A coastal San Diego rental can look excellent on nightly rates and still fail one question: is the property allowed to earn them? Inside the City of San Diego, a short-term rental needs a license, whole-home licenses are capped, and the license does not come with the house when you buy it. Get that wrong and the income you underwrote does not exist.
This is how the city’s rules work as of October 2026, what an operator collects and pays, how the rest of the county differs, and how we treat short-term income when we size a rental DSCR loan. Rules change, so confirm the details with the city before you write an offer.
What the City of San Diego requires
The city’s short-term residential occupancy ordinance, STRO for short, covers any stay of less than one month in a dwelling unit, in every zone of the city. Operating one without a license has been unlawful since May 1, 2023, according to the city’s STRO page.
Three rules shape everything that follows:
- The license is held by a host, and a host must be a natural person with the legal right to occupy the unit. An LLC cannot be the host.
- A host can hold one license, and operate one dwelling unit for short-term rental, at a time within the city.
- Licenses cannot be transferred to a new owner or a new location.
For an investor, the third rule matters most. The license on a listing you are buying belongs to the seller’s host, not to the house.
The four license tiers
| Tier | What it covers | Cap |
|---|---|---|
| Tier 1 | Home share or whole home for 20 days or less per calendar year | None |
| Tier 2 | Home share in the host’s primary residence for more than 20 days a year | None |
| Tier 3 | Whole home outside Mission Beach for more than 20 days a year | 1% of the city’s housing units outside Mission Beach |
| Tier 4 | Whole home in the Mission Beach community planning area | 30% of Mission Beach’s housing units |
Tiers 3 and 4 are the investor tiers, and both carry a two-night minimum stay. A Tier 3 or Tier 4 license must also be used at least 90 days a year, shown in quarterly reports to the city. For a home that is not the host’s residence, the city’s FAQ says 21 to 89 days a year is not allowed: it is 20 days or less under Tier 1, or 90 days or more under Tier 3 or 4. A casual part-time plan does not fit.
The caps are recalculated every two years from SANDAG housing estimates and cannot fall below the previous period’s count.
Tier 2 is for a host who lives in the home at least 275 days of the year. If that host is you, the property is your residence, not an investment property. Our rental loans are for non-owner occupied property, and a home you live in goes through our owner occupied program.
How licenses are issued, and where the caps stand
The ordinance issues Tier 3 and Tier 4 licenses by lottery when demand exceeds the cap, with a waiting list for complete applications. On September 25, 2026, the city reported:
- Tier 3: 4,854 licenses issued and 807 still available, with applications open.
- Tier 4, Mission Beach: all 1,099 licenses issued. The waitlist application window closed on August 15, 2025, and the waitlist the city published in September 2026 ran to 113 positions.
Under the city’s lottery rule, once the Tier 3 cap is reached the application window closes within 45 days, and a lottery run by community planning area, in proportion to each area’s share of applicants, sets every applicant’s place on a waitlist. Tier 4 reopens for 45 days only when its waitlist is down to 25.
Licenses run for two years. Renewal requires paying on time, complying during the term and filing the required records, and a license is not renewed while a revocation is in progress or within 12 months of one. For Tiers 3 and 4 the city charges a $41 application fee and a $1,129 license fee, both non-refundable.
The operating rules that come with a license
Section 510.0107 of the ordinance sets the operating requirements. The ones that shape a buyer’s plan and budget:
- A local contact on call. The host or a designated local contact must respond to complaints in person or by phone within one hour and act to resolve them. If you do not live nearby, budget for a manager who can.
- The license number on every listing. The TOT certificate number and license number go on all advertisements, and hosting platforms may not process bookings for a unit without a valid license on the city’s registry.
- An exterior notice. An 8.5 by 11 inch sign visible from the sidewalk shows the TOT certificate number, the license number and the contacts for the host and city code enforcement.
- A Good Neighbor Policy. Every guest receives one covering occupancy limits, parking, trash and the city’s noise rules.
- Safety and conduct. Human trafficking reporting guidance posted inside, an awareness course for the host, current California Fire Code compliance and no business signs on the premises.
Accessory dwelling units are out. The STRO page states that the municipal code prohibits short-term rental of ADUs, except companion units permitted before the October 15, 2017 prohibition, and the city’s ADU rules set a minimum rental term of 31 consecutive days. On a property with a newer ADU, plan the ADU on long-term rent; the main home is the only candidate for a short-term license.
The taxes an operator collects and pays
Short-term stays in the city carry transient occupancy tax, collected from guests at the same time as the rent. Since May 1, 2025, under Measure C, the TOT rate is 11.75%, 12.75% or 13.75% of the rent, depending on which of three tax zones the property sits in; the city’s lookup map shows the zone. The operator holds the tax in trust and remits it monthly, and a non-refundable cleaning fee counts as rent. A platform that collects the rent also collects and remits the tax, but the city’s Measure C guidance puts the responsibility for getting it right on the operator.
The 2.00% Tourism Marketing District assessment applies only to lodging businesses with 70 or more rooms, so it does not reach a single home. An owner who rents a property for more than six days in a calendar year also owes the city’s annual rental unit business tax, and a host who is not the owner needs a business tax certificate.
Outside the city limits, check the city the property is in
The STRO ordinance stops at the city line. Each city in the county writes its own rules, and these were current on official city pages in October 2026:
- Oceanside: a permit is generally required, and new non-hosted rentals have been prohibited outside the Coastal Zone since February 10, 2024.
- Carlsbad: short-term vacation rentals are allowed only in the Coastal Zone or the La Costa Resort and Spa Master Plan area.
- Encinitas: a permit is required for a single-family home or duplex, multifamily units cannot be rented short term, and ADUs are excluded apart from grandfathered permits.
- Del Mar: an ordinance certified by the Coastal Commission on February 5, 2026 caps short-term rentals at 129 citywide, and new owners join a waitlist.
- Solana Beach: its own permit process covers rentals of 7 to 30 consecutive days.
- Coronado: short-term vacation rentals are prohibited in residential zones, and rentals must run at least 26 consecutive days.
- Unincorporated county: operators register with the County Treasurer-Tax Collector and collect its 8% TOT, and the county notes that its TOT certificate is not a permit to operate.
Confirm the jurisdiction from the parcel, not the mailing address. The city’s STRO page points to its council district map, and the county ties each parcel to a tax rate area.
How we look at short-term income on a DSCR loan
A DSCR loan qualifies the property on its income: the rent divided by the full payment of principal, interest, taxes, insurance and any association dues. Our rental DSCR loan permits short-term rental income. It is documented with a market rent analysis and, where one exists, the booking history: platform statements or management reports, with twelve months the common ask because it captures a full season.
Lenders generally treat nightly income more conservatively than a signed lease, so the same gross number tends to support a smaller loan. Our guide to short-term rental loans covers the expense picture lenders expect, and DSCR loans explained walks through the ratio. The minimum ratio for a specific property is quoted per deal.
Underwrite the income the property can legally earn
This is where the city’s rules meet the loan. A seller’s booking history was earned under the seller’s license, and that license does not transfer. Before you count a dollar of short-term income, answer three questions:
- Which jurisdiction and, in the city, which tier does the property need?
- Can you get that license? Tier 4 is full and its waitlist is closed. Tier 3 had licenses available in late September 2026, but you need a host who does not already hold one, and applications close within 45 days of the cap being reached.
- Can you meet the use rules: 90 days a year, the two-night minimum and a contact who answers within the hour?
If any answer is no or unknown, underwrite on the long-term rent and treat short-term income as upside. Run both cases in the DSCR calculator. A deal that works on long-term rent survives a rule change; a deal that only works on income the property cannot legally earn is not a deal.
If you will hold the property in an LLC, the license still sits with a person. The city’s July 2026 rule accepts LLC documents showing the host as a managing member as the right-to-occupy document, and a host who is not the owner also needs a business tax certificate. Our post on LLC vesting for investment loans covers the loan side.
The San Diego payment side
On the coast the rent is rarely the weak side of the ratio. The payment usually is.
Property tax resets on purchase. Under Proposition 13 the assessor reassesses a property to current market value when ownership changes, per the Board of Equalization. Underwrite the tax on your price, not the seller’s bill.
Mello-Roos in newer communities. Master-planned neighborhoods often sit in a community facilities district under the Mello-Roos Community Facilities Act, which adds a special tax. Get the annual amount before you offer.
Insurance and dues. A short-term rental needs coverage written for that use, so get a real quote early. Condo dues count in the payment, and an association can prohibit short-term rentals the city would allow.
Our rental DSCR terms
Our rental DSCR loan publishes rates from 6.50% to 9.99% on the Non-QM tier, up to 80% LTV and 5, 7, 30 and 40 year fixed terms, with a 620 minimum credit score. It covers non-owner occupied single family homes, condos and townhomes, and 2 to 4 unit buildings. First-time investors are accepted, short-term rental and ADU income are permitted and there is no prepayment penalty. Points are quoted on the Letter of Intent. Rates are subject to change and every loan is subject to underwriting.
The vacation rental scenario shows how we structure these files, and our San Diego DSCR loans page covers the local cost lines. When you have a property, send the address, the price, the license status or plan and the long-term rent through a loan request, or call (619) 617-2797. We will tell you which income we can count and where the ratio lands.
