An accessory dwelling unit, or ADU, is a second, smaller home on the same lot as the main house. In Denver that can be a cottage in the backyard, an apartment above the garage, an addition to the main house, or a converted space inside it. Buyers look for them to earn rental income, to house family, or to have a place to work.

The hard part is that a lot of what gets listed as an ADU is not one. A finished basement with a kitchen or a converted garage may be a good space that was never permitted as a separate dwelling. I check that before anything else.

What the rules say, and why I check every address

Colorado passed a law in 2024, HB24-1152, that requires cities and towns with more than 1,000 residents inside a metropolitan planning organization to allow one ADU on a single-unit detached lot. The approval has to be administrative, with no public hearing and only objective standards. Cities had until June 30, 2025 to comply. The law also limits extra parking requirements and owner-occupancy requirements for standard ADUs, while still letting cities regulate short-term rentals.

Local rules still differ. Denver’s own permit page says that in single unit zone districts the property owner must live in the main house when applying for permits, and state law limits owner-occupancy requirements for standard ADUs. Those two do not obviously line up, and I am not going to guess which one controls at your address. I confirm with the city’s zoning staff before you rely on either.

What I verify before you count on the income

Is it a legal, permitted unit?

Ask for the permit and the certificate of occupancy for the unit. A listing that describes a rental history but has no permit records is a warning sign. A unit that was never permitted can be hard to insure, finance and rent legally, and the cost of bringing it up to code can land on you.

Can you rent it, and for how long?

Long-term and short-term rental are different questions. Short-term rentals in Denver need their own license and follow separate rules. Check the HOA covenants too, which can restrict a second unit even where the city allows one.

How a lender will count the rent

Loan programs treat ADU income differently, and some want a lease history before they count it. Ask a lender who has closed loans on homes with ADUs how they would treat the rent before you write an offer.

What it will appraise for

ADU sales are still fewer than standard home sales, so appraisers have less to compare. I pull the closest comparable sales I can find, and I would rather you hear about an appraisal risk from me than from your lender.

Utilities, insurance and taxes

Find out whether the unit has its own utility meters or shares the main house’s, and whether your insurance covers a tenant living there. Your property tax bill may also reflect the added square footage.

If you would rather build one

Some buyers would rather buy the right lot and add a unit. Whether that works depends on the lot, because zoning, lot size, alley access and setbacks decide it. Permit approval ran three to five months in one recent Denver guide, and Denver requires a licensed contractor to pull the permits. I can check a lot’s eligibility before you make an offer.

If you’re counting on rental income, bring it up early. Step 3 of my Denver home buyer’s guide covers pre-approval and what income a lender will count, and the rest of the guide walks through the purchase in 10 steps.

Questions people ask about Denver homes with ADUs

Can I rent out an ADU in Denver?

Generally yes, if the unit is permitted and you follow local rules. Short-term rentals need a separate license.

Do I have to live on the property?

It depends on the address. State law limits owner-occupancy requirements for standard ADUs, while Denver’s permit page describes an owner-in-the-main-house requirement when applying for permits in single unit zones. I confirm the current rule with the city for any home you are serious about.

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

One 2026 Denver guide puts construction at $236,000 to $310,000 depending on size and finishes, and says a detached unit can rent for $1,200 to $2,000 a month. Treat both as starting points and get local bids.

Is a basement apartment an ADU?

Only if it was permitted as a separate dwelling unit. A finished basement with a kitchen is not automatically one.

Permit information from the City and County of Denver. State law summary from the Colorado Division of Local Government. Listings are provided through RealScout and are subject to change.

Marla Doughty
Broker Associate, Compass
720.454.5432 · marla.doughty@compass.com · calendly.com/marlamdoughty