Thinking about adding an accessory dwelling unit to your Denver property? You’re not alone. ADUs can create flexible space for family, generate rental income, and boost long-term value, but the rules and steps are different in Denver than in other cities. In this guide, you’ll learn the key checkpoints for zoning, permits, utilities, financing, taxes, insurance, and rental rules so you can plan with confidence. Let’s dive in.
Start with Denver zoning
Before design or financing, confirm whether your lot allows an ADU and what type you can build. Denver’s zoning determines feasibility, size, and placement on your property. A quick zoning check can save weeks of rework later.
Key items to verify for your specific zone:
- Allowed ADU types: detached, attached, or internal conversion.
- Setbacks, height limits, and lot coverage for detached structures.
- Maximum number of dwelling units allowed on the lot.
- Size limits for the ADU relative to the primary home or absolute caps.
- Parking requirements and whether any waivers apply.
- Owner-occupancy rules, if any, and access/egress requirements.
If your lot has dimensional challenges, you may explore a variance or special review. Build in extra time for applications, fees, and potential neighborhood input. A pre-application conversation with Denver Community Planning & Development is a helpful early step.
Permits, code, and inspections
ADUs require permits and inspections to meet building, safety, and energy standards. Plan for a structured process from plan review through final sign-off.
Typical permits and reviews include:
- Building permit with plan review and staged inspections.
- Electrical, plumbing, and mechanical permits.
- Possible electrical service upgrade application with your utility.
- Site-related permits for driveways, retaining walls, or drainage if needed.
Expect sequential inspections for foundation, framing, rough-ins, and final. Confirm the current building and energy code editions Denver has adopted before you finalize plans. Pay close attention to egress, smoke and carbon monoxide detectors, and required fire separation between units.
Utilities and site planning
Utility capacity and site features can shape both design and budget. Address these early to avoid surprises during construction.
- Water and sewer: Coordinate with Denver Water to confirm service capacity, meter needs, and any tap or upgrade fees. New impervious surfaces or detached structures may trigger stormwater considerations.
- Power and gas: If you need more electrical capacity or plan to electrify the ADU, coordinate service additions or upgrades with your utility provider.
- Access, parking, and waste: Plan for a clear path of access to the ADU, confirm any curb cut or driveway permits, and understand trash/recycling rules on multi-unit lots.
- Site constraints: Lot slope, mature trees, and recorded easements can limit where a detached ADU can sit.
Long-term and short-term rental rules
Your intended use affects licensing and compliance.
- Long-term rental: Denver requires rental registration and safety compliance for rental properties. Confirm current local licensing rules and inspection standards and whether the ADU needs a separate license.
- Short-term rental: Denver has a defined licensing program for STRs that includes registration, lodging tax compliance, and safety requirements. Rules for ADUs can be different from long-term rentals, and enforcement can include fines or license revocation for noncompliance.
Always confirm zoning, HOA covenants, and licensing requirements before advertising a rental.
Financing your ADU
The right financing depends on your budget, timeline, and how you plan to use the space.
Common options include:
- Home equity loan or HELOC.
- Cash-out refinance.
- Construction loan or construction-to-permanent loan.
- Personal savings or private lending.
Lenders look at loan-to-value, credit, and whether projected rent can be used to qualify. Policies vary by lender and loan type, so speak with lenders early. Build a complete budget that includes design and engineering, permits and impact fees, utility taps or upgrades, site and foundation work, finishes, inspections, and a 10 to 20 percent contingency for changes.
Taxes and insurance
ADUs can change your property’s assessment, tax reporting, and insurance needs.
- Property tax: Adding an ADU can increase assessed value. Contact the Denver Assessor for how improvements are valued and the appeals process.
- Income tax: Rental income is taxable. You may be able to deduct a portion of expenses such as mortgage interest, depreciation, repairs, insurance, utilities you pay, and property taxes. Keep organized records and consult a tax professional.
- Insurance: Standard owner-occupant policies may not fully cover rental operations. You may need a landlord or short-term rental endorsement or a separate policy. Confirm liability, property damage, and loss-of-rent coverage with your insurer.
Design choices and sustainability
Your design path affects cost, permitting, and performance.
- Conversion vs detached: Converting existing space like a basement, attic, or garage often costs less than new detached construction, but you must meet egress, ventilation, and mechanical requirements.
- Energy and electrification: New construction must meet energy code. Efficient options like heat pumps and electric water heaters can lower operating costs and may qualify for utility or state incentives. Plan electrical capacity with future loads in mind.
- Accessibility: If you plan for aging-in-place or multi-generational use, consider single-level layouts, minimal thresholds, and wider doorways.
HOAs, neighbors, and resale
HOAs can limit or shape what you build. Review covenants, conditions, and restrictions and secure required approvals. In non-HOA areas, proactive communication with neighbors about privacy, windows, and parking can ease concerns.
Thoughtful ADU design can enhance resale by appealing to buyers who value flexibility or rental income potential. Marketability depends on quality, configuration, and neighborhood context.
A practical process and timeline
Every project is unique, but most follow a similar path. Smaller internal conversions are typically faster; new detached builds usually take longer.
- Preliminary, 1 to 4+ weeks
- Verify zoning and permissibility with city planning staff.
- Review HOA rules if applicable.
- Contact Denver Water and utilities about capacity and connections.
- Explore financing options with lenders.
- Design and pre-application, 2 to 8+ weeks
- Hire a designer, architect, or engineer to prepare site and building plans.
- Consider a pre-application meeting with city staff for feedback.
- Permitting and plan review, 4 to 12+ weeks
- Submit for permits and respond to plan review comments.
- Construction, several weeks to many months
- Schedule inspections and complete work through final approval.
- Post-construction, 1 to 4 weeks
- Apply for rental or STR licenses if renting.
- Update insurance and notify the assessor if required.
How The Retaleato Collective can help
If you’re exploring an ADU as part of your long-term plan, you deserve clear guidance tailored to your lot, neighborhood, and goals. The Retaleato Collective brings neighborhood intelligence, comparable sales insights, and a vetted vendor network to help you evaluate feasibility, expected rents, and potential resale impact. We can connect you with trusted designers and contractors, align timelines with your financing, and position your property for maximum value when you are ready to sell or rent.
Ready to talk through options, timelines, and ROI for your Denver property? Connect with our team for local perspective and a clear plan. The Retaleato Collective — Request a Free Home Valuation & Consultation.
FAQs
Do I need a permit for an ADU in Denver?
- Yes. Most ADU projects require building, electrical, plumbing, and mechanical permits, along with staged inspections before occupancy.
Are short-term rentals allowed for ADUs in Denver?
- Possibly. Denver licenses STRs and sets safety and tax requirements. Confirm zoning, HOA rules, and current STR licensing before listing.
Will adding an ADU raise my Denver property taxes?
- Likely. An ADU can increase assessed value. Contact the Denver Assessor for how improvements are valued and to learn about appeals.
How can I finance an ADU on my property?
- Common options include a HELOC, cash-out refinance, or construction loan. Lender policies differ on counting projected rent, so compare early.
What affects ADU project cost the most?
- Major drivers include utility taps or upgrades, site work and foundation, design and engineering, permits and fees, finishes, and contingency for changes.
