San Diego’s year round sunshine, beautiful beaches and world class cuisine has always made the city a hot spot for tourists. This led to a rise in properties leased as short term rentals, enabling savvy investors to charge a pretty penny for a short stay.
WHAT IS A SHORT TERM RENTAL?
In the City of San Diego, a short-term rental is defined as a home that is rented out for less than 30 calendar days. For example, a home that is rented from Jan. 1 - Jan. 31st falls under this category. This is important because homes that are rented for a calendar month or longer are exempt from short term rental laws in the City of San Diego. A calendar month refers to a rental that continues from the same calendar day from one month to the next. For example, Jan. 1 - Feb. 1, or Jan. 15 - Feb. 15.
San Diego County, on the other hand, defines a short term rental as less than 30 days; it does not matter if they are “calendar days”.
WHY DOES THIS MATTER?
Depending on where you own your rental property, it matters immensely! In 92127, Del Sur, Santaluz, and Westwood are all a part of the City of San Diego. Rancho Bernardo in the 92128 zip code is as well However, 4S Ranch is NOT! 4S Ranch is unincorporated, and falls under the supervision of the County and the Sheriff’s department.
NEW LAWS IN THE CITY OF SAN DIEGO:
In July 2022, there were over 13,000 short-term rentals in the City of San Diego, the highest concentration of which were in Mission Beach. In early 2021, the City enacted a new law capping whole home rentals to 30% of the total housing units in Mission Beach. A whole home rental means that the entire home is rented out, and the owner does not live in the home. The law gave property owners until November 2022 to apply for a license. The licenses are valid for 2 years, and there is now a waitlist.
The colored areas in this map below shows the the areas that require these licenses in the City of San Diego:
The Application period for Mission Bay whole home rentals (Tier 4 rentals in the chart below) is now closed. The application period for Tier 1, 2, & 3 remains open. As of May 1, 2023, It is now unlawful to operate a short term rental property without a license.
To date the number of available licenses is as follows:
Copyright: The City of San Diego
PERMITS FALL UNDER FOUR CATEGORIES
Under each tier, homeowners are allowed to operate only ONE short-term rental.
Tier 1 is for homes that will be rented out for less than 20 days in a calendar year. The owner does not need to reside in the home.
Tier 2 is for home share permits, where the homeowner occupies the home they are renting out for at least 275 days of the year. The home is their primary residence and includes duplex properties and eligible accessory dwelling units.
Tier 3 covers whole-home rentals outside of Mission Beach that are rented out for over 20 days per calendar year. The homeowner does not need to reside on the property. Guests are required to stay a minimum of two nights, and the total number of Tier 3 permits cannot not exceed 1% of the city’s total housing units, excluding Mission Beach. The total number of Tier 3 licenses will be reevaluated every two years.
Tier 4 is specific to whole-home Mission Beach rentals. The total number of units cannot exceed 30% of the total housing units in this area, and guests must stay a minimum of two nights.
The City of San Diego has hired a consultant to identify unlicensed listings on all home-sharing platforms like Airbnb and VRBO in order to enforce the new law. Unlicensed short term rental homeowners who are caught will be fined. Unpaid penalties or continuing violations may also result in a property lien.
TRANSIENT OCCUPANCY TAXES:
Both the City and the County require you pay a Transient Occupancy Tax (TOT) on the total amount homeowners charge their guests, however, these amounts differ as well. The City of San Diego imposes a 10.5% TOT tax for short term rentals, while the County of San Diego charges 8%. If you aren’t paying this tax, the TOT enforcement board may find you and you will end up paying back taxes on past rentals. This could equate to tens of thousands of dollars, depending on how long you have been operating your rental. And remember that a rental month doesn’t exempt you unless it is a “Calendar month” within the city!
Details about the TOT are below:
So, what’s the solution if you have a current rental property and have been unable to get a license or don’t want to deal with the hassle of reapplying every 2 years?
SELL YOUR HOME
It's a great time to be a seller right now. Property prices in San Diego remain buoyant, and there is a severe shortage of homes for sale, resulting in bidding wars and multiple offers from buyers. If you are thinking about selling please reach out. We would love to help.
LONG TERM RENTALS
Long term rentals are typically 12 months or longer, and are an option if you don’t want to sell. You will build valuable long term equity, and, depending on your circumstances, you may receive monthly rental income. One caveat: be aware of the changing tenant laws here in San Diego, as they are becoming much more tenant friendly. For more information on changes to these laws, read this. If you are not willing to take on the responsibilities associated with being a landlord, you can hire a property manager.
However, due to high property prices in San Diego, depending on your financial situation and how you are planning on funding the deal, investing in a property today renting it out long-term will most likely end up with negative cash flow for a few years.
SWITCH TO A 30 DAY CALENDAR MODEL
This is where we come in! In November 2020, Gavin Newsom signed Assembly Bill 3182 into law. This reduced the minimum rental period that an HOA can enforce on property owners from 6 months down to 1 calendar month. Suddenly, thousands of properties that were a bad investment before suddenly became a good investment for calendar monthly rentals.
Calendar monthly rentals command higher rents as they are fully furnished and all inclusive of utilities and amenities. They don’t require paying 10.5% TOT taxes nor the 8% county TOT taxes. The time required to actively manage them is lower compared to short term rentals. Properties that would negatively cash flow as long-term rentals will often become positive cash flow properties under the calendar monthly rental model. (And you still get the advantage of appreciation while you own it!)
This is the model we use for our own rentals and we have helped many clients do the same. We get numerous calls a week from prospective guests who want to rent our units and we are booked out months in advance. Please reach out to find out more about this model. We would love to help you market your property to our rental contacts. Check out our fleet of rentals here.
