Thinking about buying in Denver so you can add an ADU for rental income or flexibility? You’re not alone. ADUs can lower your monthly costs, create space for family, or add long-term value. In this guide, you’ll learn how to confirm what’s allowed on a specific lot, which site and code items matter most, how lenders view ADUs, and a practical checklist to use before you write an offer. Let’s dive in.
What an ADU is in Denver
An accessory dwelling unit is a smaller, secondary home on the same lot as a primary residence. You’ll see three common formats: internal conversions like basements or garage studios, attached additions, and detached backyard cottages. In Denver, owners use ADUs for house-hacking, long-term rentals, multi‑generational living, or as studios and offices. Short-term rentals are regulated locally, so you need to confirm the rules before planning that use.
Start with zoning and permits
Denver regulates ADUs through the City and County of Denver’s Community Planning & Development and the Denver Zoning Code (Title 12). Whether an ADU is allowed is site-specific and depends on your property’s zoning district, overlays, lot features, and building code.
Confirm your zoning district
Your first step is to identify the zoning designation and whether it allows attached or detached ADUs by right. Check size limits, height, setbacks, lot coverage, and any parking provisions. Because ordinances and interpretations change, confirm current rules directly with Denver planning staff before you rely on an online map or listing remarks.
Watch overlays and HOAs
Historic or landmark districts and specific plan areas may require design review and can narrow what you can build or convert. Private communities and HOAs often have CC&Rs that limit or prohibit ADUs even when the city allows them. Always review recorded deed restrictions and HOA documents early.
Use pre-application with Denver
For clearer answers before you buy, request a zoning confirmation or schedule a pre-application discussion with Community Planning & Development. Getting guidance in writing can help you avoid surprises during permitting and construction.
Lot, alley, and site constraints
Reading the code is only half the story. Physical conditions on your lot can expand or limit what’s possible.
Size, setbacks, and height
Detached ADUs must fit within rear and side yard setbacks and height limits that are often lower than the main house. Conversions are constrained by the existing structure and habitable space code requirements. Lot coverage rules and floor-area caps may also limit the footprint.
Alleys, driveways, and access
Alley access can simplify circulation and separate entrances for a detached ADU. It also makes garage conversions more practical. If the lot lacks an alley, you may still be able to build an ADU, but plan carefully for driveway placement, privacy, and on-site parking impacts.
Easements and utilities
Utility easements, sewer laterals, and rights-of-way can block building locations or add cost to connect services. Review a current survey and utility locations so you do not design over a no-build area.
Historic and environmental limits
Historic or conservation overlays can trigger design review and material standards. Floodplain or other environmental overlays may require mitigation or restrict where you can build.
Building code and utility basics
Even when zoning allows an ADU, building code and utility capacity must still pencil out.
Habitable space requirements
Minimum ceiling heights, egress windows, smoke and CO detectors, fire separation, plumbing, HVAC, and energy code are common checkpoints. Older basements may need structural and egress upgrades to be code-compliant as a legal dwelling.
Utility meters and capacity
An ADU often requires added sewer capacity, a larger water tap, and electrical service upgrades. Some utilities may require separate meters for a separate dwelling unit, while others allow shared service. Policies and fees vary, so budget for potential upgrades.
Parking and neighborhood controls
Parking provisions for ADUs can change based on proximity to transit and local neighborhood rules. Confirm the current Denver requirements and whether any residential parking restrictions apply on your block.
Financing your ADU plan
Lenders treat ADUs differently, and programs change. Talk with a mortgage professional early, preferably before you write an offer on a home you intend to expand.
Common loan options
- Cash or private capital for speed and flexibility.
- Cash-out refinance after you build equity in your primary residence.
- Construction-to-permanent or single-close construction loans that convert after completion.
- Renovation mortgages like FHA 203(k) or Fannie Mae HomeStyle Renovation when eligible.
- HELOCs or home equity loans if you have sufficient equity.
- Portfolio or local bank loans that may be more flexible for ADU scenarios.
How lenders view rental income
Some lenders will count a portion of documented ADU rent for qualifying, while others require projected rents with local comps. For a newly created ADU, income may not be counted until it is leased and verified. Ask how the lender will treat ADU income and whether they consider the ADU part of the collateral.
Budgeting and cost drivers
Conversions are often less expensive per square foot than a new detached build, but the condition of the existing structure matters. Major cost drivers include foundation or structural work, utility connections and capacity upgrades, site prep, framing and enclosure, finishes, kitchens and baths, permits and fees, and design or engineering. Include a contingency for older homes and unknowns.
Smart use cases in Denver
House-hacking
Live in the main home and rent the ADU, or live in the ADU and rent the main home to reduce your monthly costs. Clarify your occupancy plans with your lender and tax advisors.
Long-term rentals and STRs
Long-term rentals provide steady income and are governed by landlord-tenant laws. Short-term rentals can be attractive, but Denver requires registration and compliance. Confirm current Denver STR rules before you model revenue.
Multi-generational and workspace
ADUs can support aging parents, adult children, or caregivers. They can also serve as a home office or studio. Check zoning and occupancy rules if you plan business use in the space.
Taxes, insurance, and legal implications
Property taxes and income taxes
Adding an ADU can change assessed value and property taxes. Rental income is taxable, and you may be able to deduct eligible expenses and depreciation. Short-term rentals often trigger local lodging tax registration and collection.
Insurance and liability
Your insurer may require endorsements for a detached unit and landlord coverage if you rent it. Consider umbrella liability coverage, especially if you plan to host tenants.
Landlord-tenant and STR rules
Colorado and Denver landlord-tenant laws govern long-term rentals, and STRs follow separate rules and taxes. Review local requirements to stay compliant.
Pre-offer feasibility checklist
Before you bid on a Denver home for an ADU strategy, use this quick, practical checklist:
- Zoning confirmation: Identify zoning and overlays. Consider a formal zoning verification or pre-application conversation with planning staff.
- HOA and deed review: Pull CC&Rs to see if private rules limit or prohibit ADUs.
- Survey and utility locate: Confirm lot lines, easements, and service locations and capacity.
- Alley and access: Note alley presence and condition, curb cuts, and access logistics for tenants and construction.
- Preliminary sizing: Sketch a likely footprint or conversion area and compare to setbacks, height, and lot coverage.
- Cost estimate: Ask an ADU-experienced contractor or architect for a ballpark, including utilities, permits, and contingency.
- Financing pre-check: Confirm loan options, treatment of ADU rental income, and whether the ADU will be considered in collateral.
- Market rent comps: Gather comps for similar small units in the neighborhood to estimate gross income.
- Timeline: Ask about permitting and construction timelines. Expect weeks to months for approvals.
- Specialists: Line up an architect or designer familiar with Denver ADUs, a contractor with local experience, and advisors for tax and legal questions.
Your next move
An ADU can be a smart wealth-building tool in Denver, but success hinges on zoning, site realities, code compliance, and financing that fits your plan. If you want to buy with an ADU strategy, start due diligence early and get key answers in writing. When you are ready, our team can help source the right lots, coordinate feasibility checks, and connect you with local pros who build ADUs every day.
Ready to explore ADU-friendly homes across Denver? Reach out to the Kissel Group for a clear plan from search to keys.
FAQs
How do I confirm if a Denver property allows an ADU?
- Identify the zoning district, check overlays, and contact Community Planning & Development for a zoning confirmation or pre-application review.
What if the lot has no alley access?
- You may still build an ADU, but plan carefully for driveway placement, privacy, and parking since alleys often simplify access and circulation.
Can I use a Denver ADU as a short-term rental?
- It depends on current city rules and registration requirements, so verify the latest STR regulations before you underwrite that use.
How do lenders treat ADU rental income when I buy?
- Policies vary; some count a portion of verified or projected rent, while others require a lease in place before they include income in qualifying.
What drives ADU construction costs in Denver?
- Utility upgrades, foundation or structural work, kitchens and baths, site prep, permits and fees, and design or engineering are the biggest drivers.
Do HOA rules override Denver’s ADU zoning?
- Yes, private CC&Rs can restrict or ban ADUs even if local zoning allows them, so review HOA documents early.
Will an ADU increase my property taxes in Denver?
- Adding a new dwelling unit can change your assessed value, which may increase property taxes depending on the assessor’s evaluation.
