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How to Rent Out Your ADU in San Diego: A Homeowner’s Guide

Mar 8, 2024 | 0 comments

Diving into the world of accessory dwelling units (ADUs) for extra rental income? You’re not alone. Many homeowners, just like you, are exploring the potential of their property by adding an ADU. Whether you’re eyeing immediate rental returns or planning for future space when the nest empties, the journey to turning your ADU into a profitable rental space is both exciting and rewarding. From understanding the basics to navigating the nuances of short-term versus long-term rentals, this guide is your all-in-one resource for making the most out of your ADU investment.

What is ADU Rental?

ADU rental involves leasing out your accessory dwelling unit to tenants, providing an additional income stream. ADUs can be standalone units, attached to the main house, or converted spaces like garages or basements. Renting out an ADU is a practical way to maximize your property’s value and make use of available space efficiently.

Increasing Popularity and Benefits of Renting Out ADUs in San Diego

The popularity of ADUs has surged in San Diego due to several factors:

  1. High Demand for Housing: San Diego’s housing market is competitive, with a high demand for affordable living options. ADUs offer a more cost-effective solution for tenants compared to traditional housing.
  2. Flexible Living Arrangements: ADUs provide flexible living arrangements for various needs, whether for multigenerational families, young professionals, or students. This versatility makes ADUs attractive to a wide range of potential renters.
  3. Supplemental Income: Renting out an ADU can significantly boost your income. This additional revenue can help offset mortgage payments, cover property taxes, or fund home improvements.
  4. Increased Property Value: An ADU can increase your property’s overall value. Potential buyers may view an ADU as a desirable feature, whether they plan to use it for rental income or as extra living space.
  5. Community Benefits: ADUs contribute to the community by increasing housing availability without the need for large-scale developments. This can help alleviate housing shortages and provide more options for residents.

Whether you’re eyeing immediate rental returns or planning for future space when the nest empties, the journey to turning your ADU into a profitable rental space is both exciting and rewarding. From understanding the basics to navigating the nuances of short-term versus long-term rentals, this guide is your all-in-one resource for making the most out of your ADU investment.

Understanding Different Renting Options for ADUs in San Diego

At its core, renting out an ADU is akin to managing an apartment—only this time, it’s right in your backyard. It’s about transforming a part of your property into a space that others can call home, whether for a few months or years. The flexibility of ADU rentals, governed by both your preferences and local laws, offers a unique opportunity to tailor your rental strategy to fit your lifestyle and financial goals. Let’s dive deeper into what it means to rent out an ADU and how you can capitalize on this opportunity.

Can I rent out my ADU? Can I build an ADU on a rental property?

Yes, you can rent your ADU. And you can build an accessory unit on a rental property for ADU rental income. Previously, California state law enforced specific legislation regarding owner occupancy requirements. However, a bill permanently banning owner occupancy requirements was passed in October of 2023. This means any previous requirements are permanently eliminated, so property owners can add ADUs to their rental homes.

ADU-Rental-SnapADU-San-Diego-Coolidge-2-BR-1-BA-615-sqft-Aerial-Primary-and-ADU-Corner-of-Lot-Wide-View

Short Term ADU Rentals in San Diego

Can I rent out my ADU as a short-term rental?

ADUs can typically be rented for periods of 30 or more days per California state law. This rule is intended to encourage the use of ADUs as long term housing and not vacation rentals. A few municipalities have waived this requirement, including Los Angeles and San Francisco. Rental limits are a consideration you must agree to in the form of a covenant before any building permits can be issued for the construction of your guest house. Platforms like Airbnb or VRBO allow you to set minimum rental periods to help you comply with the law.

Another option we’ve been seeing lately is to sign a “master lease” with a company that manages corporate housing. That housing company rents for periods of 30+ days to military, healthcare and other business professionals relocating to the area for work. The corporate housing company leases directly from the homeowner. The company typically works on the rental contract before the ADU is even complete so that they can start renting immediately.

You can of course rent out the ADU on a long-term basis to a tenant (e.g. a one or two year lease), or hire a property management company to handle that for you. In most cities, you also have the option of moving into the ADU and renting out your primary residence as a short-term rental (except in Oceanside, where neither the ADU nor the primary may be used as a short term rental).

Can you airbnb an ADU in San Diego?

In San Diego, the Municipal Code explicitly prohibits the use of Accessory Dwelling Units (ADUs) for short-term rental purposes, such as Airbnb. Utilizing an ADU as a short-term rental – e.g. for a period of less than 30 calendar days – will lead to a Code violation, reflecting the city’s commitment to prioritizing long-term housing solutions over vacation rentals. The only exception to this rule applies to companion units that were permitted before the September 2017 prohibition, which may still be used as short-term rental units (STROs).

Long Term ADU Rentals in San Diego

Long-term ADU rentals in San Diego offer numerous benefits, but they also come with certain drawbacks. Here’s a comprehensive look at the pros and cons, legal considerations, and tips for preparing and marketing your ADU for long-term rentals.

Pros of Long-term ADU Rentals

  1. Stable Income: Long-term rentals provide a consistent and reliable source of income, helping homeowners manage their finances more predictably.
  2. Lower Turnover Costs: With tenants staying for extended periods, there are fewer turnover costs associated with cleaning, repairs, and marketing between renters.
  3. Stronger Tenant Relationships: Long-term rentals allow homeowners to build stronger relationships with tenants, leading to better communication and potentially fewer issues.
  4. Predictable Occupancy: Homeowners can enjoy more predictable occupancy rates, reducing the stress of frequent tenant changes.

Cons of Long-term ADU Rentals

  1. Less Flexibility: Long-term leases limit homeowners’ flexibility in using the ADU for personal or short-term rental purposes.
  2. Potential for Difficult Tenants: If a long-term tenant turns out to be problematic, it can be more challenging to address issues or evict them compared to short-term renters.
  3. Maintenance and Wear: Over time, long-term tenants may cause more wear and tear on the property, necessitating more frequent maintenance and repairs.

Legal Rules and Regulations for Long-term Rentals

Renting out your ADU in San Diego involves adhering to specific legal rules and regulations. Here are some important points homeowners should be aware of:

  1. Rental Agreements: Use a written rental agreement that outlines the terms of the tenancy, including rent amount, lease duration, and responsibilities of both parties.
  2. Tenant Rights: Familiarize yourself with California’s tenant rights laws, which include regulations on security deposits, eviction procedures, and habitability standards.
  3. Rent Control Ordinances: Some areas in San Diego may have rent control ordinances that limit the amount you can increase rent each year.
  4. Building Codes: Ensure your ADU complies with local building codes and safety standards, including requirements for smoke detectors, carbon monoxide detectors, and proper egress.

Things to Consider Before Renting Your ADU in San Diego

Before deciding to create an ADU rental space, there are several important points to consider:

Impact on Property Value and Taxes

Your property value (and taxes) will increase. Your property will become much more valuable with the addition of an ADU, and your taxes will also go up somewhere in the range of 1-2%. Your property will be subject to a “blended assessment,” which means your home’s assessed value will not change, but the ADU’s assessed value will be added onto the overall property value. However, keep in mind that renting out the space will likely offset a good portion of these expenses. Read more about tax effects from ADUs.

Evaluating Insurance Needs

Assess the insurance requirements for your ADU. You may need additional coverage for rental properties, which can protect you from liability, property damage, and loss of rental income. Here are key considerations:

  • Landlord Insurance: Covers property damage, liability claims, and loss of rental income. This type of insurance protects you from potential financial losses due to tenant-related issues.
  • Liability Coverage: Protects against legal claims if a tenant or visitor is injured on the property. This is essential to cover medical expenses and legal fees.
  • Loss of Income Insurance: Reimburses lost rental income if the ADU becomes uninhabitable due to covered damages, such as fire or severe weather.
  • Contents Insurance: If you are renting the ADU furnished, consider contents insurance to cover the cost of replacing furniture and appliances in case of damage or theft.

Consult with an insurance agent who specializes in rental properties to ensure you have comprehensive coverage tailored to your needs.

Optimizing Your ADU for Rental

If you are building an ADU with the specific intention of renting it out, you will want to let your contractor know. The design you choose for your build will most likely vary depending on what use you have in mind for your ADU. Optimizing the layout will make it more attractive to renters. Contractors will likely have a number of ready-to-build floor plans you can choose from, as well as years of experience discovering how to build to maximize the value you will get out of the ADU.

How to Optimize Your ADU Rental Design and Floor Plan

Use space-efficient features

Open floor plans, eat-in kitchen islands, standard size bathrooms, and plenty of storage and are all ways to best utilize the space to make the unit livable yet efficient for your tenants.

Be aware of important size breakpoints

500 sqft, 750 sqft, and 1000 sqft are important thresholds to keep in mind. You can fit 2BR/2BA in 750sqft, and if you stay under that number, you will save thousands of dollars since no impact fees will be assessed, per state regulations. Explore ADU floor plans.

Choose durable yet cost-effective finishes

Some favorites are luxury vinyl plank flooring, quartz countertops, and shower inserts. These materials will look great, clean easily, and are less expensive than some other options.

What are Renters and Tenants Looking for in ADU Rentals?

Alongside design and floor plan optimization, there are specific features that many renters will be looking for in an ADU rental residence.

  1. Privacy from primary residence. Data from a City of Carlsbad ADU study pinpointed privacy as the most important factor in potentially renting an ADU (more important than cost!!).  Privacy from the main residence might include a physical barrier blocking the ADU from the house, like a wall or hedge. You could also install something more subtle, like a personal storage space for the renters that is completely cut off from the primary residence. Anything allowing the resident to feel a sense of independence and separation from the main residence can work.
  2. Access to the unit. Consider how your tenants will access the unit. Ensuring there is a walkway or path with clear and easy access is ideal. Also consider how the tenants will access the unit from where they will be parking.
  3. Full kitchen & laundry. A full kitchen and onsite laundry were also in the top 5 features desired by ADU renters in the Carlsbad survey. Offering a private laundry space and full kitchen setup will make rental life more convenient for your tenants. Making sure to add these features when designing your ADU will make a world of difference and allow you to charge higher rent rates for the added convenience.
  4. Attractive finishes. Many renters are willing to pay more for attractive finishes, such as stylish cabinets, countertops, and fixture selections. Even better, many options like quartz counters and luxury vinyl plank flooring are both attractive and durable.
  5. Outdoor space. Creating an aesthetically pleasing space around your ADU will make your rental a more pleasant space to live in. Adding an outdoor space like a patio, terrace, or yard access adds to the welcoming & relaxing atmosphere that many renters are looking for. Check out Trueline for patio design ideas for your ADU build.

Read more about how to find the ideal lot for an ADU when you are looking to purchase an investment property.

Example: Privacy fence for an ADU rental

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Considering upgrades: Luxury ADU rentals

Incorporating luxury touches into your ADU can elevate status to a premium rental. This can attract tenants who are willing to pay more for high-end features. Consider the following enhancements:

  • High-Quality Appliances: Upgraded appliances, smart home features, and energy-efficient systems add to the aesthetic appeal. They also offer long-term savings and convenience.
  • Quality Finishes: Tiled showers and high-end plumbing & electrical fixtures can increase the attractiveness of your ADU.
  • Modern Amenities: Built-in USB ports, high-speed internet access, and modern entertainment systems can make your ADU stand out.
  • Outdoor Living Spaces: A well-designed patio or garden can extend the living space and add a sense of luxury to the property.

Adding these luxury elements can be particularly beneficial if your ADU is located in a high-demand area. Attract renters who are seeking more than just a place to stay. They are looking for a lifestyle.

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Furnished ADU rentals as a short-term strategy

Offering a furnished ADU can be an excellent strategy to attract short-term renters or those seeking a turnkey living solution. Furnished rentals often command higher rents due to the convenience they offer. They are particularly appealing to:

  • Business professionals on temporary assignments
  • Traveling nurses and other medical professionals
  • Students attending local colleges or universities
  • Individuals relocating and in need of immediate accommodation

By providing a fully furnished space, you cater to a niche market that values ease and efficiency. This can also justify a higher rental price, reflecting the added value of the furnishings.

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Strategies for Successfully Renting Your ADU in San Diego

Balancing Cost and Benefit with ADU Rentals

Adding furnishings and luxury elements can increase rental income. It’s also important to balance the initial investment with the potential return. Research the rental market in your area to determine if there is a demand for furnished and luxury rentals. Consider the following:

  • Target Market: Understand who is looking for rentals in your area and what they are willing to pay extra for.
  • Competitive Pricing: Ensure that the rent you’re asking for aligns with the value you’re providing.
  • Return on Investment (ROI): Calculate how the additional income compares to the upfront costs of furnishing and upgrading the ADU.

Ultimately, the decision to offer a furnished rental or to add luxury touches should be informed by market demand, the potential for increased rental income, and your personal investment goals. By carefully considering these factors, you can maximize the profitability of your ADU rental.

How do I rent out my ADU?

One of our clients shared his insights on renting out his ADU. Check out the video below to hear more about his approach to finding a tenant and successfully becoming a landlord with an ADU rental.

Preparing and Marketing Your ADU

Renting out your ADU in San Diego can be a rewarding endeavor, but it requires careful preparation and strategic marketing. Here’s a brief guide to help you get started.

Preparation

  • Maintenance and Repairs: Ensure the ADU is in excellent condition by addressing any necessary repairs or maintenance issues. This includes checking plumbing, electrical systems, and ensuring all appliances are in working order.
  • Insurance: Make sure you have appropriate insurance for your unit before renting it out. Standard homeowners insurance may not cover rental activities, so you will likely need additional coverage.
  • Safety Checks: Install smoke detectors, carbon monoxide detectors, and ensure all safety features comply with local building codes. These safety measures not only protect your tenants but also reduce liability.
  • Furnishing: Decide whether to rent the guest house furnished or unfurnished based on market demand and your target tenant demographic. Furnished units may attract higher rents and shorter-term tenants, while unfurnished units are often preferred by long-term renters.

Marketing

  • Quality Photos: Take high-quality photos of the ADU to showcase its features and appeal. Good lighting and clean, staged spaces can make a significant difference in attracting potential tenants.
  • Detailed Listing: Create a detailed and attractive listing highlighting the benefits of living in your ADU. Include information on the location, amenities, nearby attractions, and unique features of the unit.
  • Online Platforms: List your ADU on popular rental platforms like Zillow, Craigslist, and local real estate websites to reach a broad audience. Utilize social media and community boards to increase visibility.
  • Open Houses: Host open houses or virtual tours to allow potential tenants to view the property. This can be an effective way to showcase the ADU and answer any questions in real-time.

Screening Tenants

  • Background Checks: Conduct thorough background checks, including credit history, employment verification, and previous rental references. This helps ensure that you select reliable and responsible tenants.
  • Interviews: Interview potential tenants and ensure they understand the terms of the lease. Discuss expectations, rules, and any specific requirements you may have.

How to Draft a Rental Agreement for your ADU in San Diego

Creating a comprehensive rental agreement is essential to protect both the landlord and tenant. A well-constructed agreement lays the foundation for a successful landlord-tenant relationship, ensuring clarity, fairness, and legal compliance. Here’s how to draft an effective rental agreement for your ADU in San Diego.

Important elements to include in the rental agreement

To ensure that your rental agreement is thorough and legally sound, it should include the following key elements:

  1. Names of All Tenants: Include the full names of all tenants who will occupy the ADU. This ensures that everyone is legally responsible for adhering to the terms of the lease.
  2. Rental Property Address: Clearly state the address of the ADU, including any specific unit numbers or designations.
  3. Lease Term: Specify the start and end dates of the lease. Indicate whether the lease will automatically renew or if it will convert to a month-to-month agreement after the initial term.
  4. Rent Amount and Due Date: Clearly state the monthly rent amount, due date, and acceptable payment methods. Include information on late fees and grace periods, if applicable.
  5. Security Deposit: Specify the amount of the security deposit, the conditions under which it will be returned, and any deductions that may be made for damages or unpaid rent.
  6. Maintenance and Repairs: Outline the responsibilities of both the landlord and tenant regarding maintenance and repairs. Specify who is responsible for routine maintenance and who should be contacted in case of emergency repairs.
  7. Utilities and Services: Indicate which utilities and services are included in the rent and which are the tenant’s responsibility. This may include electricity, water, gas, internet, and trash collection.
  8. Rules and Regulations: Include any specific rules or regulations regarding the use of the ADU, such as pet policies, smoking restrictions, noise levels, and use of common spaces like yards.
  9. Termination and Renewal: Specify the conditions under which the lease can be terminated by either party, including the notice period required. Include any provisions for lease renewal or extension.

Legal Considerations

Ensuring that your rental agreement is legally compliant protects both you and your tenants. Here are the key legal aspects to consider:

  1. Compliance with Local Laws: Ensure the rental agreement complies with local, state, and federal housing laws. This includes adhering to tenant rights, anti-discrimination laws, and any specific regulations pertaining to ADUs in San Diego (like renting for periods of 31+ days).
  2. Disclosure Requirements: Include all necessary disclosures as required by law, such as lead paint disclosures for older properties, mold disclosures, and any other relevant health and safety information.
  3. Habitability Standards: The ADU must meet all local habitability standards. This means the unit should be safe, clean, and fit for human habitation, with all necessary repairs and maintenance completed.
  4. Security Deposit Regulations: Adhere to California’s regulations on security deposits, including limits on the amount that can be charged, proper handling and storage of the deposit, and conditions for returning the deposit at the end of the tenancy.
  5. Fair Housing Laws: Ensure that your rental practices comply with fair housing laws, which prohibit discrimination based on race, color, religion, sex, national origin, familial status, disability, and other protected classes.
As always, consider consulting with an attorney before finalizing your rental agreement. Tenant protections are extremely high in California, and professional legal advice can help ensure your agreement is compliant and fair.

How much can you rent out an ADU for in San Diego?

In San Diego, ADU rental properties can usually be rented out for the same or higher rent rates as comparable apartments in the immediate area. Comparable apartments would be based on similar square footage, bedroom & bathroom count, and features like a garage and laundry. Also consider the level of finishes for comparables. Platforms like Zillow and Craigslist are still some of the best places to find current rental listings. You can use these sites to compare your ADU to other available rental units on the market in your neighborhood. This will help determine your potential ADU rental income. Comparing your property to other units will provide a better idea of what rent rate your ADU rental unit could bring.

Our research below is based on pulling the past 12 months of data. We also limited to ADU-sized rentals: 1BR at 750 sqft, 2BR at 1000 sqft, and 3BR at 1200 sqft.

Average ADU rental rates in Greater San Diego (March 2024)

Zip City Neighborhood 1BR 2BR 3BR
91902 Bonita Bonita 1900 2725 3150
92003 Bonsall Bonsall 1600 2450 3500
92008 Carlsbad Carlsbad Village 2450 3350 4250
92009 Carlsbad La Costa Oaks 2575 3375 4475
92010 Carlsbad Calavera Hills Village 2375 3275 4225
92011 Carlsbad Aviara 2775 3775 4375
91910 Chula Vista Chula Vista 2425 2750 3225
91913 Chula Vista Rancho del Rey 2000 2775 3450
92118 Coronado Coronado 3600 4000 4625
92014 Del Mar Del Mar 2900 3650 4525
92020 El Cajon Grossmont 1975 2650 3350
92007 Encinitas Cardiff 2700 3625 5150
92024 Encinitas Leucadia 2725 3775 4950
92025 Escondido East Canyon 2075 2750 3825
92026 Escondido North Ridge 2125 2775 3400
92029 Escondido Hidden Hills 2200 2975 3850
92028 Fallbrook Fallbrook 1800 2925 3625
92037 La Jolla Upper Hermosa 2650 4350 5100
91941 La Mesa Grossmont 2125 2800 3600
91942 La Mesa Rolando Village 1850 2625 3650
91945 Lemon Grove Lemon Grove 2025 2600 3325
91950 National City National City 2000 2650 3325
92054 Oceanside Fire Mountain 2400 3675 4475
92056 Oceanside Tri City 2200 2800 3425
92057 Oceanside North Valley 2100 2675 3375
92058 Oceanside Loma Alta 2400 2800 3450
92064 Poway Caramel Mtn. Ranch 2250 3100 3925
92091 Rancho Santa Fe Rancho Santa Fe 2500 3900 5000
92102 San Diego Golden Hill 2225 2800 4325
92103 San Diego Hillcrest 2400 3700 4475
92104 San Diego North Park 2425 3075 3450
92105 San Diego City Heights 1975 2800 3450
92106 San Diego Point Loma 2725 3475 4425
92107 San Diego Ocean Beach 2425 3400 4725
92109 San Diego Pacific Beach 2700 3550 5025
92110 San Diego Old Town 2300 3575 4550
92111 San Diego Linda Vista 2550 3225 4100
92113 San Diego Logan Heights 1900 2525 3200
92114 San Diego Encanto 1900 2450 3025
92115 San Diego College Grove 1900 2725 3750
92116 San Diego Normal Heights 2200 3025 4425
92117 San Diego Clairemont 2200 2875 3750
92119 San Diego San Carlos 2100 2675 3425
92120 San Diego Grantville 1975 2950 3800
92121 San Diego Sorrento Valley 2500 3475 4300
92122 San Diego University City 2475 3375 4700
92123 San Diego Serra Mesa 2550 3325 4250
92124 San Diego Tierrasanta 2275 3150 3975
92126 San Diego Mira Mesa 2400 3050 3925
92127 San Diego Rancho Bernardo 2350 2850 3900
92128 San Diego Rancho Bernardo 2225 2925 3800
92129 San Diego Rancho Bernardo 2025 2900 3800
92130 San Diego Carmel Valley 2775 3725 4125
92131 San Diego Scripps Ranch 2500 3000 4150
92139 San Diego Paradise Hills 2000 2700 3350
92069 San Marcos San Marcos 2175 2750 3575
92078 San Marcos San Marcos 2425 3425 3725
92071 Santee Santee 2050 2425 3475
92075 Solana Beach Solana Beach 2850 4425 4825
91977 Spring Valley Spring Valley 2075 2450 3450
92081 Vista Ocean Hills 2275 2625 3300
92083 Vista Richland 2100 2725 3200
92084 Vista Vista 2075 2750 3575

Source: Rentometer & SnapADU Analysis, March 2024

These example rents are just a starting place. Keep in mind you’ll want to look for units with comparable amenities and finishes for accurate rent rates.

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