This post is part of the Denver ADU Course. The course explores the ADU building process in Denver.
Three Learning Options:
- Listen to episode "[ADU 1 of 9] Denver Additional Dwelling Units (ADUs) And You" on the Denver Real Estate Investing Podcast
- Watch the YouTube video at the bottom of the page.
- Read the blog post.
As Denver's real estate prices continue to rise and investors search for new ways to maximize returns there has been an increasing mention of ADUs and you may be wondering what they are. While they have been banned since the mid-1950s in Denver they are becoming more popular in surrounding cities as they open their zoning laws to accommodate the additional demand for housing.
ADU is an abbreviation for an accessory dwelling unit. ADUs tend to go by a more specific name that is used to describe the particular style that exists on a property. More familiar names for ADUs are carriage house, granny flat, mother-in-law suite, or backyard cottage. Each city has a different name for the units but the overarching description for an ADU is a detached secondary living quarter that is built on a single family home lot that contains sleeping, cooking, and sanitation provisions.
Types of ADUs
Not all ADU’s are the same. There are multiple types of ADU’s that can be built or be apart of a single family home. ADU’s fall into three major categories but not all of these unit styles are permitted in every city. Check with your local zoning laws to determine which type(s) you are permitted to have on your property in the surrounding Denver area.
Detached above- This type of dwelling unit is built above a detached garage on the property. The garage must have an appropriately laid foundation for a legal dwelling to be built above it.
Detached ranch- This type of dwelling unit is built as a stand-alone from the single family home. These types of ADU’s are generally found in suburbs that have larger lots to accommodate the footprint of the ADU without sacrificing the availability of parking for the home.
Attached- This type of dwelling unit exists under the same roof as the single family home but the unit has its own entrance that is separate from the main house. These types of units are often referred to as mother-in-law suites.
Uses For ADUs
Long term rental- ADU’s allow you to become an instant backyard property investor. Owners also have the benefit of proximity to deal with tenant issues and keep a closer eye on their investment to ensure that tenants are caring for the property.
Short term rental- Allows for the flexibility of creating rental income when the unit is available but can also be used for when family or friends are visiting for extended periods. Check with your local city ordinance to verify that short term rentals are permitted, some cities only allow for full-time residences to offer short term rentals. Remember, Denver has its Airbnb rules requiring that a property be a primary residence. Know the rules!
Mother-in-law suite- Can allow for multigenerational families to live together while still providing separate and private living space for both families. This becomes extra powerful when families with children can utilize parents on the property for primary care rather than paying out of pocket.
Affordable housing- These units are generally built as 1 bedroom or studio/loft style housing. Due to their compact nature, the rental rate of these units tends to be lower than apartments and helps increase the amount of affordable living in a neighborhood.
Downsizing- ADU’s are a great option for homeowners who have lived on a property for an extended period of time who need less living space and don’t want to move. This allows them to have a smaller living space without changing their location and keep the amenities that they have grown accustomed to having. This also provides the benefit of being able to rent the single-family home for supplemental income.
Economic downturn- Allows for a homeowner to live in the smaller ADU unit and rent the larger main house in case of economic difficulty. Rather than foreclosing on a property, an owner can ride out a downturn living in the lower cost unit.
Benefits Of ADUs
Income property- Any Denver property that has an ADU apart of it instantly has the potential to be an income generating property. This allows homeowners to offset their mortgage costs and reduce their living expenses or for them to increase their investment portfolio without owning a second property.
Increased densification- Many major metropolitan cities, like Denver, are running out of lots within the city. ADU’s are an excellent way to increase the amount of housing that is available without changing the characteristics of the neighborhoods.
Getting Started With An ADU
- Check your zoning regulations
- Conceptual Design
- Design review with your local Landmark Commission, if applicable
- Board of Adjustments
- Verify variance setbacks or adjustments for new construction
- Permit ready plans for zoning and building department
- Break ground!
Expected Time Frame
Timeline for each project will greatly vary depending on how active the homeowner is in working with the permit departments. Some cities may also have a backlog of permitting issues that can add to the delay in approval for new construction. New construction has the longest timeline and homeowner should expect at least 3-6 months for the design and permitting stage of the process. This can time frame can easily be exceeded if a homeowner has to work through a landmark commission or is not punctual when remedying design changes.
Construction time will vary depending on the size of the unit. Detached above units with older structure in place will extend the time frame in order to prepare the foundation for the new construction. Basic construction could take as little as 3 months and more in-depth construction can take anywhere from 8 months to one year. An optimistic timeline for permitting and construction is a little over 6 months. Homeowners starting from scratch should expect the process to take closer to 12 months.
Costs For An ADU
Construction costs will vary from region to region and also depend on the type of ADU that you are building. The most expensive type of ADU construction is detached above. This type of construction requires a foundation to be poured along with 2 stories worth of materials to be used for construction. The cost for this style ADU can range from $220,000 to $275,000 depending on finishes and square footage. Construction cost are reduced with a detached cottage ADU and can are even further reduced with attached ADUs. Attached style ADUs are the least costly because they utilize the construction of the already existing home structure. These units can still cost close to $100,000 to build if high-end finishes are used in the construction process.
- Construction refinance
- Standalone 2nd mortgage
- Land loan
ADU4U Contact Details
Jeff Baker at Jeff@Youradu.com and 970-759-4023ADU4U website at http://www.YourADU.com
- Overview: Denver ADU Course Overview
- Module #1: Denver Additional Dwelling Units (ADUs) And You
- Module #2: ADU 101-Pre-Planning, Design, and Permitting
- Module #3: ADU 202 - Other Considerations
- Module #4: Denver ADU Financing and Appraisals
- Module #5: Denver ADU Rental Value
- Module #6: Denver ADUs as Investments
- Module #7: The Steps in Building Denver ADUs
- Module #8: Denver ADU Advocacy
- Module #9: The Future of Denver ADUs