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STR Regulation Questions

Posted Jul 25 2022, 07:49

Hi BP Forum!

I recently moved to Denver and have been looking for a house hacking opportunity. In doing so, I have become very familiar with the zoning code and STR regulations, but had a few questions I was hoping this group could help answer with personal experiences dealing with getting rental licenses.

I have been looking for a SFH zoned for an ADU to use the ADU as a STR while I live in the primary residence. My understanding, based on research and a few email exchanges with the City, is the following:

- I can use or build a detached ADU if the property has the right zoning designation (B1, C1, etc) and meets the minimum lot size requirements (while I am living in the primary residence). If in the future I move out and decide to long term rent the primary residence, I cannot also rent out the ADU as the lot would not have a TU zoning and meet those requirements. Does anybody have experience with having a renter in the primary residence pull the STR license for the ADU if the property owner is not living in the primary residence? Or any other creative ideas on how the ADU could be used?

- If the property is zoned for an ADU, but does not meet the minimum lot size requirements, I could still have or build an attached ADU (i.e. basement apartment). My understanding is that for these situations, I do not have to have the basement apartment designated as an ADU if it has continuous access to the primary residence (i.e. no door to separate the two units). This wouldn't be a feasible option for me, so in going the route of having the basement apartment designated as an ADU it seems in addition to the typical requirements (bedroom egress, independent egress, kitchen, bathroom, etc) I have also been told the building requirements for fire separation between units will be required (as per 2018IRC, R302.3). Has anyone actually been flagged for this? To me that defeats the purpose of buying a finished basement/MIL suite knowing it's unlikely the original structure will meet fire code separation between units.


Appreciate any insight anyone has on this!
 

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Jeff Schemmel
  • Real Estate Agent
  • Saint Paul, MN
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Jeff Schemmel
  • Real Estate Agent
  • Saint Paul, MN
Replied Jul 25 2022, 08:50

Hey Dana! Link up with Craig Curelop - he's a local agent who specializes in househacking and owner-occupant investing. He also wrote the book on the house hacking strategy and was a former BP employee - which i'm a big fan of. Plug aside, I've seen that rule here in Minneapolis/St. Paul as well - requiring an owner occupant in order to rent an ADU actively. If you can't make the property a duplex, it may just not be the strategy for you - and it's risky to rely on it long-term. I would not buy a property like this unless renting the whole property as a single-family residence with higher than normal occupancy capability provided the desired return. I usually use Airdna to look at the local rates for short-term renting the ADU while owner-occupying, and then I just change my filters for renting the whole house.

As for your second question - yes, I had a single-family + ADU deal fall apart for exactly this reason. The appraiser came out and said "no" this is an illegal unit, and at that point had to inform the city. I had the chief building inspector come out and tell us what we needed and it was the following (not an exhaustive list) which ended in us killing the deal and the owner price-dropping a good 40-50k and selling as as single-family. Buyer being SUPER disappointed because the property was definitely destined to be an STR.
1.) needed 1 hour fire separation between living units (required 3/4" special sheetrock) which required a tremendous renovation including displacing all the utility lines currently running through the ceiling.
2.) needed ceiling height improvement to do #1 (not going to be possible)
3.) needed a sidewalk around the side the house (for fire/rescue)
4.) needed all utility shut-offs, and utility control accessses in a shared room or separated by unit (again for fire rescue)

There was more, and this is specific to one municipality in Minnesota, but you get the drift.  The essence of what we learned was that it was MUCH more realistic to fight the battle to build a new ADU than it was to try to get one to conform to new, ever-evolving, standards.  

I really hope this helps in some way.  I'm not in colorado, but I do house hack, and i'm happy to have a chat if you think it's helpful.

  • Real Estate Agent Minnesota (#40733743)

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Ryan Williams
  • Real Estate Broker
  • Denver
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Ryan Williams
  • Real Estate Broker
  • Denver
Replied Jul 25 2022, 09:40

Hi Dana, 

You are on the right track on how you are thinking about this. I currently am in a house hack/airbnb (you can check that out here) and our plan when we move out is to try to rent the half we live in currently, have the renter take out a new airbnb license in their name and for us to be "co-host/managers" on the same property with them taking most of the profits. Reading the regulations it should work, and be in line with the laws. Obviously you would want to have a great relationship with that tenant in order to do that, and it would be smart to have a back up plan in case that got shut down for whatever reason. 

For the basement units, or house hack houses that are connected continuous access as you have described, the city is a lot more lenient. There has been some rumblings of people getting denied STR licenses for some code/zoning infractions posted on another BP forum post.  These kind of house hacks would have more options to rent out as a contingency plan though if an STR fell through. You could rent by the room, or rent the basement unit out. 

I hope this is helpful!

  • Real Estate Agent CO (#FA100094785)

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Annick Coston
  • Real Estate Agent
  • Denver, CO
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Annick Coston
  • Real Estate Agent
  • Denver, CO
Replied Jul 26 2022, 10:33

Hi @Dana Nicole Webster, I actually work on Craig Curelop's team (mentioned above by @Jeff Schemmel thanks!!), and we have a meet up for house hackers in Denver where Craig will be speaking next Wednesday, August 3 at 6 PM at Blake Street Tavern. We'll have free drinks and appetizers, and it's a great place to meet other house hackers. Would love for you to join us! Otherwise, happy to connect with you and chat through some of these things!