Building a Guesthouse in Your Backyard

Building a Guesthouse in Your Backyard

More space, higher property value and rental income potential

7min read
by Olesia Chikunova, ADU Specialist.

Despite space being an asset in California, backyards remain vastly underutilized. When was the last time you enjoyed al fresco dining in your backyard? Naturally, savvy homeowners want to reclaim that space, turning to a modern backyard guesthouse as the answer to their desire to add extra space to the main home. A backyard guesthouse refers to any living quarters detached from the primary residence.

In California, every city treats a guest house differently. You may be thinking in terms of tiny home, pool house or garden house. A city planner will be thinking in terns of accessory structure or accessory dwelling unit. For example, in Fremont a guesthouse should be less than 600 gross square feet in area. More often these days the guesthouses are described as accessory dwelling units — self-contained residences with separate bathrooms and a kitchen. Functional kitchen and bathroom are required for accessory dwelling units.

Structures less than 120 sq ft require only electrical permit and are considered non-habitable by most local zoning regulations.

Prefab guest house or custom builds – the same regulations apply to prefabricated structures, as to site-built ones.



guest with suitcase by the guest house

Mind, location and size restrictions apply to all structures whether or not a permit is required, and they differ city by city. It applies to DIY backyard guest houses too! Make sure to get the right permits.

A backyard guest house with bathroom and kitchen is an ADU!

Most homeowners considering building a backyard guesthouse have decided to pursue it for personal benefit. But, with careful consideration, a backyard guesthouse can be the best investment you can make in your home.

Why You Should Build a Guesthouse in the Backyard

More Pros. Less Cons.
welcoming sign Be Our Guest

Backyard guesthouses have many names — Casita, in-law units, secondary dwellings, carriage houses, and granny flats — with similar functions or designs.

But, regardless of what you choose to call it, building a guesthouse in your backyard is an investment, both financially and emotionally. Yet, a backyard guesthouse is beneficial, providing several advantages.


Add Desirable Square Footage


If your circumstances change, requiring you to upsize your home, a backyard guesthouse allows you to do this. It is a great way to add space to smaller homes. You can add space for an office, as the name suggests, a guesthouse for when guests visit, a self-contained apartment for a relative requiring assistance, and so on.

Building a guesthouse in your backyard can help you avoid attempting to find a home that meets your needs and budget within the state’s competitive real estate markets.


Add Space Without  Inconvenience


If you have dreams of adding an office, an at-home gym, an art studio or upgrading your guest facilities — bath and room — you can do it with a backyard guesthouse. It is a great project for more experienced diy-ers. Less experienced ones can try their hand hiring general contractors for a concrete slab and then buying a diy backyard guest house kit or a shipping container to be refurbished on weekends. If you decide to go this way, opt for a kit that includes plumbing and wiring. Yes, these exist.

Just do not forget about building permits. Otherwise, instead of becoming a great investment building a guesthouse in your backyard will turn into a great headache.

Not a fan of construction projects? Hire a company to do it.

Most accessory dwelling units are built within months as the predesigned packages expedite the permit process, and the crew has build many before so there is a more streamlined purchasing and construction process.

Additionally, you aren’t inconvenienced by construction inside the home, which can make your space unlivable.


Increase Resale Value


Naturally, home prices in California continue to rise. But, homes with an existing guest houses or home offices are in-demand. Many buyers prefer the second space as a guest home for a family member or just personal getaways. Be it for extra room or extra income, a high quality backyard home offers flexibility for a growing family.


Generate Hassle-Free Rental Income


Although being a landlord or multi-property owner is desirable, it comes with the aggravation of managing a home — other than your own.

Because most homes within the price range of starter homes are aging rapidly, you’ll likely be saddled with tremendous maintenance costs.


Building a guesthouse in your backyard, space isn’t the only thing leveraged. You’re also leveraging the space’s low maintenance. New buildings, even if it is a small house, are built to modern building standards and thus are often of better quality than any other existing structure on the property.

The initial cost is quickly recouped with renting, because rental income isn’t squandered on maintenance. If you have decided to go for an even bigger project and had an ADU built on your property, additional property tax is manageable, as ADUs typically do not trigger tax re-evaluation of home’s value as additions do.

What To Consider When Building Your Backyard Guesthouse

The first thing to consider is the potential guest! Is it for friends, parents or adult kids? Or is it future proofing  and building in the opportunity for additional income one day?

Average costs of small structures built for people, not for storage, are still pretty high, starting from $40,000. If you’re spending five or six figures on you own guest house, assessing various factors determining how beneficial the space will be is essential. Once you commence the backyard guesthouse building, you can’t turn back or make any last-minute changes. The local building codes drive the structural details of any permanent structures. Once the design is documented in construction drawings, and stamped by the local planning and building department, making changes will become an added expense.




Your budget will shape the kind of guesthouse you can build. Your budget should consider the loan or mortgage repayments — if you’re remortgaging your home — a realistic tax deductible or rental income provided by the guesthouse or other income generation. There are lenders offering construction loans, if the rate on your old mortgage is such that you’d hate to touch it in the current market situation. Mind, ADUs have a better chance of helping you increase the property value and refinance after the construction is completed. They have this magical ability of growing in value in the same way as your main house. As for accessory structures, the appraisers are valuing them at cost.


Development Restrictions


Besides your budget, development restrictions are the next most impactful consideration to inform your thinking when pursuing guest house plans.

You’ll have to research to ascertain if your HOA permits you to add a backyard guesthouse — and if so, what type of restrictions they place on the build. For example, an HOA may regulate your tiny structure’s position, preventing the unit from being seen from the street, which could limit the height of the guesthouse and where it’s built in your backyard.

The state places few limitations on accessory dwelling units to encourage building these spaces to boost the rental housing supply. The same cannot be said abut accessory structures. Cities have widely different rules. You may well be required to go through an extensive planning review. Some cities give an opportunity to neighbors to comment on your design and location, and that opens endless possibilities for neighborly concerns – they may not like the location, the height, the design of the structure, you name it.


Space Limitations


Once you have the go-ahead from your HOA and/or Planning department, measure the space. For example, how far would you want an ADU or accessory structure be from the back or side of your home? Where will it be located? By now, you should not be surprised that your Planning Department has an opinion about it too – the minimal distance to another structure can be anywhere from 6 to 10 feet with some additional requirements based on fire safety concerns.



An accessory structure is most beneficial when its uses aren’t limited to one thing — like a gym. Instead, the best space is versatile and can be repurposed for different stages and phases of life with only a few minor tweaks.

Guesthouse Ideas: Best Backyard Guesthouses For Your Needs

kitchen in guest house - all white

By law, an accessory dwelling unit must be larger than 150 sq feet, and a new structure can be as big as 1000 sq ft in most locations. It also needs eating and sleeping space, plus hygiene facilities.

Are you looking for small guest house plans? Check our tiny homes!

Within that square footage, you can build plenty. These are three guest house ideas that most homeowners are drawn to — and for good reason.


Studio Backyard Guesthouse


A studio backyard guesthouse can be the most versatile option. At 200 square feet it can fit into nearly any and every backyard in California, even considering the property lines and distance to the main house walls.

The typically small guest house plans include a fully-equipped bathroom, living space, and kitchenette, enough to make using the space pleasant and functional.

The space can be used as an office, gym, guest room, and even vacation rental space. Our clients may rent these studios to a student, or to a traveling nurse.




1 Bedroom Backyard Guesthouse


A studio means everything is within view. A one-bedroom guesthouse allows for demarcation, which many tenants appreciate.

An open-plan concept is a must in a one-bedroom ADU and enlarges the space. But keeping rooms separate offers guests — and yourself — more privacy.

If you insert a second exterior door leading into the bedroom, your one-bedroom guest house can be used as your workspace, with the rest of the space out of view.



2 Bedroom Backyard Guesthouse


If you have the space for a 1200-square-foot accessory dwelling unit, look into guesthouse plans with two bedrooms. The bigger space enables you to charge more for long-term rentals. You will get renters who are looking for a rental property for their families and are interested in more permanent arrangements.

This type of floor pan also leave you more flexibility. You may decide to rent out the entire guest house. You can also plan & design it in such a way, as to have a home office for yourself and a one bedroom unit as a rental property. Or use the space for two purposes, with one room acting as a guest room while the other is utilized as an office, gym, or professional studio.


The Homewip two-bedroom ADUs mostly include two bedrooms with at least one ensuite full bathroom, a dedicated living space, and a fully-equipped kitchen.

Building a Guesthouse in Your Backyard

Cost to Build a Guest House

The precise cost of building a guesthouse will depend on the size and features of the space, on the situation with site utilities and property site specifics – if it is sitting on a slope or located in a flood zone. These types of details can easily double the cost of the new construction.

Homewip has hundreds of guesthouse plans for your various needs and property’s limitations.

This means square footage is flexible, and costs can be changed to suit your budget. You can use the pans for in-law suites or home office spaces.


That said, the typical backyard studio, with the basic amenities and features, can cost from $120,000 to $170,000. A one bedroom backyard guest house will most likely fall in the range of $250,000-270,000. A two bedroom guesthouse, depending on the number of bathrooms, can require a sizable budget of about $400,000 or more.

Other challenges may have a huge influence on your budget – like limited space in the backyard that forces you to opt for an attached guest house or a slope that adds to foundation costs.

With Homewip, you will learn the budget after a site visit – we will give you an estimate that includes planning, construction documentation, fast-tracking permitting, and building the space.

attached guest house
If a guest house does not work for you

Three more ways to add space

tiny home studio

Tiny Home, Small ADU

Looking for a newly built detached solution with a bathroom and kitchenette? This type of projects start from $158,000.

Learn more
home office

Modern Shed

If all you need is an extra room for an office, then a simple 120 sf backyard structure may work. Starting at $39,000.

Learn More
accessory structure

Accessory Structure

There are jurisdictions that allow accessory structures with plumbing fixtures. Permits required. Starting at $56,000.

Learn More

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