Discover how San Diego County’s changing ADU regulations can create new income opportunities for homeowners—without tapping into savings.

San Diego County is undergoing significant changes to its Accessory Dwelling Unit (ADU) regulations in 2025 due to new state laws. These updates are aimed at increasing housing availability and making ADUs more accessible for homeowners. The key changes include:

• More detached ADUs – Multifamily properties can now build up to eight detached ADUs.
• Easier legalization – Unpermitted ADUs built before 2020 can now be approved.
• Streamlined permitting – By 2026, local governments must simplify the ADU permitting process.
• No owner-occupancy restrictions – ADUs can be rented out without requiring the owner to live on-site.
• Conversion of non-habitable space – Up to 25% of existing multifamily units can be converted into ADUs.
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The Growing Need for ADUs in San Diego County

The rising cost of living, expensive healthcare, and increasing home prices make it difficult for many homeowners to manage daily expenses. Nearly half of the households in San Diego County spend more than 30% of their income on housing costs. Moreover, the county faces a severe housing shortage, with estimates from the San Diego Housing Federation and the California Housing Partnership indicating a need for at least 134,500 additional homes for low-income renters.

To address this issue, San Diego County has set a target to build 171,685 new housing units by 2029, including 99,000 affordable units. As a result, many older homeowners with available space may consider adding an ADU to generate rental income.

The Cost of Building an ADU

The cost of constructing an ADU in San Diego County varies depending on size, design, and complexity. On average, ADU costs range between $180,000 and $300,000, with some projects reaching as high as $580,000 for larger or more intricate units. Given the substantial investment required, homeowners must explore financing options that allow them to generate income while preserving their savings.

Case Study: 

Financing an ADU For Senior Homeowners

Homeowners: Husband (76) and Wife (74)
Home Value: $850,000
Existing Mortgage: $80,000 (Monthly Payment: $850)
ADU Construction Cost: $220,000
Projected Rent from ADU: $2,500 per month

Option 1: Traditional Mortgage Refinance

One way to finance the ADU is by refinancing the existing mortgage to cover the construction costs.

• The new loan includes the existing $80,000 balance plus the $220,000 construction cost.
• Monthly mortgage payments increase, but the net rental income reduces to $1,800 per month after loan payments.
• Homeowners’ monthly mortgage increases to $3,200 a month. 
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Option 2: Use their Home Equity

Another option is utilizing a reverse mortgage to fund the ADU construction for homeowners above the age of 62, or age 55 if using a Jumbo Reverse Mortgage.

• The reverse mortgage pays off the existing $80,000 mortgage.
• The homeowners receive a line of credit of $272,000+, which they can use to cover the construction costs.
• They only pay interest on the funds as it’s being withdrawn, once the ADU is completed No monthly mortgage payments are required, they must pay property taxes and homeowners insurance as long as they live in the home. 
• Their total monthly spendable income has increased by eliminating their $800 mortgage payment and the $2,500 ADU rental to $3,350.
• The ADU enhances the home's value by an estimated 15%, providing long-term financial security.

As San Diego County continues to face a housing shortage, ADUs present a valuable opportunity for homeowners to generate additional income while increasing property value. Financing an ADU requires careful planning, and homeowners should explore options such as refinancing or reverse mortgages to determine the best financial strategy for their needs.



Homeowners can create an additional revenue stream, reduce financial stress, and contribute to the much-needed housing supply in the region. If your client is considering adding an ADU to their property, Introduce them to Retirement In Reverse, your trusted referral partner.