House Hacking With an ADU in Castle Rock

Looking for a way to offset your Castle Rock mortgage while building long-term value? An accessory dwelling unit, or ADU, can open the door to house hacking without moving far from home. With recent changes to state law and the Town’s code, it is now simpler to add an ADU and rent it out in many single-family neighborhoods. In this guide, you’ll learn what Castle Rock allows, how house-hacking strategies work here, realistic costs and timelines, and a step-by-step plan to get started. Let’s dive in.

What Castle Rock allows now

Colorado’s 2024 ADU law pushed cities to allow one ADU on most single-family lots and to streamline approvals. Castle Rock updated its code in 2025 to comply. Here are the practical rules you need to know:

• One ADU per lot is allowed in single-family areas, with internal, attached, or detached formats permitted. Approvals are processed administratively, which speeds things up compared with prior public hearings. See the Town’s ordinance for details. Review Castle Rock’s ADU ordinance.
• Owner occupancy: the Town requires proof you live on the property at the time you apply for the ADU building permit. It removed permanent, ongoing owner-occupancy requirements. Confirm any waiver options with staff. See ordinance language.
• No dual rentals: you cannot rent the primary home and the ADU at the same time. A deed restriction prohibiting concurrent rentals must be recorded before your permit is issued. See deed restriction requirement.
• Size limits: interior ADUs may be up to 50% of the primary dwelling or 750 sq ft, whichever is greater. Detached ADUs generally have an 800 sq ft footprint cap, unless your Planned Development allows more. Check size standards.
• Setbacks and placement: side and rear setbacks follow accessory-structure standards and cannot be more restrictive than the primary dwelling’s comparable rules. See placement rules.
• Utilities: separate water or sewer taps are not allowed for ADUs. Billing stays on the main home’s account. If your tap must be upsized, expect to pay incremental system development fees. See utility provisions.
• HOAs and PDs: state law limits HOA and PD barriers to ADUs, but associations can still apply reasonable design standards. You are responsible for getting HOA approval where required. Read Colorado’s ADU law overview.
• Short-term rentals: the Town can regulate STR use of ADUs separately. Do not assume nightly rentals are allowed. Check current STR policies and any HOA rules. See ADU use caveat.

House-hacking strategies that fit

Long-term rental of your ADU

Most owners choose to live in the primary home and rent the ADU to one long-term tenant. This strategy aligns with Castle Rock’s rules and keeps management simple.

Living in the ADU, renting the main home

Some owners hope to live small in the ADU and rent the main house. Because the Town prohibits renting both units at once, scenarios that depend on turning both into rentals will not work. Confirm with the Town how the deed restriction applies if you plan to occupy the ADU and rent the primary.

Short-term rental cautions

If you are eyeing Airbnb or similar platforms, verify current Town licensing, taxes, and HOA limits. Castle Rock retains authority to regulate ADU STRs, and local rules can change. When in doubt, plan for a long-term renter.

Financing with ADU income

Lenders have become more ADU-friendly. FHA allows some ADU rent to count toward qualifying, with proper documentation and appraiser rent schedules. Review FHA guidance. Fannie Mae also permits ADU income in specific programs such as HomeReady and HomeStyle, subject to guide rules and lender implementation. See Fannie Mae’s ADU page. Work with a lender experienced in ADU underwriting and ask for an appraisal that includes a market rent schedule.

Costs, timeline, and money math

Typical costs in the Front Range

Costs vary by type and site:

• Conversions (basement or garage): about $40,000 to $175,000.
• Attached or above-garage builds: about $120,000 to $300,000.
• Detached new builds: about $150,000 to $400,000 or more.
• Many projects land in the $200 to $400 per sq ft range depending on scope and finishes. See ADU cost ranges.

How long it takes

From design to occupancy, plan on roughly 9 to 18 months. Administrative approvals in Castle Rock should shorten land-use review compared with older hearing-based processes, but design, permits, and inspections still take time.

Simple cash flow example

Say you build a detached ADU for $200,000 and rent it long term for $1,900 per month. Gross annual rent is $22,800, which is an 11.4% simple gross yield before financing, taxes, insurance, utilities, maintenance, and vacancy. Your actual cash flow depends on your loan terms and operating costs. Check cost assumptions.

Taxes, utilities, insurance

Adding an ADU is a permitted improvement and typically raises your assessed value and property tax bill. For specifics, consult the Douglas County Assessor. See Colorado assessment statutes. Update your homeowners insurance and discuss landlord coverage if you will rent the unit. Remember that Castle Rock bills water and sewer on the main account, and upsized taps can trigger system fees.

Step-by-step plan for Castle Rock

1. Confirm feasibility and HOA rules

• Review your lot, access, and setbacks. Read your HOA covenants early and ask about design review.

2. Run your numbers

• Use current rents for 1-bedroom or studio units in Castle Rock as a benchmark. Recent listings often show about $1,700 to $2,000 per month for 1-bedrooms, with variation by location and finish. Check current Castle Rock rents.

3. Talk to a lender

• Ask about FHA or conventional programs that allow ADU income and what documentation is required. Review FHA and Fannie Mae guidance.

4. Meet with the Town early

• Schedule a pre-application conversation with Castle Rock Development Services. Clarify submittal checklists, deed restriction language, utility requirements, and estimated timelines. Start with the ordinance.

5. Design and bids

• Hire designer and contractor teams familiar with ADUs. Get multiple bids that include site work, utility upgrades, permit fees, impact fees, and contingencies.

6. Finalize financing

• Lock loan terms that reflect your ADU budget and projected rent. Ask your appraiser to include a market rent schedule for the ADU.

7. Record the deed restriction

• The Town requires a recorded deed restriction prohibiting dual rentals before permit issuance. Your contractor or planner can help coordinate this step. Confirm the requirement.

8. Permits and construction

• Submit building permits, then build. Plan for inspections and schedule buffers.

9. Lease and manage

• Screen tenants, set a fair market rent, and outline clear house rules for parking, trash, and shared spaces.

Is an ADU right for you?

Castle Rock is a higher-cost market, and ADU-friendly rules plus steady rental demand can make house hacking appealing. Multiple trackers put recent local medians roughly in the mid 600s to low 700s, which is why many buyers look to ADUs for payment relief. See a current market snapshot. If your lot, budget, and timeline align, an ADU can help you live where you love while your property works a little harder.

Ready to explore properties that already have ADU potential or to plan a smart sale and purchase around your ADU goals? Reach out to Christine Gulley for local, data-informed guidance from first conversation to closing.

FAQs

In Castle Rock, can I build an ADU on my single-family lot?

• Yes. One ADU is allowed per lot in single-family areas, and most approvals are administrative. See the Town’s ordinance.

Do I have to live on the property if I build an ADU in Castle Rock?

• You must show you live on the property at the time you apply for the ADU building permit, but the Town removed permanent, ongoing owner-occupancy requirements. Review the rule.

Can I rent both the main house and the ADU at the same time in Castle Rock?

• No. The Town prohibits dual rentals and requires a recorded deed restriction before issuing an ADU permit. See the deed restriction requirement.

How large can my ADU be in Castle Rock?

• Interior ADUs may be up to 50% of the primary dwelling or 750 sq ft, whichever is greater. Detached ADU footprints are generally capped at 800 sq ft unless your PD allows more. Check size standards.

Will an ADU raise my property taxes in Douglas County?

• Most likely yes. Permitted improvements increase assessed value and can raise your tax bill. Contact the Douglas County Assessor for specifics. See Colorado assessment statutes.

Can projected ADU rent help me qualify for a mortgage?

• Often yes. FHA and some conventional programs allow a portion of documented ADU rent to count for qualifying, subject to guide rules and lender overlays. Review FHA guidance and Fannie Mae’s ADU page.