What goes into building an Accessory Dwelling Unit (ADU), and how much does it cost? To find out, we sat down with builder Phil Daughton of Prenvalley Builders. He gave us an in-depth look at the process from start to finish.
- This post is part of our Denver ADU Course. ADU’s are a hot topic! This series is to keep you informed and updated on the ADU scene. View our Colorado ADU Directory list.
- Listen to the podcast “#334: ADU #4: What It Takes to Build an ADU with Phil Daughton” on the Denver Real Estate Investing Podcast
- Watch the YouTube video (at the bottom).
- Read the blog post. Note, the blog is an executive summary. Get the in-depth breakdown from the podcast or video.
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How Much Does an ADU Cost to Build?
There’s a range depending on the size and style. Typically, they run from $150K-250K or higher depending on finish level. If you want to build an ADU with a garage underneath or a rooftop deck, it will probably push the $250K price point.
Step One: Designing the ADU
The first step is really knowing what you’re looking to create. After meeting with the client, Phil creates a preliminary/schematic design. This ensures he understands what the client wants and verifies that it will fit within zoning requirements. The preliminary design generally costs about $2K or a little more depending on the desired size of the ADU.
Prenvalley is a one stop shop that will follow zoning requirements, create the design, and perform the construction. This gives them more control over the process and provides better value to their clients.
Step Two: Client Approval and Redesign
After Phil presents clients with the preliminary drawing, clients have the opportunity to make changes. After agreeing on the final design, Phil will put together estimated costs to build. He likes to show numbers from historic data early on so that clients know what they’ll be paying ahead of time. If clients are unhappy with the price, then they can do a redesign to bring it down.
In the slow season, it takes about one to two weeks to agree on the final design. During the busy summer season, it can take a month or a month and a half depending on backlog.
Step Three: City Permits and Approvals
Once the client approves the design, Phil gets to work putting together the information the city requires to approve the structure. They need to provide a soil report; have a surveyor look at the yard to make sure the ADU wouldn’t be too close to or on someone else’s property; and convert their drawings into submittable architectural renderings.
In all, about eight to ten documents need to be submitted to the city, which takes about two to three months to gather. Denver is a big municipality, so the process is complex and takes longer than other cities and counties in the metro area. They have many different types of permits to approve, so their backlog is considerable. The permitting process can take six to eight months if the property is already zoned for an ADU and longer if they need to do a zoning change.
Cities outside of Denver that allow ADUs typically have a less complicated approval process. However, not every area allows them. Aurora is the in the discussion phase, while Colorado Springs has been changing rules due to the burst of short-term rentals the city has seen. It’s important to know ahead of time if your locality allows ADUs.
What Happens During the Permitting Process?
A lot of the permitting process entails clients sitting and waiting, but Phil likes to try to do as much prep work as possible. He’ll hone in on the budget by reaching out to subcontractors. This allows them to start building as soon as the permit is issued. During the busy season, there may be a one to two week waiting period.
What Are Some Little-Known Rules for Building an ADU?
Technically, the structure needs to match your existing home. Denver wants there to be a visual tie between the two structures. For example, an early 1900s Craftsman home can’t have a modern ADU in the backyard. While there may be some loopholes, the city generally wants to keep the existing feel of the home.
Another important aspect to consider is lot coverage. Lot coverage is the percentage of a lot that can have buildings on it. Houses and garages count as buildings, while sheds typically do not count. A rule of thumb in Denver is that up to 50% of the lot can be covered by buildings.
However, lot coverage can be increased up to 80% if the ADU is also used as a garage. Because parking is such a premium in the city, home owners are incentivized to create off-street parking. They still need to abide by the rule of keeping a distance of 15 feet from an existing structure, though.
How Do Historic Districts Zone for ADUs?
Getting an ADU approved in one of Denver’s historic districts can take even longer than a typical permit. There are many more rules in place to ensure the building isn’t impeding on and is cohesive to the neighborhood. Phil has been in historic review for a combination pop top and ADU for months and anticipates the approval process could take up to a year and a half.
What Types of Areas Are Zoned for an ADU?
Generally, a good way to determine if you can build an ADU is to look around the neighborhood and see what others are building. If the neighborhood consists of single-family homes, then you’re probably more constrained in what you can build.
However, if you’re closer to areas that have mixed use and higher density housing, then you can probably build out your property. Generally, if zoning allows for multi-unit properties, then you can find rules or loopholes that will allow you to build.
How Complicated Is It to Run Utilities to an ADU?
Getting utilities hooked up for an ADU is a pretty significant cost. It’s one of the first things that Phil makes his clients aware of when they start the process. Just converting an existing tap for a water line costs about $6K in Denver. Adding a new line to an existing one entails digging up the line in the yard, and potentially ripping up any existing structures on top of it.
There are a lot of options for running electricity to an ADU. In Denver, electricity often runs through the alley, so one option is to move the main electrical panel to the ADU and make the main home a subpanel. Regardless, a new panel will be needed, which costs about $3.5K-4K.
What Are Some Common Hiccups or Delays During the Construction Phase?
A common issue is making sure both the house and ADU have enough gas and electricity. It’s an easy fix to adjust the gas pressure or have Excel come out, but it can cause delays.
Access is one of the hardest parts for building ADUs, since clients want to make the structures as big as possible. During a recent ADU build, Phil and his team were using tape measures to ensure that the ADU met zoning requirements, while still using every available inch they were allowed to build on.
Is It Easier to Convert an Existing Garage to an ADU than Building a New One?
While it might work in some cases, it’s expensive and complex to convert an existing structure into a livable space. Getting a building up to code involves removing and replacing existing drywall and insulation, as well as making sure the foundation is solid.
While many people think it’s a simple process to put an apartment on top of a garage, the reality is more complicated. Most garages are poured on concrete slabs and don’t have a foundation that can support a second story. Another floor adds a lot of weight to the structure, which needs to be supported by a deeper foundation and a footer that distributes the weight. It’s possible to get creative using helical piers to support weight instead of a footer, but that only works if there’s already a foundation and not just a slab.
The city of Denver has extensive requirements for livable spaces. Slabs must be insulated in order to comply with energy code, which requires digging down into the structure.
Based on a conversion Phil did in the Springs, he finds that it only saves a couple thousand dollars to convert a space instead of building a new one.
What Is Some Advice for Clients on Finishes?
A lot of clients get caught in the weeds trying to figure out the functionality of the space and finish levels. Phil and Prenvalley pride themselves on their design machine and like to focus in on functionality. They have a lot of experience building tiny homes and know how to make efficient use of space that flows.
Finish-wise, he wants to make sure clients don’t get too stuck trying to make selections, which can blow the budget and timeline. He likes to give them a list of things with a timeline to decide on so they aren’t overwhelmed picking out everything at once.
While it varies from person to person, he usually recommends people save money by deciding design choices for themselves. However, interior designers are worth their weight in gold and can help with everything from tile to sheen of paint to cabinets. It typically costs $1.5-2K for an interior designer.
What Can Clients Do If the Appraisal Comes in Low?
Low appraisals are the biggest shock for clients. However, keep in mind that the appraisal doesn’t necessarily mean that that’s the value of the property or how much it would sell for.
One client recently expected his high-end ADU to boost his property’s value to $800K-900K, but the appraisal came in at $770K. However, the ADU is being used as a short-term rental and the property is steadily booked with a positive cashflow.
What Is the Key Takeaway for Anyone Interested in Building an ADU?
Phil says keeping the budget in mind is key. It’s important not to overthink picking out finishes and remember what the property will be used for. If the ADU will be a short-term rental, then not every finish needs to or should be high-end. IKEA cabinets are easy to replace if damaged, and Luxury Vinyl Plank (LVP) floor both looks nice and is budget-friendly.
Connect with Phil
If you want to learn more about the services Prenvalley Builders provides, visit their website. They do larger projects, such as kitchen remodels, second floor additions, garages, and master suite additions. Fill out the Contact Us card on their website and they will be in touch.
Connect with Us
If you’re interested in buying your own property to build an ADU, reach out to us. We’re happy to help you find the right property that will fit your goals.
Be sure to check out our ADU Directory to learn more about the ADU rules in your area.