In-law Suite - Allowances - Colorado

11 Replies | Denver, Colorado

I'm considering the best options for house hacking in Denver and the surrounding areas.  My wife and I are going back and forth on the pros/cons of a duplex vs a single family home with an in-law suite.  However, I can't seem to find any definitive information on what the city of Denver or the surrounding areas (i.e. Littleton, Lakewood, Arvada, Golden, etc.) will allow for an in-law suite.  We would like to owner occupy for the first year or two and then move out.  We would plan on renting out both the primary space and the in-law suite.  Based on what I've read so far, I'm starting to think most local authorities will not allow you to rent out both spaces.

Can someone please help me find something definitive that describes the allowed uses for an in-law suite in Denver or the surrounding areas?  I've scoured the Denver planning and development site but came up empty.

@Chris Bunya so I am not sure what you mean by the "in-law suite". Can you explain? 

By way of background, generally if a property has two kitchens then it is considered a duplex. It doesn't really matter how the doors are configured or if it's attached or not. The exception to the duplex designation is an accessory dwelling unit (ADU) which is a term that is used for properties that allow 2nd living space (two kitchens) in an area zoned for single family use. The ADU zoning requires that one of the units be occupied by the owner of the property. So while you can rent one of the spaces while you live there, once you move out, it would be a zoning violation to rent the units separately. I know this applies for Denver but your mileage may vary for other municipalities and counties.

@Bill S. ,

Sorry for the confusion. The type of houses I'm talking about in particular would be a single family home with an ADU. Sometimes these ADUs could be a basement suite with kitchen or an apartment with kitchen built on top of a separate garage. Regardless, these houses are not zoned for duplex and are only zoned for single family. Thanks for helping me sort out the vocabulary. It seems like in this industry one misunderstood definition can derail your entire investment.

Everything you said, Bill, was absolutely correct. Knowing now that it's considered an ADU, I was able to dig up a few things in the most recent version of the Denver zoning code that I found interesting.

Section Such use shall not include residential occupancy in a detached accessory structure offered for rent or for other commercial gain. Residential occupancy in a detached accessory structure is permitted by members of a household occupying the primary structure, or domestic employees and the immediate families of such employees.

If I'm reading this correctly, in the separate garage apartment scenario, I wouldn't even be able to legally rent out that space to someone other than a family member or employee.

Section The second kitchen shall be used only by the residents or domestic servants; and

So if you decide to add a kitchen to a basement suite but don't get it legally permitted as an ADU, then you basically can't rent that out to anyone.

Thanks for your help, Bill.

@Chris Bunya

It looks like Denver is the leader of rules involving ADU's and not sure if the surrounding communities will adopt similar laws or rules. If Denver is successful in generating more tax dollars, with out a lot of work, I'm sure the rest will follow. Right now you may have to check the city councils to find out what each is doing. I think house hacking is the way to go. Find a legal duplex and you don't have to worry about it.

Thanks for the tag, @Bill S.  

@Chris Bunya Hope you and Lavi are doing well. That's a good question. And if you're looking to house-hack in Denver for a little while (whether using Airbnb or a traditional long-term renter), it's important to know what you can do with the property after you've moved on to your next.  

In Denver, the answer depends on the zoning. (And even then, there's a potential workaround even if you're not zoned correctly.)

Single unit zoning, or SU (E-SU-...U-SU- ... etc.)

Most residential areas are zoned SU in Denver. In these areas, you can rent the accessory unit ONLY while you reside in the primary structure. (Or the inverse. You can live in the accessory unit and Airbnb the primary structure.) You can rent that as an Airbnb or long-term rental.

Two-unit or more zoning, or TU or RH

There are areas in residential areas that are zoned TU for two-unit or RH for row-house (and some even MU for multi-use). If you find a home with an accessory unit in these zoned areas, then you can do Airbnb or long-term renting while you're there AND rent both units out when you move elsewhere. 

The same generally holds true for other cities, though don't quote me on it. If you're in an area zoned for single unit, you can rent a separate space while you live there but not both spaces when you move. 

Denver workaround for SU zoning

Now, here's something interesting. If you find a place with an accessory unit in an area zoned SU, then you could potentially work around the Airbnb laws to continue renting out both units when you move out. Because Denver's Airbnb law allows tenants to Airbnb their primary residence, then you could put a tenant in the lower unit and have them get the license through the city and rent out the top. How you share profits is up to you. 

I have a buyer who is closing tomorrow on a small half a duplex that has a tiny little unit downstairs. My buyers have already sought out renters who are open to getting a good deal on the rent in exchange for signing up for the license. 

@Tim Emery  

I agree. If Denver generates enough income with Airbnb taxation, then other cities will fall in line.

In the first six months of 2017, Denver collected just under $1 million in hotel tax from Airbnb and short-term rental hosts. (At least according to the excise and license rep I spoke to at a recent Short-Term Rental Advisory Committee. And that's dealing with a lot of novices who probably don't know you're supposed to pay the taxes quarterly, so there's a chance the total could be well over $2 million by the end of the year. 

It's still a drop in the bucket compared to what all the hotels generate, but it's ain't nothing. 

Also, @Chris Bunya

To add to what @Bill S. said about basement kitchens ... The city's definition of a kitchen is triggered by a 220v outlet intended for a stove or a gas line intended for a stove. If you had a 110v one or two-burner cooktop, I wonder what the city would say about that?

Hey @James Carlson , we're doing well.  I would have asked you directly but I didn't want to hammer you with all of my questions.  I figured I would let the BP community shoulder some of that burden.

Since we don't intend to live in the house long-term, we'll probably focus on a duplex but we won't rule out a single family with an ADU in a TU, RH, or MU zone in Denver.

Thanks for the help.

But, @James Carlson ,  doesn't

"Section Such use shall not include residential occupancy in a detached accessory structure offered for rent or for other commercial gain. Residential occupancy in a detached accessory structure is permitted by members of a household occupying the primary structure, or domestic employees and the immediate families of such employees." 

mean that a person is not allowed to rent the ADU structure at all, even though they live in the main house?

Thanks for sharing your knowledge!

@Mick Hall

I always have to say that I'm not a lawyer, so if you're really digging into the weeds of Denver zoning, you should call upon a good real estate lawyer. That said, I love parsing language ... 

If you look three paragraphs above at the first line of Section A under, it says, " All accessory uses, except accessory dwelling unit uses and Short-term Rental accessory uses, shall comply with all of the following general limitations."

So every limitation listed after that caveat does NOT apply to STR usage, including the passage you quote.

That's the specific language, but more broadly, I know from going to Denver's Airbnb/short-term rental advisory committees for a few years that carriage houses and other forms of accessory dwelling units are most definitely permitted for short-term rental uses.

Are you looking to do something with Airbnb and ADUs in Denver?

@jamescarlson, Thank you!!  I was certain they could be rented, but when that specific zoning paragraph was pointed out to me, I had to question.  Your explanation makes sense.

Yes, I am looking to build in my backyard (Lohi) and am zoned for it.  I actually started the process 2 years ago with a contractor who slid off with $15,000.  He will be  in court in a couple weeks. :)  I put my plans on hold for a while, but it's time to start rolling again.

Thanks again!