Does a Guest House Increase a Home’s Value?

When you are looking to sell your home, you know certain features boost a property’s value. But does a guest house increase a home’s value? In most cases, the answer is a resounding yes. Since a guest house increases the livable square footage on your property, it nearly always provides a property value boost. Most guest houses see a 60% to 70% return on investment (ROI), however, there are some caveats to consider

Benefits of a Guest House to a Home’s Value

A few key factors help a guest house boost your home’s value when it’s time to sell.

Increasing Your Square Footage

A guest house increases the livable square footage on your property, which gives the property a higher value when you’re ready to sell. If you live in an area where guest houses are rare, the appraiser might give you a larger-than-expected boost in value per square foot because comparable properties are hard to find.

An Option for Rental Income

When you have a guest house on your property, a buyer may believe it has an increased value because of the potential for rental income. If properties with guest houses are scarce in your area, a buyer might offer more for the property after calculating how much extra income is possible.

Smaller Guest Houses Can Boost ROI

You don’t have to construct a huge guest house to increase the property’s value. In fact, some buyers may prefer a smaller guest house in a range from 500 to 1,000 square feet because it requires less maintenance over the long run. If a buyer wants to use the guest house for rental income, a smaller property with a lower rental cost will have a bigger pool of potential renters.

The actual ROI for your guest house depends on what kinds of additions you make. 

• Kitchens can add around 72% ROI.

• Adding a deck to the guest house has a roughly 66% ROI.

• The bathroom in the guest house provides a 60% ROI.

• Adding a master bedroom has around a 55% ROI.

Ultimately, your ROI for building a guest house will be similar to the ROI you receive for adding on to or remodeling your home. Selling agents treat the guest house as adding to your property’s livable square footage, so the ROI shows up in the added value versus the main home alone.

You Don’t Need a High-End Property to Add a Guest House

When thinking of a guest house, many people picture a mansion as the main house. However, even average-priced houses and properties can benefit from having a guest house. In fact, when it’s time to sell, having a guest house paired with a reasonably-priced main home will keep the property in the budget of far more buyers. 

When Building a Guest House, Emphasize Practicality

If you are building a guest house with the idea of increasing your property’s value, stick with practicality over luxury. Having your local home addition pro use basic, durable materials means fewer repairs down the road, giving you a better ROI. You don’t need to go overboard with amenities in the guest house, either. Create a comfortable, nice-looking guest house that’s warm in winter and cool in summer, and you’ll recoup the costs more easily than using high-end vanity materials.

Ways a Guest House Could Detract From a Home’s Value

Unfortunately, not all guest house constructions increase your property’s value. Some guest houses may make it tougher to sell your home, detracting from its value. Here are some issues that will make you lose money on your guest house.

Not Following Local Codes

You need to pay attention to local building codes when building a guest house to avoid having major headaches when it's time to sell. Someone who purchases your property may have a significant expense trying to bring the guest house up to code, which detracts from your overall property's value. If local regulations are strict and require you to tear down an illegal guest house before you can sell it, you lose a lot of value.

Privacy Concerns

Some buyers may worry about privacy between the two dwellings if the guest house is extremely close to the main house. Such worries may limit your pool of buyers. If buyers believe they'll have to spend money to create privacy after making the purchase, such expenses detract from the property's value.

It’s Simply Too Small

If local building codes and regulations limit you to building a tiny guest house, it could detract from your overall property value. A small guest house that's nothing more than a bedroom and bathroom could be perfect for an older relative who spends most of the day in the main house with you. However, when it's time to sell, potential buyers may see little value, especially if they're looking for a property with a guest house to maximize rental income.