ADUs In Denver: What Buyers And Owners Should Know

Thinking about an accessory dwelling unit on your Denver property or shopping for a home with one already built? You’re not alone. ADUs can unlock rental income, create space for guests, or make multigenerational living easier. In this guide, you’ll learn how ADUs work in Denver, what to check before you buy or build, and how they can affect value, financing, taxes, and everyday life. Let’s dive in.

What an ADU is in Denver

An accessory dwelling unit is a secondary, self-contained home on the same lot as a primary single-family house. It has its own sleeping area, bathroom, and kitchen, and often a separate entrance and utilities.

Types of ADUs

• Detached ADU: A small, separate structure in the backyard.
• Attached ADU: A new addition connected to the main home.
• Internal ADU: A converted basement, attic, or interior space.
• Junior ADU (JADU): A smaller unit carved from existing space where allowed.

Why ADUs matter for buyers and owners

ADUs can provide steady rental income, flexible living arrangements, and more options for guests or caregiving. They may increase marketability when you sell, especially when fully permitted. The legal status of the unit, plus how it is operated, can influence financing, insurance, taxes, and neighborhood fit.

Denver rules to know first

Local rules change and vary by property, so your first step is to confirm specifics for your parcel with the City and County of Denver. Key departments include Community Planning and Development, the Denver Permitting Center, Denver Water, Xcel Energy, and, for short-term rentals, Denver Excise & Licenses. Historic districts and homeowners associations may add their own rules.

Zoning basics to verify

Before you design anything, confirm whether an ADU is permitted on your lot. Check if it is allowed by right or requires a special review. Verify maximum size, height, setbacks, lot coverage, and whether parking is required. Ask about any owner-occupancy rules and whether your zone is single-family, multi-family, or mixed-use.

Permits and approvals you’ll likely need

Most ADUs require a building permit with architectural and site plans, plus structural, electrical, plumbing, and mechanical permits. Expect multiple inspections for framing, electrical, plumbing, insulation, and a final certificate of occupancy. In historic districts, design or preservation review may apply. Utility steps can include water and sewer connection rules and service capacity checks.

Short-term rentals and ADUs

If you plan to short-term rent an ADU, Denver requires registration and licensing through the Department of Excise & Licenses. Safety, licensing, and notification rules can apply, and policies evolve. For non-owner-occupied scenarios, confirm the latest requirements before you invest.

HOAs and restrictive covenants

Even when city zoning allows an ADU, HOA covenants can prohibit or limit it. Review CC&Rs and any architectural review process early. Written confirmation helps you avoid surprises.

Unpermitted or “grandfathered” units

Some older properties have unpermitted ADUs. This affects financing, insurance, and future remodeling. Always verify permit history, inspection records, and the certificate of occupancy to confirm legal status. Bringing an unpermitted unit up to code can require time and added cost.

Costs, timelines, and financing

ADU budgets vary with the type of build, site conditions, and finish level. In Denver’s urban market, labor and material costs can be volatile, so plan conservatively and get multiple contractor bids.

What drives cost

• Type: Detached builds often cost more than conversions due to foundations and utilities.
• Size and finishes: Larger footprints and higher-end finishes add up quickly.
• Site work: Grading, access, and utility trenching can impact cost.
• Utilities: Separate meters, tap fees, and capacity upgrades may be required.
• Professional services: Architectural and engineering plans are part of most projects.

Typical timelines

Permitting can take weeks to months depending on complexity and city workload. Conversions may build out in a few months, while detached ADUs often take 6 to 12 months or more. Ask about current review times and schedule contingencies for inspections and weather.

How to finance an ADU

Common options include home equity lines, home equity loans, cash-out refinances, and renovation or construction loans. Some buyers use FHA 203(k), Fannie Mae Homestyle, or private construction financing. Lenders may consider rental income if the ADU is legal and income is documented, but underwriting varies, so consult a local lender early.

Taxes and utilities

Rental income is taxable, and you may be able to deduct certain expenses and depreciation. Property tax assessments can increase as you add livable square footage. For utilities, separate water or sewer taps and meters may add fees; shared setups affect who pays which bills and how you structure leases.

Insurance

Notify your insurer if you add or rent an ADU. You may need an endorsement or separate coverage for a rented unit. If you operate a short-term rental, confirm whether a specialized policy is required.

Buyer checklist: purchasing a Denver home with an ADU

Use this quick list to protect your purchase and future plans:

• Confirm legal status: permit history, inspections, and certificate of occupancy.
• Verify zoning compliance and whether expansions or changes are possible.
• Review leases and rental history; get documentation of income and deposits.
• Check utilities: separate meters or shared service, and water/sewer tap records.
• Confirm parking arrangements, deed restrictions, and HOA rules.
• Ask your lender about ADU financing and appraisal considerations.
• Verify life-safety features: egress windows, smoke/CO alarms, and safe exits.
• Consider resale: some buyers value income units, others prefer larger yards or more parking.

Owner checklist: planning and operating an ADU

If you’re adding or formalizing an ADU, start here:

• Run a zoning and feasibility check for your lot.
• Decide the ADU type: conversion, attached addition, or detached build.
• Engage an architect or ADU specialist for plans and permitting.
• Obtain all building, electrical, plumbing, and mechanical permits.
• Plan utilities: shared vs. separate meters, HVAC, and insulation to code.
• Consider accessibility features if the unit is for family use.
• Choose rental strategy: long-term lease or short-term rental, and confirm rules.
• Keep organized records: permits, inspections, receipts, and as-built drawings.

Valuation, income, and resale

How appraisers view ADUs

Appraisers look for comparable sales with legal ADUs, permitted square footage, and rental income potential. Legal status and documented income can improve appraised value and financing prospects. Clear records and a certificate of occupancy help.

Rental options and management

You can self-manage or hire a property manager for long-term rentals. Short-term rentals require city licensing and compliance with local rules. Habitability standards and landlord obligations apply to ADU tenants the same as any rental.

Safety and code basics

ADUs must meet building and life-safety codes. Pay attention to egress, fire separation for attached units, smoke and CO alarms, ceiling heights, and ventilation. Energy code requirements may affect mechanical systems and insulation.

Common Denver scenarios

Basement or garage conversions

Conversions can be more cost-effective than building new, but still require permits and code upgrades. Expect to address egress, plumbing, insulation, and ventilation. Confirm structural needs and ceiling heights before you design.

Small lots and setbacks

Detached ADUs need to fit within setback, lot coverage, and height limits. Site constraints can shift you toward a smaller footprint or an internal conversion. A feasibility check early in the process saves time and redesigns.

Historic districts and neighborhood context

Historic or conservation overlays may require design review. Aligning exterior finishes and massing with neighborhood character can smooth approvals. Thoughtful landscaping and fencing also support privacy and neighbor relations.

Next steps

• Start with zoning confirmation and a feasibility consult for your specific lot.
• Price out options with at least two to three local contractors and include contingency.
• Talk with a lender about financing and potential consideration of rental income.
• Map the permitting path and inspection timeline so your schedule is realistic.

If you are weighing ADU potential in a home you want to buy or sell, you deserve clear guidance, smart pricing, and strong negotiation. Connect with Ryan Haarer to evaluate ADU value, navigate due diligence, and craft a strategy that fits your goals.

FAQs

Are ADUs allowed on my specific Denver lot?

• Check your parcel’s zoning, then confirm setbacks, height, lot coverage, parking, and any overlays or historic rules with the City and County of Denver.

Can I rent out an ADU long term in Denver?

• Long-term rentals are generally possible when the ADU is legal and permitted, but you must follow local landlord-tenant laws and any HOA rules.

Can I use an ADU as a short-term rental in Denver?

• Short-term rentals require registration and licensing with Denver’s Department of Excise & Licenses, plus compliance with safety and notification requirements.

How much does it cost to build an ADU in Denver?

• Costs vary widely by type, size, finishes, utilities, and site work; get multiple local contractor bids and include a contingency for volatile materials and labor.

Can I convert my garage or basement into an ADU?

• Often yes, if it meets zoning and building codes for egress, insulation, plumbing, mechanical systems, and minimum heights, and you obtain required permits.

Will an ADU hurt or help my resale in Denver?

• A legal, permitted ADU often increases marketability and clarifies financing; unpermitted units can limit buyer pools and require costly remediation or upgrades.