The Definitive Guide to ADU Rents in San Diego 2024

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The Definitive Guide to ADU Rents in San Diego 2024

Rent your ADU for extra income! This blog dives into San Diego Accessory Dwelling Unit rentals. Learn the ins and outs now.

09/11/2024

Learn how to maximize your ADU rental success and provide attractive housing options.

From regulations to legal obligations, this guide answers the most frequently asked questions by homeowners looking to benefit from the increasing popularity of ADUs to create a second stream of income.

By: San Diego BR

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ADU Rentals 101: The Basics

Can I rent out my ADU?

If you own an Accessory Dwelling Unit (ADU) in San Diego or are considering building one, you might wonder whether you can rent it out. The answer is yes!

ADUs have been embraced as a way to address the housing shortage and increase affordable housing options in San Diego, allowing homeowners to contribute to the community’s housing needs while creating an extra source of income through the rental of these units.

It is possible to rent your ADU for a short-term stay (less than 30 days) and for the long term (typically 30 days or more), but keep in mind there are vital factors to consider and regulations to follow.

Long-term rental

This type of leasing typically lasts for 30 days or more, even extending the contract for one or two years. So if what you’re looking for is consistency and a stable source of income, then a long-term rental is the answer!

Although there are both positive benefits and a few drawbacks, let us first focus on the positive aspects of using your ADU as a long-term rental.

Pros:

You won’t have to deal with frequent vacancies.
You will offer your tenants a more permanent housing solution.
Lower turnover costs compared to short-term rentals.
Fewer legal complexities.
Long-term rentals are easier to manage.

Cons:

Long-term rentals usually involve more extended lease agreements, allowing little flexibility.
Potential tenant issues.
Increased wear and tear on the ADU.
Rent control regulations.

Short-term rental

Renting your ADU for temporary terms might be an appealing choice if you’re looking to tap into San Diego’s travel and tourism sector.

For example, one of the key advantages of short-term rentals lies in the potential to earn more revenue over the course of a month compared to traditional long-term leasing, as you’ll be able to charge per night.

But as attractive as this sounds, you may need to know that short-term rentals come with a set of pros and cons.

Pros:

High rental fees.
Flexibility for personal use.
You can adjust your rent rates based on peak and off-peak seasons to maximize your earnings during high-demand periods.
Property management can be easier as most rental platforms often provide hosts with guidelines and cleanliness standards to maintain a high-quality guest experience.

Cons:

Potential gaps between guests may lead to no rental income.
Frequent turnover of guests can lead to more cleaning and maintenance expenses.
This type of rental requires more active marketing efforts to attract guests and maintain booking rates.
You may have to invest more in furnishing and having a well-equipped space.

Short-term rentals in San Diego must comply with local regulations and licensing requirements, such as obtaining a Transient Occupancy Registration Certificate (TORC) and adhering to zoning ordinances.

How much should I rent my ADU for?

This question might be tricky to answer as there is no set amount of money you can ask for when renting your Granny Flat, but there are many tools, such as Zillow and Zumper, which will aid you in your research of properties’ renting prices in your area.

For example, the rental price of a standard two-bedroom ADU can vary widely depending on the unit’s size, type, location, and even zip code. Therefore, you must understand the diverse factors that come into play when determining a price.

Keep on reading to find out the average ADU rental prices in San Diego.

What should your rental lease terms be?

The lease terms for an ADU rental can vary depending on your preferences and the tenant, as well as any local regulations that may apply. However, some common lease terms for ADU rentals typically include the following:

Lease Duration: The lease duration specifies how long the tenant will rent the ADU.
Rent Amount: The lease should clearly state the monthly rent amount the tenant must pay. It should also specify the due dates and any late payment fees, if applicable.
Security Deposit: The lease should outline the security deposit amount and the conditions for its refund at the end of the lease.
Utilities and Maintenance: Utility inclusions and responsibilities must be clearly outlined to ensure everything is clear.
Termination Clause: You should include a termination clause in the lease specifying the conditions under which you or your tenant can end the agreement.
Rules and Regulations: The lease may include specific rules and regulations that tenants must abide by while living in the ADU, such as if pets or smoking is permitted.

Remember that seeking legal guidance from an expert is critical to create a lease containing clear rental agreements so you can enjoy a cordial relationship with your future tenant!

Looking to rent an ADU? Take this into consideration!

When determining the rental prices of Accessory Dwelling Units (ADUs) in San Diego, several key factors come into play. These factors are crucial in shaping the city’s affordability and market demand for rentals. Understanding these factors is essential if you rent out your ADU or search for suitable housing options.

Location: The location of an ADU in San Diego can greatly influence its rental price. Areas near amenities, schools, public transport, and popular attractions are more desirable, resulting in higher rental rates.
Market Demand: Population growth, available jobs, and housing trends can influence how many people want to rent ADUs, which can raise or lower the rental prices.
Size and Amenities: The size and amenities can also influence its rental price. ADUs with larger living spaces, multiple bedrooms, additional bathrooms, private entrances, outdoor areas, and parking facilities tend to cost more.
Condition and Quality: Overall condition and quality can affect its rental price. Well-maintained and modern units with high-quality finishes, appliances, and energy-efficient features may justify higher rents than older or less updated units.

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Now let’s take a look at some average rent prices in San Diego for houses and departments.

ADU Rentals: Legal, Permits & Regulations

Let’s make this clear: constructing ADU can be a complex journey. Multiple regulations must be met if you want your unit to be legal; therefore, before you start building your ADU for rental income, you need to make sure your construction is permitted under local, state, and federal laws. Building an illegal ADU can lead to severe consequences and financial losses.

Keep the following in mind if you wish to avoid mishaps from happening:

Do your homework before construction begins. Being well-informed from the beginning will help you make informed decisions and prevent any potential legal issues or setbacks later on.
Check your local zoning ordinances to see if ADUs are allowed on your property. Each city or county may have specific rules and restrictions regarding the construction of Accessory Dwelling Units, including setbacks, size limitations, and usage.
If you find the local zoning ordinances or legal aspects overwhelming, consider seeking professional advice from an experienced land-use attorney. They can provide expert guidance and help you navigate through the complexities of zoning laws, building codes, and permits.

Aside from the previous points, you may also need to check if there’s an existing HOA in your neighborhood, as these organizations usually have a set of rules you must comply with. But do not worry, as by law, HOAs cannot stop you from building on your property.

Fortunately for homeowners, new bills were introduced earlier this year to simplify the processes of ADU construction. Let’s take a quick look at the different bills!

AB 2221 aims to make building ADUs easier by allowing the creation of Junior ADUs, subject to fewer requirements and regulations.
SB 897 proposes increasing the maximum size of ADUs from 1,200 to 1,500 square feet, giving homeowners more design flexibility.
AB 916 offers financial incentives and a grant program to support homeowners building ADUs.
AB 157 introduces “parking-free” ADUs and eases restrictions on their placement.

Before investing in your ADU project, remember to seek the correct information and advice. Ensure your construction is legal and meets all regulations to ensure a successful and profitable rental income venture.

Navigate the intricacies of ADU regulations in San Diego with ease! Explore our dedicated page on ADU San Diego Regulations to gain invaluable insights, guidance, and actionable information for a seamless construction journey tailored to local requirements.

ADU Profiting, Expenses and Taxing

How Much Can You Profit?

One of the most appealing aspects of adding an ADU to your property is the potential for increased profitability. An ADU can serve as a valuable source of additional income through rental or other uses. The profit you can make from an ADU depends on various factors, including the size, location, amenities, and local rental market conditions.

ADUs can offer a return on investment (ROI) ranging from 5% to 20% or more, depending on the specific circumstances and local housing market. For example, in areas with high demand for rental properties, you can charge higher rents and achieve a higher ROI. Conducting market research and comparing rental rates for similar ADUs in your area can give you a better idea of potential rental income. Also, to increase your income potential, understanding the local rental market trends is crucial for maximizing your profit. By leveraging historical data and projecting future rent increases, you can make informed decisions that enhance your return on investment (ROI).

Utilizing Historical Rent Data: One effective strategy is to analyze historical rent data in your area. Platforms like Rentometer or Zillow provide valuable insights into past rental trends. By examining how rents have evolved over time, you can identify patterns and project future increases. This historical perspective not only adds credibility to your rental projections but also highlights the potential for even higher rents in the future.

Projecting Future Rent Increases: By projecting possible increases, you can also forecast your Net Operating Income (NOI) more accurately and highlight the profitability of your ADU investment. For example, in areas with high demand for rental properties, the possibility of charging higher rents further enhances your ROI.

Conducting Market Research: Conducting thorough market research is essential for determining the optimal rental rates for your ADU. Compare rental rates for similar properties in your area to estimate market demand and pricing trends. This analysis provides valuable insights into potential rental income and helps you set competitive yet profitable rental rates for your ADU.

Recurring Expenses for Landlords

While an ADU can be a lucrative investment, knowing the recurring expenses of being a landlord is crucial. As a landlord, you’ll be responsible for various ongoing costs, including:

Maintenance and repairs: To keep your ADU in good condition.

Insurance: To protect your ADU from potential liabilities and property damage.
Property Management: If you are not interested in managing yourself, you may need to hire a property management company.
Property Taxes: ADUs can increase your property’s assessed value, potentially leading to higher property taxes.
Utilities: If you provide utilities to your tenants, you must account for those costs.

Does an ADU Affect Your Property Tax?

Yes, adding an ADU to your property may affect your property taxes. Since an ADU can increase the value of your property, it might lead to a higher assessed value, resulting in increased property tax obligations.

You may also need to pay extra taxes if you start perceiving a stream of income from the rental of your ADU! However, many states and cities have implemented laws to limit the property tax impact of ADUs. For example, in California, property tax increases due to ADUs are often limited to 1% of the ADU’s value.

And there you have it, whether you’re looking to rent your unit or start constructing one, you can make the most out of your ADU investment by understanding the market dynamics, adhering to regulations, and making informed decisions.

At San Diego BR, we’re always ready to guide you through the complex world of ADUs. From design to permitting and even property management, our team of experts is prepared to aid you in your real estate journey. Book a free consultation today and kickstart your ADU project!

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