Adding a Guest House or In-law Suite to Your Property

Homeownership By Noah - September 4, 2020

Home is about family. When multiple households combine into a larger family living arrangement, such as elderly parents moving in, some homeowners worry about balancing quality time together with independence and privacy. A guest house or in-law suite can be one option to offer family members their own space. Guest homes may also come in handy for grown children who are not able to leave the nest yet, or even as a source of income via rentals.

Building a backyard guest house is a major home improvement project, so before you dive into tiny-house dreams, make sure you get the info you need on cost, home models, and what a guest house means for your home’s resale value.

Why Build a Guest House?

A guest house is sometimes also called an in-law suite because it is a perfect place to host family or friends on visits. Families living in a multigenerational arrangement (e.g., assisting aging parents who can no longer manage an entire household independently) may use an in-law suite year-round. In other cases, homeowners may plan to use a guest house to bring in additional income by letting travelers book a stay.

A guest house provides comfort and privacy for both homeowners and guests. People can easily retreat to their own space or reach out for help when needed. This makes a guest house or in-law suite a versatile space.

How Do You Design a Guest House?

Before you break ground to build a guest house, make sure you’re legally in the clear. Not every neighborhood is zoned for accessory dwellings, such as guest houses. Start by checking your county zoning ordinances. You may need to obtain a permit to build a guest house.

Once you’ve handled any permit paperwork you’ll need, it’s time to plan your build. There are two primary types of guest houses: modular guest homes, and custom guest homes. Whichever direction you take on this fork in the road, you’ll encounter some pros and cons, so let’s take a look.

Modular guest home

A modular, or prefab (i.e., prefabricated) home is pre-built in a factory, instead of having all construction happen on-site. A modular home arrives at your property in sections, which workers will fit together using cranes. In many other respects, a modular home is similar to a site-built home: Home loans, appraisals, and insurance work the same way. 

However, modular houses are often cheaper than custom-built counterparts. They also are quicker to construct because so much of the process happens inside where weather delays aren’t a factor. Many are on the small side, with 800-1500 square feet being a common size range (the modular “tiny houses” that were so popular a few years ago can be much smaller). This is enough to include one or two bedrooms, a kitchenette, and some living space. While you can pick from a range of pre-made designs, you don’t have as much freedom to customize the design.

Custom or site-built home

A site-built guest home is constructed start to finish on your property. This type of guest house requires more time to plan and approve than a prefab model. It’s also more expensive than a modular home. The upside to patience and cost investment is much more freedom to design a building that fits your goals and the space on your property. 

Some homeowners may plan to increase income in retirement by moving into the guest house and renting out the main house on the property. These homeowners often prefer to custom-design a guest house that reflects their taste and includes any accommodations they’d want as they age (e.g., grab bars, wheelchair-friendly room layout).

How Much Does a Guest House Cost to Build?

You can expect any guest house to be a significant project, involving thousands of dollars and months of work. There’s a wide range in exactly what the bottom line price will be in terms of the cost to build a guest house or in-law suite.

A small, modular guest house (600-700 square feet) can run around $45,000 to install. You can estimate roughly $50-100 per square foot for the unit alone, and $80-160 per square foot for full installation. Costs may depend on how much work needs to be done to prepare the foundation, as well as the size and materials you choose.

A custom guest home can easily cost as much or more per square foot as building a primary residence. Just because the home is a secondary dwelling doesn’t mean you get a discount. Depending on what features you prioritize in your guest home, you can expect to spend $100-500 per square foot, totaling hundreds of thousands of dollars.

Every square foot counts, so some homeowners focus on the economy of space to save money. Also, consider the extra costs of installing a kitchen. Renters and guests often don’t need more than one or two bedrooms. One factor to keep in mind is some local ordinances set a minimum square footage for an accessory dwelling. Giving yourself a margin of error to make sure the home is properly sized to meet regulations is smart.

How Much Value Does a Guest House Add to a Home?

Most homeowners build a guest house because they need the space, not because they’re hoping to get a high resale ROI. A guest house isn’t necessarily one of the best renovations to increase your home’s value. While some potential buyers may appreciate the extra space (or may have their own multigenerational living needs or Airbnb-type plans), others may be turned off by a guest house on the property. Maintaining a building that isn’t part of the main house isn’t for everyone.

Instead of focusing on overall property value, it can help to think of guest home value in terms of your active use of the building. Homeowners who use guest homes for short-term rentals may charge $70 or more per night if they’re in a popular area for travelers. When used effectively, guest home rentals can even earn back a majority of their original cost in addition to a partial ROI when the home is sold. For those using a guest home for their family, a guest house saves money on hotel rentals and transportation while still allowing everyone to have privacy.

A guest home may or may not increase the value of your home itself in buyers’ eyes, but it does mean the homeowner will have opportunities to make or save money by using the guest home.

How to Finance a Guest House

Building a guest home can open new value to the ways you use your home. Whether you’re hosting family, creating a vacation rental property, or planning a retirement living space, this major project adds new possibilities to the property. One challenge is funding this major project.

A project that costs tens or hundreds of thousands of dollars often requires financing. You can pursue a loan or a home equity line of credit (HELOC), but these types of loans often come with monthly payments and added interest. Home Value Investments from Noah allow you to tap into your equity and provide up-front funding. An important difference is, unlike home equity loans, a home value investment won’t kick off a monthly repayment plan. You can handle the permit process, getting contractor bids, and seeing the construction process through without worrying about paying monthly fees or interest.

Of course, always talk to a trusted, qualified financial professional before taking on a major financial commitment. But once you’re ready to build your perfect guest home, know that Noah will be excited to take the journey with you.