. San Diego has never really been a cash-flow market; it is an appreciation market that happens to pay a dividend. Redfin's April 2026 reading puts the city's median sale price roughly 60 percent above April 2019. That is history worth knowing — and not a promise of anything.

Worth knowing, too: the rent curve has flattened. Zumper's citywide median peaked at $3,044 in 2024 and has drifted down since, as a wave of new apartment supply arrived; over the past year San Diego rents declined more than 19 of the nation's 20 largest markets, per Zumper data reported by KPBS in March 2026. Underwrite today's rents, not 2022's trajectory.

The math changes meaningfully for one group: owners who already hold the asset. If you bought years ago and are trading up, your basis and your financing may make keeping the former residence as a rental genuinely attractive — no transaction costs, a payment today's buyers would envy, and tenants covering the spread. That scenario deserves a spreadsheet rather than a shrug; it is the most common path into landlording here for good reason.

ADUs: the most direct path

California has spent a decade making the backyard unit a matter of right. On most single-family lots, state law requires the city to allow at least one accessory dwelling unit and one junior ADU alongside the main house, reviewed ministerially — no public hearing, no discretionary judgment — with a decision required within 60 days of a complete application; silence past the deadline counts as approval. HCD's ADU Handbook, updated March 2026, is the canonical reference.

San Diego went further than the state required, then partially walked it back. The city's ADU Home Density Bonus Program — which granted extra market-rate units in exchange for deed-restricted affordable ones, and produced occasional projects of a dozen or more units on a single lot — was reined in by a 5–4 City Council vote in June 2025. The reforms cap bonus projects at four ADUs on lots of 8,000 square feet or less, five up to 10,000, and six above that; remove the program from the lowest-density single-family zones outside designated high-resource areas; add parking requirements outside transit priority areas; and attach a community enhancement fee to bonus units under 750 square feet. State housing officials objected in writing; the council proceeded anyway. The changes apply outside the Coastal Zone, with Coastal Commission certification expected in 2026. If your ambition is one well-built unit rather than a compound, none of this touches you — the state-law baseline stands.

The economics: local design-build firms publish all-in budgets of roughly $300,000 to $450,000 and up for a typical detached unit — $375 to $600-plus per square foot once design, permits, site work, and utilities are counted, per Snap ADU's April 2026 figures — with garage conversions meaningfully less. On the income side, citywide medians are the right reference points: $1,834 for a studio, $2,195 for a one-bedroom, $2,950 for a two-bedroom, per Zumper. And the rule that surprises nearly everyone: the city prohibits using ADUs as short-term rentals (save a small set of pre-2017 companion units). The backyard unit is a long-term-income instrument, full stop.

Long-term rentals: the rules of the game

California's Tenant Protection Act, AB 1482, caps annual rent increases on covered properties at 5 percent plus regional inflation, never more than 10 percent. For increases effective through July 31, 2026, San Diego's allowable maximum is 8.8 percent; the figure resets each August with fresh CPI data.

The exemptions matter as much as the cap. Homes built within the past 15 years — a rolling window — sit outside the law. So do single-family homes and condos owned by individuals rather than corporations, REITs, or LLCs with a corporate member, but only if the lease contains the exemption notice the statute prescribes. Skip the paperwork, lose the exemption.

Covered or not, plan around the rest of the rulebook. After 12 months of tenancy, just-cause provisions limit terminations to enumerated reasons, and no-fault terminations — an owner move-in, say — generally carry one month's rent in relocation assistance. Since July 2024, AB 12 caps security deposits at one month's rent, furnished or not; small owners — natural persons with no more than two rental properties and four total units — may collect two months, except from service members. And if you would rather not field the 2 a.m. water-heater call, full-service management for a single-family home is commonly quoted at 8 to 12 percent of collected rent, before leasing fees, per industry surveys. Put it in the underwriting even if you plan to self-manage. Your time is not free either.

Short-term rentals: licensed, capped, enforced

San Diego decided exactly how much of itself it was willing to rent by the night, and wrote the answer into a four-tier licensing ordinance — unlawful to operate without a license since May 1, 2023. Tier 1 covers rental of your home up to 20 days a year; licenses are unlimited. Tier 2 covers home-sharing in your primary residence, including whole-home stretches of up to 90 days a year while you are away; also unlimited. Tier 3 — whole-home, more than 20 days a year, anywhere outside Mission Beach — is capped at 1 percent of the city's housing stock and allocated by lottery when demand exceeds supply. Tier 4 is Mission Beach's own carve-out, capped at 30 percent of that community's dwelling units.

As of June 2026, the city's published counts show Tier 3 with 4,797 licenses issued and 809 still available — applications open — while Tier 4's 1,097 licenses are fully subscribed; a 45-day reapplication window in summer 2025 produced a lottery-ordered waitlist, and the tier has been closed since. Fees, set in March 2025, run from $33 and $193 for a Tier 1 application and license up to $41 and $1,129 for Tiers 3 and 4, with licenses lasting two years, one license per host, and no transfers.

Holding the license is its own job: an active transient occupancy tax certificate, rental unit business tax, a two-night minimum stay for whole-home tiers, and — for Tiers 3 and 4 — at least 90 days of actual rental use per year, documented in quarterly reports, on pain of revocation. And note the gap: no license exists for renting a non-primary home 21 to 89 days a year; the ordinance simply does not offer one. Enforcement runs through the city's complaint system. The strategic read is plain. In San Diego, the license — not the nightly rate — is the scarce asset. Secure it before you underwrite around it.

The decision framework

A long-term rental suits owners who want durable occupancy and a modest current yield while the asset does what San Diego assets have historically done — and who treat rent caps, just-cause rules, and management as line items rather than surprises. It is most compelling when you already own the property at yesterday's basis and yesterday's rate.

An ADU suits owners with the lot, the capital, and the patience for a year of design and construction, in exchange for income that arrives without selling anything — and optionality for family later.

A short-term rental suits owners who hold, or can realistically obtain, the license — and who are honest about the operational tempo of hospitality.

And if the question is keep-or-sell on the house you are leaving, the deciding variables are your equity, your next purchase, and tax treatment — 1031 exchanges, primary-residence exclusions, depreciation — which belongs in front of your CPA and attorney before you list or lease. One conversation now prevents several expensive ones later.

If you are weighing any version of this — backyard unit, long lease, license lottery — Dwell Group will run the numbers with you, neighborhood by neighborhood, before you commit capital to any of it. The rules summarized here are current as of publication and do change; confirm the particulars with the City of San Diego and the State of California, and involve your tax and legal advisors before acting.

Dwell Group at SERHANT · Robyn Flint, DRE #02129556 · Serhant California, Inc.