Is house hacking legal in Colorado?
Updated: Mar 17, 2021
House hacking is the best way to get started in real estate. Especially in hot markets like Denver and Colorado Springs where we work. It's simple. You live for free. You save money. You buy the next quickly. Bam! You've got a small real estate portfolio.
But let's take a step back: Is house hacking legal in Colorado? There are two questions inside that one question: What are the laws around renting by the room? And how long do I have to live in the property before buying my next Colorado house hacking home? Let's tackle these questions one by one.
What are the city laws on house hacking or renting by the room?
First, a housekeeping disclaimer. We're not lawyers, and this isn't legal advice. But this is what we read from following these issues.
House hacking laws vary from city to city. Denver's are different than Colorado Springs, which are different from Golden's or Aurora's, etc. Most cities limit the number of unrelated adults that can live together. And there is a spectrum. (I'll get to that in a minute.)
The other issue is that even if a city allows, say, four unrelated adults to live together, they typically allow them to rent as a single unit. By that I mean, four unrelated adults have all decided to live together and sign one lease. But in most house hacking scenarios, you're renting each room separately, with separate leases, which many cities consider a boarding house and do not allow.
That said, renting rooms has been going on for decades, and unless you've got a really tough neighbor, this is not an issue for anyone.
So, let's address the other issue. How many unrelated adults can live together in Denver, Colorado Springs, and other Colorado cities?
Allows up to 5 unrelated adults to live together
Unincorporated Adams County
Unincorporated Arapahoe County
Allows up to 4 unrelated adults to live together
Allows up to 3 unrelated adults to live together
Allows up to 2 unrelated adults to live together
Ready to dive into that first house hack? We'd love to help.
How long do I have to live in a house hack?
The other issue is how long you have to live in that house hack. You're house hacking in Denver or Colorado Springs because you're a savvy investor starting out. The goal is to gain more properties. So how quickly can you do that:
Short story: One year, minimum.
Longer story: You may have heard that you have to live in a primary residence house hack for a certain period of time. That's correct and is true whether you buy in Denver, Colorado Springs or elsewhere in Colorado. This is a federal requirement. When you close on your first home, you will sign a document that says you intend to live in that house for one year.
Why? Because the bank gives preferential interest rates to borrowers who will live in the home. They also require a lot less down (like as little as 3.5% for an FHA loan versus a minimum 20% down for an investment loan). If you are bouncing from home to home just to get the primary resident mortgage rate and to skirt the down payment requirements, that's mortgage fraud. So you have to live there for some time.
Understanding the house hacking laws in Denver and Colorado Springs and elsewhere along Colorado's front range is a smart first step. But don't let it bog you down. Analysis paralysis is the biggest hurdle for the first-time home buyer. Learn what you need to learn and then dive in.
Want to get started with your first house hacking property? Contact us today.