Thinking about adding a backyard cottage or converting your basement into an income-producing suite? You’re not alone. Denver homeowners and investors are turning to accessory dwelling units to create flexible housing and new revenue. This guide simplifies what counts as an ADU, how Denver treats them, what they cost, and how they can affect resale value and rent potential. You’ll leave with a clear path to check feasibility and plan your next steps. Let’s dive in.
What counts as an ADU
An accessory dwelling unit is a self-contained secondary home on the same lot as your primary residence. It has its own entrance, kitchen, bathroom, and living/sleeping space.
Common ADU types
- Internal or attached unit, such as a basement suite or attic conversion.
- Attached addition that connects to the main home.
- Detached cottage or carriage house located in the backyard.
- Garage or accessory structure conversion.
Typical uses
- Long-term rental to generate steady income.
- Short-term rental if licensed and allowed by local rules.
- Housing for family members to support multigenerational living.
- Flexible space for an office or to live in while you lease the main home.
Denver ADU rules to know
Denver allows ADUs in many residential zones, sometimes by right if your plan meets development standards. Because rules can change, you should verify parcel-specific details with City and County of Denver planning and zoning staff and review the Denver Zoning Code.
Where ADUs are allowed
- Many residential districts permit ADUs when you meet size, height, setback, and design standards.
- Overlay or conservation districts can add or change requirements.
- Some projects may need special reviews if they do not meet by-right standards.
Key standards to check
- Maximum unit size based on lot or primary home size.
- Height and story limits for detached cottages.
- Setbacks from property lines and separation from the main home.
- Lot coverage or floor area ratio impacts.
- Parking requirements or possible waivers.
- Design compatibility, including materials and roof form.
STR, occupancy, and licensing
- Short-term rental use requires licensing through the City’s Department of Excise and Licenses and must follow zoning and STR rules.
- Some jurisdictions require owner occupancy or set limits on rental type. Confirm current Denver requirements with City staff before you plan around STR income.
Historic areas and HOAs
- Historic districts and landmark properties have added review and design controls.
- HOA covenants may restrict or prohibit ADUs even when the city allows them. Check your covenants early.
Utilities and service
- Plan for sewer and water taps, potential utility upgrades, and connection fees.
- Confirm whether separate meters or shared services are required for your design.
Permitting steps and timeline
Every site is different, but most Denver ADUs follow a similar path from concept to occupancy. Local queue times and review complexity can affect speed.
1) Feasibility check
- Confirm your parcel’s zoning, lot size, overlays, and any historic status.
- Review setbacks, height limits, lot coverage, and parking.
- Identify HOA restrictions and easements.
- Discuss utility capacity and tap fees with the relevant departments.
2) Concept and design
- Engage an architect or designer experienced with Denver codes.
- Consider a pre-application conversation with planning staff for feedback.
- Prepare drawings that meet building and energy codes.
3) Zoning and permits
- Submit plans for zoning review and building permit review.
- Expect building, electrical, plumbing, and mechanical permits, plus any separate utility or demolition permits.
- Respond to plan review comments and resubmit as needed.
4) Construction and inspections
- Schedule inspections at key phases like footings, framing, rough-in trades, and final.
- Secure final sign-off or a Certificate of Occupancy before using the unit as a separate dwelling.
Typical timeframes
- Feasibility and design: 2 to 12+ weeks.
- Permit review and approval: a few weeks to several months.
- Construction: weeks for a small conversion, several months for a new detached unit.
- Overall: many projects take 4 to 12 months from concept to occupancy.
Costs and how to budget
Budget depends on the type of ADU, site conditions, and finish quality. Get multiple local bids to refine your numbers.
Cost ranges by ADU type
- Interior conversion is typically the least expensive, from the low tens of thousands into the mid five figures depending on systems and code upgrades.
- Attached addition or garage conversion is mid-range due to exterior and structural work.
- Detached new-build cottages are usually the most expensive, often in the upper five-figure to low six-figure range depending on size, utility runs, and finishes.
Major cost drivers
- Unit type, size, and level of finishes.
- Site work, foundations, and grading.
- Utility extensions and tap fees.
- Structural changes and building or energy code upgrades.
- Labor and material market conditions.
- Accessibility or universal design requirements.
Soft costs to plan for
- Design and engineering fees.
- Permit and plan review fees.
- Inspection fees and potential impact or tap fees.
Financing options to explore
- Cash, home equity loan, or HELOC.
- Cash-out refinance.
- Renovation or construction loans, including products similar to 203(k), depending on lender offerings.
- Owner-builder or private capital.
- Local grants or incentives, when available. Check current Denver and Colorado programs.
Value and income impact
ADUs can add value through usable space and rental potential, especially when the unit is well built and fully permitted. Market acceptance varies by neighborhood and buyer profile, so your results depend on quality, legality, and local demand.
How ADUs affect resale
- A permitted, code-compliant ADU usually produces stronger resale impact than an unpermitted conversion.
- Where ADUs are common and in demand, buyers often price in income potential.
- Expect assessed value and property taxes to rise when you add an ADU.
Estimating rents and ROI
Use a structured approach so you can compare scenarios.
- Survey comparable studios and 1-bedroom rentals near your property.
- Estimate gross rent: monthly rent x 12 months.
- Estimate expenses: vacancy, utilities you pay, maintenance, taxes, insurance, and management.
- Net operating income (NOI) = gross rent minus expenses.
- Approximate added value: NOI divided by a market cap rate appropriate for small rentals.
- Payback estimate: total project cost divided by net annual income to find years to recover cost before taxes or appreciation.
Label these as estimates and adjust with real bids, lender input, and local comps that include legally permitted ADUs.
Denver feasibility checklist
Use this quick list to frame your early homework and conversations with the City and your project team.
- Verify zoning, overlays, and whether ADUs are allowed by right on your parcel.
- Confirm setbacks, height, lot coverage, and any FAR constraints.
- Check historic district or landmark status and HOA covenants.
- Determine parking requirements and whether a waiver is possible.
- Evaluate utility capacity and tap fees for water and sewer.
- Complete a rent survey of comparable nearby units.
- Gather quotes from 2 to 3 designers and contractors with recent ADU experience.
- Ask the assessor and your insurer about tax and policy impacts.
- Review financing options with a local lender and confirm if ADU income can count for qualification.
- If planning STR use, review Denver’s STR licensing rules and eligibility.
Who to involve locally
- City planner or planning counter staff for parcel-specific interpretation.
- Licensed architect or designer who has completed Denver ADUs.
- General contractor with recent ADU projects in Denver.
- Lender experienced with renovation or construction financing.
- Real estate agent or appraiser familiar with ADU valuation and comps.
- Insurance agent who understands rental and ADU coverage.
Next steps
- Start with a parcel check: zoning, overlays, HOA rules, utilities, and historic status.
- Sketch your concept and consult an architect or contractor for scope and a preliminary budget.
- Speak with City planning and permit staff to align your design with current standards and timelines.
- Run a rent and ROI estimate using the method above, then refine with local comps and lender input.
If you want construction-informed guidance on feasibility, value, and rental potential, connect with a local team that knows Denver codes and small-unit valuation. We combine 30-plus years of Colorado real estate and hands-on construction experience to help you plan with confidence. Reach out to Nick Evancich when you are ready to talk options.
FAQs
Are ADUs legal in Denver right now?
- Many residential zones allow ADUs when you meet development standards. Always confirm your parcel’s current allowances with City planning staff and the Denver Zoning Code.
How long does a Denver ADU take from start to finish?
- Most projects run 4 to 12 months from concept to occupancy, depending on design time, permit queue, complexity, and whether you build new or convert existing space.
How much does a detached ADU cost compared with a conversion?
- Detached new-build units are typically the most expensive, often in the upper five-figure to low six-figure range. Interior conversions are usually less, often in the low tens of thousands into the mid five figures.
Can I use my ADU as a short-term rental in Denver?
- Possibly, but you must follow Denver’s STR licensing and zoning rules. Verify your eligibility and permit path with the Department of Excise and Licenses and City planning staff.
Will an ADU raise my property taxes and insurance?
- Yes, often. Adding a permitted ADU can increase assessed value and may change insurance needs. Check with the assessor and your insurance provider.
Do I need to live on-site to rent an ADU in Denver?
- Occupancy and rental requirements can vary and may change. Confirm current rules with City planning staff before relying on ADU income.
