ADU rental income in San Diego: rents, rules and payback

ADU rental income in San Diego: what units rent for

There's no public dataset of ADU rents, so start with two benchmarks: the federal government's fair market rents and what builders see in the field.

HUD fair market rents are the government's estimate of what a modest, standard-quality unit costs to rent in the area, including utilities. HUD sets them each year, generally at the 40th percentile of local rents, so roughly 4 in 10 comparable units rent for less and 6 in 10 for more. San Diego County's figures in effect from January 1, 2026:

Source: Housing Authority of the County of San Diego. HUD publishes new figures each federal fiscal year, and voucher agencies also publish rents by ZIP code, so check the current table for your neighborhood.

Builder estimates run higher, because a new ADU is usually nicer than the average rental. Snap ADU, a San Diego builder, estimated in October 2025 that a 750-square-foot two-bedroom ADU rents for about $3,500 a month and a 1,000-square-foot three-bedroom for about $4,500. Treat those as a builder's marketing figures, not a survey.

Pricing an ADU for rent in San Diego

• Utilities. Fair market rents include utilities. If you pay the water, power and gas, your take-home rent is lower than the headline number. A separate meter lets the tenant pay their own.
• Private entrance, yard and parking. These are the features that make an ADU feel like a house instead of a room.
• Comparable listings. Look at nearby listings with the same bedroom count, size and amenities. The San Diego Housing Commission judges voucher rents the same way, against comparable unassisted units.

Is an ADU a good investment?

The simple test is payback: what you spend, divided by the rent you keep each year. The table below is an illustration, not a forecast. Its assumptions:

• Build cost from Snap ADU's March 2026 San Diego prices for a detached ADU on a level lot.
• Plus City of San Diego fees at that size, from Snap ADU's February 2026 fee table.
• 10% of rent set aside for vacancy, repairs and insurance, the same allowance Snap ADU uses.
• Property tax of 1% of the total cost on the new construction. Your rate may be higher once local bonds are added.
• No loan interest, no income tax, no rent increases and no extra site work such as retaining walls or a new meter.

Sources: costs and fees from Snap ADU; rents from HUD fair market rents and Snap ADU. Net rent is annual rent minus the 10% allowance and the 1% property tax.

Rent isn't the only return. An ADU can house a relative, and permitted space is likely to count when you sell; our guide to what an ADU means in real estate covers appraisals and resale. For real costs on your lot, see what an ADU costs in San Diego or try the ADU cost calculator.

ADU short-term rentals in San Diego

State law lets a city require ADU rentals to be longer than 30 days. The City of San Diego does: an ADU must be rented for at least 31 consecutive days. Junior ADUs can't be rented for 30 days or less anywhere in California.

The city made vacation rentals in new ADUs illegal in 2017. Any ADU permitted after September 2017 is ineligible, and only about 100 older units kept the right. A 2025 inewsource investigation found the city had nonetheless issued short-term rental licenses to properties with newer ADUs. Code enforcement has issued civil penalties of $1,000 per day, per violation, to hosts it caught. A license on paper doesn't make an ineligible ADU legal.

Other cities in the county set their own minimums, so check the local code if you're outside the city. Our California ADU laws guide covers the statewide rules.

Renting out an ADU: landlord rules

California's Tenant Protection Act (AB 1482) has two parts: a just-cause rule for evictions and a cap on rent increases. They have different exemptions, and the ADU answer differs for each.

Just cause for eviction

Once a tenant has lived in a unit for 12 months, the owner needs a legal reason, stated in writing, to end the tenancy. The law exempts a single-family home where the owner lives and rents out no more than two units or bedrooms, including an ADU or junior ADU. San Diego's own Residential Tenant Protection Ordinance, in effect since June 24, 2023, has the same exemption.

The exemption depends on you living in the main house. If you move out and rent both the house and the ADU, plan on the just-cause rules applying. The separate exemption for two units in one building where the owner lives in one doesn't help: it excludes properties where either unit is an ADU.

Rent increase cap

The cap limits increases to 5% plus inflation, or 10%, whichever is lower, in any 12 months. There's no exemption for living on site. But housing issued a certificate of occupancy within the previous 15 years is exempt, so a newly built ADU is generally outside the cap for its first 15 years. The cap is set to expire on January 1, 2030.

Sources: Civil Code §§ 1946.2 and 1947.12. Single-family homes owned by individuals have another exemption, but it requires a written notice in the lease and a home that can be sold separately from any other dwelling unit. An ADU on the same lot makes that harder to claim, so get advice before relying on it.

Renting to a Section 8 tenant

With a Housing Choice Voucher, the housing agency pays part of the rent straight to you and the tenant pays the rest. In the City of San Diego the program is run by the San Diego Housing Commission (SDHC). Its subsidy is capped by a payment standard set by ZIP codeand bedroom count; if your rent is higher, the tenant pays the difference.

• Inspection first. The unit must pass a Housing Quality Standards inspection before SDHC signs a contract and starts paying. SDHC re-inspects every two years.
• Rent reasonableness. Your rent can't be higher than rents for comparable unassisted units. SDHC weighs location, size, type, age, amenities and utilities, and if you disagree you can submit three comparable units within two miles.
• You still screen. You choose the tenant, sign the lease and collect the deposit and the tenant's share.

California law makes it illegal to refuse a tenant because they pay with a voucher or to advertise “no Section 8.” When you apply an income test, you may count only the tenant's share of the rent. Outside the city, contact the Housing Authority of the County of San Diegoor your city's housing agency.

Taxes on ADU rent

Income tax. Rent is taxable income. IRS Publication 527 covers how to report it, which expenses you can deduct and how to depreciate the building. Residential rental property is depreciated over 27.5 years. When you rent out part of a property, you split shared expenses between the rented part and your own home. A security deposit you plan to return isn't income when you receive it. If you rent to a relative below a fair rent, the IRS treats it as personal use, which limits deductions. Ask a tax preparer how this applies to you.

Property tax. Building an ADU doesn't reassess your whole property. Only the new construction is added at market value; your land and house keep their existing assessed value. Expect a supplemental bill after the ADU is finished.

City rental tax. The City of San Diego charges an annual Rental Unit Business Tax on residential rental units. Register with the City Treasurer when you start renting.

Before you list an accessory dwelling unit for rent

A standard homeowners policy is written for a home you live in. Tell your insurer before a tenant moves in and ask whether you need a landlord (dwelling fire) policy or an endorsement for the ADU, how much liability coverage you carry, and whether loss of rent is covered after a fire. Ask your tenant to carry renters insurance for their belongings.

Keep a file for each tenancy: the signed lease, move-in photos, the deposit receipt and every notice you send. Under San Diego's ordinance, landlords must give tenants a notice of their rights, and some terminations must also be reported to SDHC.

If you haven't built yet, compare verified ADU builders in San Diego, check a contractor's license and read how to hire an ADU contractor before you sign.

Common questions