When inquiring about investment properties in San Diego, the first thing to check before the purchase price or rent is what rental regulations apply to that address. Even within California, the level of tenant protection varies by city, so skipping this part and only looking at numbers can lead to unexpected restrictions later on.

Starting with rental levels, the average rent in San Diego is around $2,768 per month as of August 2026 (Zumper). For a 2-bedroom, it can go up to $3,293 (RentCafe). Applying the 1% rule to see if you can receive more than 1% of the purchase price as monthly rent gives a rough idea of where rental levels stand compared to the median purchase price in the area.

Looking at the trend over the past year, San Diego rents have actually seen a slight decline. According to Zumper, the last month was stable, and compared to the previous year, rents are down by 1%, while Zillow shows a decrease of $17 from a year ago. Based on a property priced at $600,000, the 1% rule would suggest a monthly rent of $6,000, but considering that the median rent for a 2-bedroom is around $3,293, it's rare to find properties that meet the 1% rule in this area. However, just because a property doesn't meet the rule doesn't mean it's not a good investment; long-term appreciation should also be considered.

Regarding rental laws, there is no rent control ordinance specific to the city of San Diego. Instead, the Tenant Protection Act, AB 1482, which applies statewide in California, serves as the basic framework. It limits annual increases to the lower of 5% plus the local inflation rate or 10%, with the cap for the San Diego-Carlsbad area set at 8.8% from August 2025 to July 2026. Additionally, a tenant protection ordinance enacted in San Diego in 2023 restricts evictions without just cause and adds notification procedures and relocation fee obligations. It's also important to note that single-family homes, which were previously exempt under AB 1482, are now subject to just cause eviction regulations under this ordinance.

Loan conditions differ from those for owner-occupied homes. Investment loans typically require a down payment of 15% to 25%, which is higher than for owner-occupied properties, and while credit scores can be assessed starting at 620, a score of 740 or higher is usually needed for favorable rates. Interest rates are generally set 0.5 to 0.75 percentage points higher than those for owner-occupied loans (Fannie Mae, Freddie Mac investment property loan guidelines). When considering rental income for loan assessments, banks do not usually recognize 100% of the expected rent. Typically, only up to 75% is counted as income, and a rental schedule attached to the lease agreement or appraisal is required.

The TPO ordinance prevents evictions without just cause and imposes relocation fee obligations for violations. In this structure, frequently changing tenants can become burdensome, so carefully selecting long-term tenants from the start can help reduce costs in the long run. During the loan assessment stage, having the existing lease agreement or rental schedule attached to the appraisal ready can help streamline the process.

In addition to the purchase price, you must also factor in annual expenses. The effective property tax rate in San Diego County is approximately 0.68%. Additionally, landlord insurance is required, which is typically higher than standard homeowners insurance as it includes rental loss coverage and tenant liability. If direct management is challenging, property management fees typically range from 8% to 12% of the monthly rent, and it's common in the industry to set aside about 1% of the asset value annually for maintenance costs.

When the time comes to sell, considering a 1031 exchange can be worthwhile. This allows you to defer capital gains taxes by selling an investment property and reinvesting in a like-kind asset, provided you meet the requirements set by the IRS.

Ultimately, viewing investment properties in San Diego involves putting rental numbers, rental laws, loan conditions, and annual expenses all on one table. This article does not constitute investment or legal advice, and it is recommended to consult with professionals such as tax advisors or real estate attorneys to review individual circumstances before making any agreements.