If you’re a homeowner or investor in San Diego, you may have heard about Junior Accessory Dwelling Units (JADUs) as a way to create affordable housing or generate rental income. But before you start converting that extra bedroom or garage, it’s crucial to understand the legal and financial restrictions that come with JADUs.

Recently, I worked on an escrow for a property in Lemon Grove that had both a JADU and an ADU—and the sale quickly became complicated due to a major restriction:

The JADU required owner-occupancy, meaning the property could only be sold to a buyer who planned to live there. This dramatically limited the buyer pool. On top of that, Fannie Mae and Freddie Mac do not lend on properties with both a JADU and an ADU, making traditional financing nearly impossible.

This situation highlights why homeowners and investors must understand the risks before adding a JADU to their property. So, what exactly is a JADU, and how could it impact your ability to buy, sell, or finance a home?

What Is a JADU?

A JADU (Junior Accessory Dwelling Unit) is a small, secondary living space created within an existing single-family home. Unlike a full Accessory Dwelling Unit (ADU), a JADU must be attached to the primary residence and is limited to 500 square feet. It must include a small kitchen but can share a bathroom with the main home.

Can You Have Just a JADU Without an ADU?

Yes, a property can have just a JADU without an ADU. Many homeowners convert a spare bedroom, garage, or other existing space into a JADU for extra living space or rental income.

However, there are some key legal and financial restrictions to consider before adding a JADU to your property.

Understanding the Hidden Restrictions on JADUs

While JADUs may seem like a great way to add rental income or flexible living arrangements, many homeowners don’t realize the strict legal and financial limitations they come with.

My recent work for a property in Lemon Grove that had both a JADU and an ADU is an example of a situation that quickly became complicated due to the following restrictions:

1. Owner-Occupancy Is Required

If a property has a JADU, the owner must live in either the main home or the JADU. This means:

• Investors cannot purchase the property to rent out both units.
• If the home is owned by an LLC or corporate entity, selling the property can be complicated due to the owner-occupancy requirement.

2. A JADU Cannot Be Sold Separately

Unlike ADUs, a JADU is permanently tied to the main home and cannot be split into its own legal property.

3. Financing Challenges

Financing properties with JADUs can be difficult.

• Fannie Mae and Freddie Mac currently do not lend on properties that have both an ADU and a JADU.
• Many lenders do not count JADUs as separate rentable units, which can impact loan qualification.
• Buyers may need to pay cash or use private lending, which limits resale options.

4. Deed Restrictions Run with the Land

If a JADU is created, certain deed restrictions may apply, which remain in effect even when the property is sold. A recent deed restriction example included:

• The JADU cannot be sold separately from the main home.
• The property must be owner-occupied. The owner can live in either the primary home or the JADU.
• Development standards must conform to local zoning codes.

5. Legal Enforcement Can Be Costly

If a homeowner violates JADU restrictions, cities or impacted parties can take legal action. Courts may award attorney fees to the prevailing party, making legal disputes expensive.

What This Means for Homeowners & Investors

If you’re considering adding a JADU in San Diego, keep these factors in mind:

• You must live on the property – You cannot rent out both the main home and JADU unless you live in one of them.
• Your buyer pool is smaller – Since the property must be owner-occupied, selling to investors is limited.
• Financing options are scarce – Buyers may need to pay cash or use private loans, making resale harder.

The Bottom Line

So, what is a JADU? It’s a small, attached living space that can provide additional housing options, but it comes with strict rules on ownership, rental, and financing.

If you’re thinking about adding a JADU to your San Diego property, make sure you understand these restrictions first—otherwise, you may find yourself with a property that’s much harder to sell or finance than expected. And remember, you can always contact us – we’re available to discuss your options and property investment goals.