House hacking can turn Denver’s high cost of living into a strategic advantage. If you want help with the mortgage while you build equity, you are not alone. With the right property and plan, you can live in one unit and rent the rest, or add an accessory unit for steady income. This guide shows you where the best opportunities tend to cluster in Denver, what price ranges to expect, and how to underwrite deals so the numbers work. Let’s dive in.
House hacking basics in Denver
You have four common strategies in Denver:
- ADUs: Build or convert a detached or interior accessory unit and rent it.
- Duplexes and small multifamily: Live in one unit, rent the others.
- Rentable basements: Create a separate apartment with proper egress and permits.
- Room rentals: Rent by the bedroom in your home for lower upfront costs.
Why Denver? Owner-occupant loans can be favorable on 2–4 units, and demand from professionals, students, and newcomers supports long-term rent near transit and job hubs. The right neighborhood choice helps your cash flow and your long-term appreciation.
Best areas for ADUs
ADUs work well where lots and older garages are common and transit is nearby.
Key neighborhoods: Berkeley, West Highland, Sunnyside, Villa Park, Park Hill, Washington Park area, North Capitol Hill, and parts of City Park and Congress Park.
Price band snapshot:
- Entry single-family homes with ADU potential: about $400,000 to $650,000.
- Mid-market single-family homes where ADUs are common: about $650,000 to $1.1 million.
- Higher-end single-family homes with ADU potential: above $1.1 million.
Build and conversion notes: Planning, permitting, and construction for a detached ADU often land in the low six figures. Get multiple bids and confirm fees and code requirements before you count on the rent.
Why these areas work: Many blocks have garages or yard space for a detached unit, or interior layouts that convert well. You stay in a single-family footprint while adding income, which appeals to many owner-occupants.
Best areas for duplexes and small multifamily
If you want to maximize rental offset, duplexes and 2–4 unit buildings can be powerful.
Key neighborhoods: Five Points, Baker, Ballpark, RiNo edge areas, Sunnyside, Berkeley, West Colfax, Cole, Elyria-Swansea and Globeville, Sun Valley, North Park Hill, plus corridors near light rail.
Price band snapshot:
- Entry duplex or triplex in outlying or transition areas: about $350,000 to $650,000.
- Core neighborhoods closer to downtown and stronger amenities: about $650,000 to $1.2 million.
- Premium small multifamily in prime locations: $1.2 million and up.
What to watch: Confirm that units are legal and separately recognized. Some properties look like duplexes but were converted without permits. Small multifamily often requires additional reserves and a more detailed underwriting approach than a single-family home.
Where rentable basements pencil
Denver’s older housing stock often includes basements that can become legal apartments.
Key neighborhoods: Capitol Hill, Congress Park, Cheesman Park, Baker, the Baker and Platt Park border, Washington Park, Park Hill, Highlands, and Berkeley.
Price band snapshot:
- Older single-family homes with rentable basement potential: about $450,000 to $800,000, depending on condition and block.
- Higher-end homes with finished legal basements: $800,000 to $1.4 million and above.
Physical checks: Confirm ceiling height, egress windows or doors, a separate entrance, ventilation, smoke and CO detection, and the utility setup you need. Moisture and ventilation are non-negotiable for safe habitation.
Why these areas work: Close-in neighborhoods have steady demand for one-bedroom lower units near transit and job centers. You can live upstairs while a tenant covers a meaningful share of the payment.
Room rentals hot spots
If you want low upfront cost and you are comfortable managing roommates, room rentals can be effective.
Key areas: Capitol Hill, Five Points, and lower-density blocks near universities and hospitals such as the University of Denver area, East Colfax, and locations near light rail.
Rents vary by size, quality, and proximity to transit. This path can produce strong gross rent but requires more hands-on management and clear house rules.
What to check on permits and rules
Before you count on rental income, confirm the rules that apply to your address and plan.
- ADUs and accessory units: Check City and County of Denver code for allowed zones, size and height limits, lot coverage, setbacks, parking rules or waivers, and whether separate meters are required. Confirm inspections and certificate of occupancy standards.
- Basements and in-law units: A unit must meet building code for legal habitation, including egress, ceiling height, ventilation, and life-safety requirements. Unpermitted units can lead to fines or forced de-occupancy.
- Duplexes and small multifamily: Verify that all units are legally recognized and that partitions and addresses are permitted. Review local licensing, habitability standards, and any rental restrictions.
- Short-term rentals: Denver regulates short-term rentals through licensing and primary residence rules. Do not assume short-term rent is allowed or that it works at your address. Confirm current requirements before you model nightly income.
How to finance the buy
Owner-occupant financing can make 2–4 units more accessible and help you leverage renovation funds.
- FHA loans: As low as 3.5 percent down on up to 4 units if you occupy one unit. Confirm guidelines and lender participation.
- Conventional loans: Conforming programs can finance 2–4 units with down payments often between 15 and 25 percent, depending on terms and overlays.
- VA loans: Eligible buyers can use VA financing on 2–4 units with owner occupancy. Check occupancy and loan rules.
- Renovation loans: FHA 203(k) and conventional renovation loans allow you to roll purchase and rehab into one, which can be perfect for ADU builds or basement conversions.
- Portfolio or private loans: Useful when you need flexible underwriting for small multifamily, though rates and terms may be less favorable.
Insurance and taxes: If you add a rental unit, you may need a landlord endorsement or a different policy. Factor property taxes, potential lodging taxes for short-term rentals, and the need to track income and expenses for federal taxes. A CPA can help you plan for mixed-use or short-term rental scenarios.
Underwrite the deal in 5 steps
You do not need a PhD to run solid numbers. Keep it simple and conservative.
- Estimate market rent for each unit using 3 to 5 comps within about a mile. Be realistic about finish level and parking.
- Apply vacancy. Many Denver long-term rentals pencil with 5 to 8 percent vacancy assumptions, adjusted by neighborhood and unit type.
- Estimate operating expenses. For small multifamily, a common rule is 35 to 55 percent of gross rent, excluding the mortgage. Room rentals may run higher due to turnover and utilities.
- Compute Net Operating Income. NOI equals gross rent minus vacancy and operating expenses. Divide NOI by purchase price to get a cap rate. Core areas often show low to mid single-digit cap rates, while peripheral areas can be higher.
- Layer in financing. Use your likely loan terms to find the monthly payment, then calculate net cash flow after debt service. Track how much of your mortgage the rent offsets.
Tip: Set aside a rehab fund and ongoing reserves, such as $2,000 to $5,000 per unit per year depending on age and condition.
Quick screening checklist
Use this list to filter deals fast before you spend money on inspections.
- Property basics: Bedrooms, baths, unit count, legal status of each unit, lot size, garage and outbuildings with ADU potential.
- Neighborhood comps: Recent rent comps for similar units and sales comps for multiunits or homes with ADUs.
- Transit and jobs: Distance to major employers, universities, hospitals, and light rail stations.
- Condition: Roof, foundation, plumbing and electrical, HVAC, and mold or moisture risk. Basements need extra scrutiny.
- Permits: Whether an ADU or basement conversion is allowed without a variance. Look for historic overlays that limit changes.
- Zoning: Confirm permitted uses and parking requirements for the lot and zone.
- Tenant profile: Likely tenant pool and standard lease terms in the submarket.
Red flags to avoid
A few common problems can erase cash flow and ruin your timeline.
- Unpermitted units or illegal conversions that will not pass inspection.
- Structural or moisture issues in basements that block legal habitation.
- Neighborhoods with weak rental absorption or high vacancy.
- Properties inside historic districts with strict renovation limits.
- Pro formas that depend on short-term rental income when rules may tighten.
Put it together with a local plan
The right house hack comes down to matching the play to the block. ADU potential shows up across many single-family neighborhoods. Duplexes and small multifamily concentrate along older transit corridors near downtown. Rentable basements are common in central vintage homes. Then it becomes a numbers game with conservative underwriting and careful permit checks.
If you want help mapping these plays to current inventory and rent comps, I am here to guide you through it. From off-market sourcing to renovation loan strategy, you will have a clear path from search to closing to first tenant. To start a focused plan for your budget and goals, connect with Sarah Sells Denver.
FAQs
What are the best Denver neighborhoods for ADUs?
- Berkeley, West Highland, Sunnyside, Villa Park, Park Hill, the Washington Park area, North Capitol Hill, and parts of City Park and Congress Park commonly offer ADU potential.
Can you short-term rent an ADU in Denver?
- Denver regulates short-term rentals through licensing and primary residence rules, so confirm current requirements before assuming nightly income will be allowed.
Which loans allow me to buy a Denver duplex?
- FHA, VA, and many conventional owner-occupant programs finance 2–4 units if you live in one unit, with down payments and terms based on the program.
What makes a basement apartment legal in Denver?
- You need code-compliant egress, ceiling height, ventilation, smoke and CO detection, and often a separate entrance, plus proper permits and inspections.
What cap rate should house hackers target in Denver?
- Cap rates for small multifamily in core areas often land in the low to mid single digits, while peripheral areas can be higher, so compare to local comps.
How much vacancy should I underwrite in Denver?
- A conservative long-term rental assumption is often 5 to 8 percent, adjusted for neighborhood, unit type, and your leasing strategy.
