What if your home could help pay for itself? In Denver’s higher-cost market, house hacking is a practical way to lower your monthly payment and build equity sooner. You live in one part of a property and rent the rest, turning rent into a tool. In this guide, you’ll learn proven starter strategies, financing options, and Denver rules to check before you buy. Let’s dive in.
What house hacking means in Denver
House hacking means you buy a home, live in it as your primary residence, and rent out other space to offset costs. In Denver, common setups include a duplex or triplex, a single-family home with an accessory dwelling unit (ADU) or basement apartment, and renting rooms. Some buyers explore short-term rentals where allowed. This approach can reduce your net housing payment, help you qualify for more (depending on your lender), and give you hands-on rental experience.
Best starter strategies
Live in a duplex or triplex
You occupy one unit and rent the others. Many loan programs allow 2–4 units for owner-occupants. This option often gives the strongest income offset, which can help you qualify. Expect more management and maintenance, and confirm zoning, parking, and any historic or permit requirements before you buy.
Single-family with ADU or basement apartment
An ADU or a separate basement apartment provides more privacy than a roommate setup. You get independent rental income while maintaining a primary living space. You may need permits to build or legalize an ADU, along with upgrades for egress, fire safety, and utilities. Check Denver’s current ADU policies and permitting process before relying on projected rent.
Rent rooms in your primary home
This is the lowest-cost way to start. You can begin quickly and adjust as your situation changes. Set clear house rules and update your insurance to reflect room rentals. Verify occupancy limits, HOA rules, and any restrictions in your area.
Explore short-term rentals with caution
Short-term rentals can generate higher nightly income but come with more work and strict rules. Denver requires registration and compliance with licensing and taxes. Regulations change, and some neighborhoods or HOAs limit STRs. Treat STR income as variable and confirm current requirements before you buy.
Live-in renovation strategy
Buy a property that needs work, live in it, and upgrade with a plan to add or improve rental space. Renovations can build equity and raise future rent potential. You will need permits for unit conversions and should budget for contingencies. Consider renovation financing if you want to roll purchase and rehab costs into one loan.
Financing paths that work
FHA for 2–4 units
FHA loans allow qualified buyers to purchase 2–4 unit properties with a low down payment when you live in one unit. Lenders often count a portion of projected rental income toward qualification. Expect mortgage insurance, and confirm how your lender will document potential rent.
VA for eligible buyers
If you qualify for a VA loan, you can buy a 1–4 unit property with no down payment and live in one unit. Rental income rules apply. Check occupancy timelines and funding fee details for your scenario.
Conventional loans
Conventional loans can finance owner-occupied 2–4 unit homes. Down payments are usually higher and underwriting can be stricter than FHA or VA. Ask your lender how they will count projected rent and what reserves they require.
Renovation and 203(k) options
A renovation loan can combine purchase and rehab into one. This is useful if you plan to create or legalize an ADU or remodel a basement apartment. Confirm scope, contractor bids, and permit plans early in the process.
Down payment help in Colorado
Colorado and Denver offer assistance programs for eligible buyers through organizations like the Colorado Housing and Finance Authority and city housing offices. Programs change, so review current guidelines and income limits. Assistance can reduce cash needed to close and improve your monthly budget.
Lender rules to know
- Owner-occupancy is typically required for at least 12 months for favorable programs.
- Lenders often count only a portion of projected rent and apply a vacancy factor.
- Mortgage insurance and fees affect cashflow, so include them in your analysis.
Check Denver rules first
Zoning and ADUs
Confirm your property’s zoning and what is allowed for ADUs or basement apartments. Conversions require permits and compliance with building, electrical, plumbing, and fire codes. Review parking and size limits and confirm what is legal today, not just what is planned.
STR licensing and taxes
Short-term rentals require city registration and tax compliance. Income can be seasonal and variable. Verify current rules and neighborhood limits before counting on STR income.
HOA restrictions
Many HOAs restrict rentals, set caps, or require approval. Condo and townhome communities often have rules that limit room rentals or additional occupants. Always review HOA covenants and bylaws before making an offer.
Occupancy, health, and safety
Follow local occupancy limits and landlord obligations. Ensure working smoke and carbon monoxide detectors, proper egress, and habitability standards. Older homes may have special disclosure requirements.
Licensing and business compliance
You may need a business license to rent units in Denver. Track tax obligations for long-term and short-term rentals. If you plan to hire a property manager, confirm any registration requirements.
Run the numbers conservatively
Strong analysis beats guesswork. Build a simple model so you can compare options and stress-test your plan.
- Estimate market rent by unit type and location, then apply a vacancy factor.
- List operating costs: taxes, insurance, HOA fees if any, utilities you will cover, routine maintenance, and a reserve for capital items.
- Add mortgage principal and interest, plus mortgage insurance or funding fees.
- Calculate net operating income (rents minus operating expenses) and cashflow after debt service. Test higher vacancy and repair scenarios.
A simple duplex example
Assume you buy a Denver duplex and live in one unit. You rent the second unit at a conservative market rate and apply a vacancy factor. Include property taxes, insurance, maintenance, and any HOA fee if applicable. The goal is to estimate your net out-of-pocket housing cost, then see how different rates, rents, or expenses change the outcome. Your lender can also show how much of projected rent they will count toward qualifying.
Search checklist for Denver house hackers
- Property type: 2–4 unit, single-family with ADU potential, or room-rental layout.
- Zoning: Confirm allowed uses, ADU rules, parking, and any historic limits.
- Legal units: Verify permits for existing ADUs or basement apartments.
- Utilities: Check separate meters, panel capacity, and egress for basement spaces.
- HOA: Review rental caps, lease terms, and room-rental rules before you offer.
- STR: If relevant, confirm licensing and neighborhood limits with the city.
- Condition: Inspect roofs, systems, and safety items that affect habitability.
- Leases and rent comps: Collect current leases or order a rent analysis.
- Lender plan: Get preapproved and ask how rental income will be counted.
- Insurance: Price landlord or dwelling coverage for your setup.
After you buy: operating setup
- Update insurance for landlord or room-rental coverage.
- Use written leases with clear rules for maintenance, utilities, and shared areas.
- Screen tenants with compliant credit, income, and eviction checks.
- Set emergency contacts and repair response times in writing.
- Track income, expenses, and depreciation for taxes. A local CPA can help.
- Consider professional management if you scale to multiple units.
Build a path to ownership in Denver
House hacking can help you step into homeownership while reducing costs and building long-term equity. Start with the simplest strategy that fits your lifestyle and financing, then keep good records and refine your plan over time. If you want a step-by-step plan, a list of duplexes or ADU-ready homes, or lender intros, reach out to Lydia’s Home Team. We can help you set a clear search, run conservative numbers, and move forward with confidence.
FAQs
What is house hacking in Denver?
- House hacking means you live in part of a property and rent the rest to reduce your housing costs, commonly using a duplex, ADU, basement apartment, or room rentals.
Can I use FHA or VA for a Denver duplex?
- Yes, both FHA and VA allow qualified buyers to purchase 2–4 unit properties if you will occupy one unit, with rental income often counted toward qualifying.
Are short-term rentals allowed for house hacking in Denver?
- Short-term rentals require city registration and tax compliance, and rules can change, so verify current licensing and neighborhood limits before relying on STR income.
Will an HOA let me rent a room or unit?
- Many HOAs set rental caps or require approval, and some restrict room rentals, so review covenants and bylaws before you write an offer.
How much down payment do I need to house hack?
- FHA can be as low as 3.5% for eligible buyers, VA can be 0% for eligible buyers, and conventional multi-unit loans often require higher down payments than single-family.
What are the biggest house hacking pitfalls?
- Buyers often underestimate repairs and operating costs, overlook permits for ADUs, miss HOA restrictions, skip proper insurance, or overestimate possible rents.
