ADU investing in Colorado offers solid returns through added rental income on single-family lots, legalized statewide via HB21-1127, but success depends on local zoning, HOA restrictions, and construction costs averaging $150-250K for 600-1,000 sq ft units. With 15+ years in Denver real estate and thousands of transactions, I’ve helped clients add ADUs to Littleton real estate properties and Highlands Ranch lots, boosting cash flow 20-30% in the Colorado housing market without subdividing.
Statewide Legality and Local Rules
House Bill 21-1127 mandates cities allow ADUs on single-family parcels, with owner-occupancy waived after 2024 in many areas. Denver permits detached garages or basement conversions up to 1,000 sq ft; Littleton real estate requires setbacks (5 ft sides, 20 ft rear). Highlands Ranch HOAs often cap at attached units, scrutinize designs.
Permits demand sprinklers, separate utilities, and parking—costs spike 20% in wildfire zones.
Revenue Potential and Costs
A $200K ADU rents $1,800-2,500/month near DTC or Anschutz, yielding 8-12% cap rates after $400/month expenses. Total ROI hits 15% factoring appreciation. Upfront: $150K prefab, $250K custom, plus $20K site work. FHA financing covers if primary residence.
Seasonal demand fills units fast; long-term tenants stabilize cash flow.
Pros, Cons, and ROI Breakdown
| Factor | Pro | Con |
|---|---|---|
| Income | +$24K/year | Management 8-10% |
| Appreciation | Boosts property 15-20% | Construction risk |
| Financing | FHA 3.5% down | Higher rates 6.5% |
Practical Advice for Investors
Follow my step-by-step from successful builds:
- Confirm zoning via city portals—R-1 lots qualify most.
- Budget $250/sq ft total; prefab saves 20%.
- Hire licensed contractors; verify DORA for plumbing/electrical.
- Design for rental appeal: 1-2 beds, full kitchen, private entrance.
- Check HOA covenants early—amend if needed ($5K legal).
- Rent via long-term leases first, test STR limits later.
ADUs hedge housing shortages, scaling portfolios smartly. Clients adding them often become long-term friends.
If you’d like honest guidance, market insight, or a no-pressure conversation about ADU investing in your situation, reach out—I’m here. Visit www.MileHighHomeGroup.net to search properties, explore Denver, learn more about me and connect.
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