ADU rentals Denver - Owner must reside on location. Is this true?

16 Replies

Hello,

My husband and I are looking at places in Denver with an ADU. We don't completely understand the rules and aren't finding the city planning department to be very useful. The rules seem to state that the owner must live on location in order to be able to rent out an ADU. This seems pretty constricting (and that might be the point). We would love to eventually be able to move out and continue to rent out both places. Any ideas on this? Does this count towards only new ADU builds or would existing ADUs be subject to this rule as well?

Hi Matt, thanks for responding! Are you stating that this rule applies to STR or are you saying that we should look at STR to get around this rule?

This is what the code states:

2010 DZC, Section 11.8.2.2.4 requires the owner of a zone lot on which an ADU is maintained to occupy either the primary dwelling unit or the ADU as the owner's legal and permanent residence. For purposes of this provision, "the owner's legal and permanent residence" shall mean a property owner who makes his or her legal residence at the site, as evidenced by voter registration, vehicle registration, or similar means.

It seems pretty cut and dry, but I was wondering if there is a work around. You said STR, but I thought the new rules in Denver state that to do Airbnb you have to live on site.

Interesting. I don't really know enough about the rules here to comment. You could/should verify with a RE attorney prior to pulling the trigger.

Emily:

You seem to have answered your own question.  You asked for a "work around" and that begs the question, How comfortable are you with a potential "work around"?   Is your mentality such that if your "work around" is deemed illegal (and you are caught) at some point in the future that you would take it in stride and conform? (ie Return and live in one of the units)   If you are, the "work around" may be just do it and wait and see of you are caught.  Code enforcement is likely to be a complaint driven system and the odds of you getting caught are slim.   If your mentality is such you can't stomach the possibility of a violation and getting caught, don't do it.   Let your ability to sleep at night be the determining factor.  

@Emily Fischer I attend all of the Denver short term rental meetings. Here is your workaround: when you are ready to move out, put a long term tenant in your ADU and rent the main house out on Airbnb. Get your tenant to hold the license and consider it their primary residence. You are 100% in compliance if you do it this way.

@Emily Fischer

Oh how I love me some Denver ADU threads! First off, are you actually looking in Denver? (Your profile says Westminister.)

If it's in Denver, to answer your question ... it depends on the zoning.

  • If your place is zoned two unit, then you have the option of being able to rent both spaces when you move out. (Look for "TU" in the middle of your zoning designation." ... Ex: E-TU-B1, U-TU-B2, etc.) Now, even if you find a place like that, you still might have to go through the process of getting the city of Denver to recognize the property as a proper duplex if you wanted to legally rent both spaces after you left. There are some properties, for instance, zoned to allow two units but haven't been designated a duplex yet.
  • Now, if your place is zoned for single unit (SU), then you have to a primary resident living there to rent out the carriage house/basement apartment/etc. BUT! As @Tyler Work said, you can install a tenant in one space, have them get a short-term rental license and then they Airbnb the other space. (I have some clients who just bought and are doing just this.)

These rules apply to both existing ADU builds and new ADU builds. (Be aware that in Denver, there are only a few pockets of town in which you can build a new ADU.)

At the risk of sounding self-serving, it might be good to use an agent who knows these zoning and ADU issues.

Good luck!

James Carlson, Real Estate Agent in CO (#FA.100071747 )
720-460-1770

The code seems pretty “the owner must reside”......so for you guys printing the “tenant does the Airbnb”....how does this qualify.

@Tyler Work can you elaborate on this? This owner occupancy thing is insane, so I'd love to understand this a little better. Also, would this be the case in other cities?

@Caitlin Bigelow I think @James Carlson 's post above explains it but to elaborate - the unit does not have to be "owner occupied" in Denver.  I'm not sure why that term keeps being used to apply to laws in Denver.  

The unit has to be occupied by an individual who considers the property their "primary residence", as proven by documents, etc. This individual can be a tenant or owner, doesn't matter as long as the tenant has written permission from the owner to rent short term.

In the carriage house scenario (assuming the property is zoned for an ADU as James mentioned) your tenant lives in the carriage house, since the main house presumably will generate more revenue on Airbnb. The reverse could be done as well but in general you're going to want to rent the big house short term. You tell your tenant up front that you are planning to rent the main house out on Airbnb so they agree to it in your lease or side agreement - and get them to apply for the license online and pay all of the taxes. You then essentially become the "property manager" and just reimburse the tenant for taxes and possibly cut them a portion of the proceeds.

Caveat to this model - properties with existing ADUs are extremely hard to find so this isn't really a sustainable business model for investors looking to get into the Denver market.  You might get lucky with 1 or 2 but I'm not sure you're going to find 10 properties with carriage houses.  In addition, the secret is more or less out so you have tons of competition.  The other option is to target properties that are zoned for one and do a garage conversion or convert the basement into a walk out basement.   

@Caitlin Bigelow

Zoning laws and Airbnb/short-term rental laws vary by city. I think the zoning issues might be a bit more uniform, but you would definitely want to check with your planning department. Airbnb laws, on the other hand, are all over the map (no pun intended). 

James Carlson, Real Estate Agent in CO (#FA.100071747 )
720-460-1770

@Wayne Brooks

I think there are two different issues going on in this thread. 

The first is whether an accessory structure can be rented long-term separate from the primary structure if the owner does not live there. 

The second is whether here in Denver, specifically, you can allow your tenant to Airbnb a portion of their leased property. On this front, the Airbnb law in Denver says that "primary residents" not just owners may rent their property. Tenants are the primary residents of wherever they live. So if they get permission from their landlord (the property owner), then they can Airbnb all or a portion of their home. 

James Carlson, Real Estate Agent in CO (#FA.100071747 )
720-460-1770

@Caitlin Bigelow @Tyler Work @James Carlson We had a meeting on this recently. It appears that the specific regulations can vary even between cities. For instance, Newport Beach has regulations on the size of the lot for qualifying for an ADU, square footage of the ADU against the size of the home, to what extent does the owner need to be on site, lease length (no short term rentals in either side of us), etc. There will more than likely be a number of hiccups along the way that clear up an awful lot of these answers.

@Kristina Heimstaedt

You're spot on. There are so many issues specific to each locality that could affect your options with ADUs. It could have the right zoning but not the right lot size. Even if the lot size is right, does it have the right setbacks? Maybe it's not currently allowed but was part of an allowable use prior to the most recent zoning changes. On and on and on. If you're interested in ADUs, either find someone who knows this stuff in and out or go to your planning department open hours and talk with the city officials themselves.

James Carlson, Real Estate Agent in CO (#FA.100071747 )
720-460-1770

2010 DZC, Section 11.8.2.2.4 requires the owner of a zone lot.......

If this is in fact the incorrect wording then the go around of using a TENANT as the permanent resident is illegal.

If the code is written to not require a OWNER to live there and that was the intent of the code  legislators need to take action to close this loop hole. 

@Thomas S. @Wayne Brooks

Woot, woot! Who doesn't love a good ole' fight over zoning code minutia?! Thanks for the pushback on all this.

I think we may be talking about two different things -- long-term renting an accessory unit and short-term renting an accessory unit on Airbnb. For those who love bureaucratic mumbo-jumbo, please read on .......

That's correct, Denver Zoning Code, Sec. 11.8.2.2.4 says an owner must live there to rent the accessory unit, DZC. 

However, a few pages up in Sec. 11.7.1.2 (A) it says "Short-term Rental accessory uses, where permitted, shall comply with the specific limitations stated in 11.8.10, Short-term Rental, instead of these general limitations." Essentially, STRs do NOT fall under the same restrictions.

Onward we go to Sec. 11.8.10.1 (B), which says that STRs shall be operated by people "maintaining the dwelling unit as their primary residence." So, tenants are the primary residents and are allowed to operate an STR in their space -- be it a single room or a carriage house, whatever. How they agree to share revenue with their landlord is between the landlord and the tenant.

For those who can't get enough, check out the  DZC, chapter 11 here or Denver's STR FAQs . (The third-to-the-last answer says, "ADUs may be used as STRs by a property owner or long-term renter who is living in the primary structure." 

James Carlson, Real Estate Agent in CO (#FA.100071747 )
720-460-1770

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