Beginning July 1, the accessory dwelling unit, or ADU, will be legal statewide in Colorado. Locally, Fort Collins got an early jump, implementing its own ADU policy as of February 15.
All of which leads to a few questions:
What is an ADU? It’s an independent living space that is part of an existing residential property, affectionately known as “granny flats.” A typical ADU might be an apartment built above a garage, a converted attic or garage, or a small outbuilding in the backyard.
Why is Colorado embracing ADUs? Housing supply is tight in Colorado, which helps to drive up both sale prices and rental rates. ADUs could make a dent in the state’s housing shortfall—currently estimated at 100,000 homes—and improve access to affordable housing.
What will ADUs mean for homeowners and real estate investors? In theory, ADUs make it possible for homeowners to add value to their property and could help defray an owner’s mortgage payment, thus improving the home’s affordability.
Similarly, investors—knowing they can add an ADU—could realize extra value from a rental house.
Will we see a wave of ADU construction? Not likely. Ask anyone who has undertaken a remodel project, the cost of construction is high and skilled labor is hard to come by. Also, lenders are still catching up on how to approach financing of ADU projects. Together, these factors should restrain the pace of ADU additions in the near future.
Municipalities can also impose restrictions beyond those set in the state law. For instance, Fort Collins mandates that ADUs cannot be used as short-term rentals (STRs). Depending on where you live, you are also subject to local limits on height, size, and setbacks—so be sure to check with local planning and zoning rules.
Call to discuss what the new ADU law could mean to you as a homeowner or investor. With property management services and mortgage lending expertise, The Group can help you understand your rental income potential or construction financing options.
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