House Hacking in Denver: Live-In Investment Guide

What if your next home also paid part of your mortgage? In Denver, house hacking can turn the place you live into a live-in investment that builds equity and cuts your monthly costs. You want a clear plan grounded in local rules, financing options, and real numbers so you can move forward with confidence. This guide walks you through the strategies, Denver-specific regulations, funding, and operations so you can decide if house hacking is right for you. Let’s dive in.

What house hacking means in Denver

House hacking means you buy an owner-occupied property and rent part of it to offset your mortgage and expenses. You live on site and manage the rental as a small business. The goal is to reduce your housing cost while building long-term equity and experience.

Common strategies in Denver include:

• Live in one unit of a 2–4 unit building and rent the others.
• Buy a single-family home with a legal ADU and rent that separate unit.
• Create or use a legal basement apartment with its own entrance.
• Rent by the room to roommates in a single-family home.
• Consider a condo only after reviewing HOA rental rules.

Short-term rentals can generate more revenue but come with strict local licensing and tax requirements. Many owner-occupants prefer long-term tenants for stability and simpler compliance.

Denver rules you must know

Denver’s rules shape what you can rent, for how long, and what approvals you need. Always verify the exact requirements for the specific property before you buy.

Zoning and ADUs

Zoning determines whether an ADU is allowed and how it must be built. Converting a basement to a separate dwelling typically requires permits, inspections, and compliance with egress, ceiling height, and safety codes. Start at the city’s planning portal for zoning, permits, and ADU guidance through Denver Community Planning and Development.

Rental licensing and inspections

Denver requires rental properties to be licensed, and certain rentals must pass habitability inspections. Fees, timelines, and documentation depend on the property type. You can review licensing requirements and next steps on Denver Excise and Licenses.

Short-term rental rules

Short-term rentals trigger separate regulations, registration, and taxes, plus potential HOA restrictions. Denver enforces primary-residence rules and can issue penalties for noncompliance. Current requirements and applications are available via Denver Excise and Licenses.

Landlord-tenant law and fair housing

Colorado law governs leases, deposits, notices, and evictions. Review official guidance before you draft leases or screen tenants. The Colorado Judicial Branch landlord-tenant resources are a good starting point. You must also comply with the Fair Housing Act in all advertising and screening.

Financing your live-in investment

Owner-occupied financing can make house hacking more accessible than a traditional investment purchase. Many programs allow you to count a portion of projected rent from the other unit(s) when you qualify.

FHA, VA, and conventional options

• FHA loans can finance 1–4 unit properties for owner-occupants with as little as 3.5 percent down, and underwriting may count a conservative share of projected rent. Review program details at HUD’s FHA loan program.
• VA loans allow eligible veterans and active service members to buy 1–4 unit properties with no down payment in many cases, if you live in one unit. Learn more at VA home loan benefits.
• Conventional loans can work for single-family and 2–4 unit properties, but down payment and reserve requirements tend to be higher for multi-unit purchases than for single-family.

Most owner-occupied programs require you to live in the home for at least 12 months. Lenders typically want leases or market rent comps to count rental income, and they may require cash reserves based on unit count. Ask lenders early how they will underwrite rent and what documentation they need.

Taxes, insurance, and compliance

Renting part of your home changes your tax picture, insurance needs, and compliance tasks.

• Taxes: Rental income is taxable. You usually can deduct a share of expenses and depreciate the rented portion, reported on Schedule E. Read IRS Publication 527 for residential rental property and IRS Publication 523 for selling your home. Depreciation recapture may apply when you sell.
• Insurance: A standard homeowner policy may not fully cover rental activity. Ask your agent about landlord or DP3 coverage and consider an umbrella policy for added liability protection.
• STR taxes and licensing: Short-term rentals can trigger specific city licensing and lodging taxes. Review current requirements on Denver Excise and Licenses and follow them before hosting.

Choosing the right Denver property

Your strategy should match the property type and location. Here is how to focus your search:

• Legal use first: Confirm whether the lot allows an ADU or whether an existing second unit is legal. Verify open permits and past inspections.
• Rent demand: Look near employment centers, hospitals, universities, transit corridors, and retail nodes for stronger, stable demand.
• HOA review: Condos and some single-family communities may limit or prohibit rentals or short-term rentals. Read CC&Rs and recent meeting minutes.
• Condition and layout: Separate entrances, adequate ceiling heights, and proper egress reduce conversion costs and improve tenant privacy.
• Exit options: Choose areas with broad buyer appeal to protect resale value. Balance cash flow with long-term appreciation potential.

How to run the numbers

Treat your house hack like a small business. Use conservative assumptions and stress test your plan.

Key metrics:

• Gross rent multiplier: Purchase price divided by annual gross rent.
• Net operating income: Gross rent minus operating expenses, excluding mortgage.
• Cap rate: NOI divided by purchase price. See an overview in this Investopedia guide to cap rates.
• Cash-on-cash return: Annual pre-tax cash flow divided by your total cash invested.

Simple five-step underwriting:

1. Estimate realistic market rent for each rentable space using local comps and written leases where available.
2. Subtract a vacancy factor and operating costs to get NOI. Include maintenance, insurance, taxes, utilities you cover, and management if you will not self-manage.
3. Calculate your mortgage payment based on likely loan type and interest rate.
4. Derive cash flow and cash-on-cash return. Run a sensitivity test with higher rates and a month of vacancy.
5. Confirm the plan still works after licensing fees, potential HOA costs, and insurance changes.

Operating as a landlord in Denver

Set up strong systems from the start. Good operations protect your time and your return.

• Screening and leases: Use consistent, written criteria, and a Colorado-compliant lease. Follow fair housing rules and apply the same standards to every applicant.
• Deposits and notices: Follow Colorado statutes on security deposits, notices, and entry. The Colorado Judicial Branch landlord-tenant resources provide helpful guidance.
• Safety: Install and maintain required smoke and CO alarms, address egress, and keep emergency contacts posted for tenants.
• Management: Full-service managers typically charge about 6–12 percent of monthly rent. They can handle leasing, tenant placement, and repairs. If you self-manage, budget extra time for compliance and maintenance.

A step-by-step Denver house hack plan

Follow this practical sequence to reduce surprises and keep momentum.

1. Clarify your strategy: Long-term units, roommates, or STR. Decide the number of rentable spaces and your renovation tolerance.
2. Get preapproved: Talk to lenders about FHA, VA, or conventional options and how they count rental income.
3. Partner with a local agent: Work with a Denver agent experienced in 2–4 units, ADUs, and licensing.
4. Verify zoning early: Before you write an offer, confirm use with Denver Community Planning and Development.
5. Review HOA rules: Read CC&Rs, rules, and recent minutes for any rental restrictions.
6. Inspect for feasibility: Order a general inspection and consult a contractor for any planned ADU or basement legalization.
7. Confirm licensing: Check requirements and timelines through Denver Excise and Licenses.
8. Plan taxes and insurance: Consult a CPA about allocations and depreciation, and confirm proper landlord coverage with your insurer.
9. Prepare your leasing toolkit: Draft a compliant lease, screening standards, and house rules. Set up a reserve equal to several months of mortgage payments.
10. Close and execute: Complete any required work, schedule inspections, receive your license, and launch your tenant search.

Avoid these common pitfalls

• Assuming a space is rentable without confirming zoning, permit history, or HOA rules.
• Underestimating the cost or time to legalize a unit, especially egress and safety.
• Using optimistic rent numbers and not budgeting for vacancy, maintenance, or rising insurance costs.
• Skipping proper insurance or fair housing training.
• Ignoring Denver’s licensing or STR rules, risking fines and disruption.
• Overlooking tax impacts such as depreciation recapture at sale.

Is house hacking right for you?

House hacking works best when you value lower housing costs, can share space, and are ready to manage a small rental operation. With the right property, lender, and plan, it can accelerate your equity growth while teaching you the fundamentals of real estate investing. If you want a calm, thorough path from search to tenant placement, our team can help you source the right property and coordinate the moving parts.

Ready to map out your house hack strategy or get a tailored property shortlist? Reach out to Ryan Retaleato to start with a focused consultation and neighborhood-driven plan.

FAQs

What is house hacking and how does it work in Denver?

• You buy an owner-occupied property and rent part of it to offset costs. In Denver, you must follow zoning, licensing, and safety rules set by the city.

Can I use FHA or VA loans to buy a duplex I will live in?

• Yes. FHA and VA allow 2–4 unit owner-occupied purchases when you live in one unit. Review HUD’s FHA loan program and VA home loan benefits.

Are short-term rentals a good house-hack option in Denver?

• STRs can earn more but require licensing, taxes, and strict compliance. Start with the rules on Denver Excise and Licenses and confirm your HOA allows it.

How will renting part of my home affect my taxes?

• You must report rental income and may deduct a portion of expenses and depreciation. Read IRS Publication 527 and consult a CPA about allocations and future sale impacts.

What insurance do I need if I rent a unit where I live?

• Ask your agent about landlord coverage or endorsements for the rented portion and consider umbrella liability. Standard homeowners policies often do not fully cover rentals.

What should I include in a Colorado lease and screening process?

• Use consistent, written criteria that follow fair housing rules, and a Colorado-compliant lease. The Colorado Judicial Branch landlord-tenant resources are a helpful reference, and legal counsel can tailor terms to your situation.