How Much Does It Cost to Build a Guest House?

Cost to Build a Guest House by Size

There are many factors that determine the cost of a guest house addition, but size definitely has the biggest impact on price. The table below demonstrates the average costs based on the most common sizes that homeowners opt for.

Before You Start: Check Your Zoning

Before taking any next steps on a guest house addition, it’s important to find out what is and isn’t permitted in your area. Head to your city’s website and look for sections marked “community development” or “planning” to find out if you can green light your project.

Look at factors like the minimum size of a guest house, the necessary distance between the main estate and the addition, and what kind of permits you’ll need to discover what you can and can’t do—like if you can build a guesthouse in your backyard.

When in doubt, contact a professional general contractor in your area for help. They’re usually well-aware of local zoning regulations, and can almost always guide you to the answers you’re looking for when they aren’t informed on a topic themselves—for example, the specific requirements of your particular HOA. 

Guest House Cost Factors

Building a guest house is like building a standard house on a smaller scale: All the same factors, like size, energy costs, and demolition, affect the price of this project. Keep reading to discover which of these factors have the biggest and smallest impacts on your final bill.

Size

Out of all the other factors that determine the cost of a guest house addition, size plays the biggest part. Larger spaces require more time to demolish and clear, more materials to fill, and additional energy costs to fuel. If your space is smaller, all these elements will be less expensive, too. 

One thing to note: When contractors work on a custom build, they usually aim for a square footage minimum or even a range in the planning process. This is because building permits often require minimum square footage, so contractors go over the minimum to better ensure their chances for approval.

While custom builds are much more expensive than modular or prefab guest houses, they last longer. Modular homes tend to have a life expectancy of 35 years.

Permits

Like any other new construction, building a guest house requires a building permit. These run between $1,200 and $1,500, and cost about $1,170 on average. Check with your homeowner’s association about any special permits you may require, especially if you plan to build a fence or privacy screen with your guest house. Some areas require additional building permits for extras like these.

Property Taxes

What you pay in property tax is based on your home’s value. Since a new guest house will undoubtedly increase your home’s value, you will likely see a 20% to 50% increase of your property tax bill depending on where you live, local tax rates, and the specifics of your guest house. Your local tax assessor will likely know to reassess your property taxes because they monitor local building permits.  

New Plumbing

Installing plumbing in a new structure is nearly (or completely) equivalent in cost to that of the original structure. For example, a backyard guest house with a bathroom will need just as many plumbing fixtures as the bathroom in your main estate. 

The average cost to install plumbing ranges from $7,500 to $15,000 and is determined by factors like the type and amount of piping material and the number of plumbing fixtures in your addition.  

New Electric

The cost to install new electrical wiring into a guest house ranges from $2,000 to $5,000. What you pay will be determined by the amount of outlets and light switches, as well as the necessary building permits, labor costs, and square footage of the space. 

Demo and Clearing of Area

Demo and site preparation costs depend almost entirely on the size of a space and any existing structures. For example, preparing for a backyard guest house may not necessarily need to involve any demolition at all. On the other hand, having to tear down a shed or garage before being able to clear the area will always cost more because of the work involved. 

On average, it costs between $2,000 and $9,000 to demolish a small structure below 1,000 square feet, like a shed or garage. Disposal and cleanup services range from $300 to $1,800.

Ongoing Energy Costs

You will likely see your utility bill increase based on how much energy it takes to power your new guest house. If you only have occasional guests, your bill likely won’t increase by much, but that’s only if you make sure that everything is turned off when the guest house isn’t in use. 

But if you’re renting your guest house out on a regular basis, or have a long-term visitor, your energy bill will increase accordingly.

Costs by Type

The type of guest house you choose to build also has an impact on your final bill. For example, you’ll almost always save by choosing to convert an existing structure rather than opting to build a new one from the ground up. 

Custom Guest House

Building a brand new structure involves a lot of materials, permits, and labor that will all add up in your final bill. For one, the cost of hiring an architect to design your home is something you don’t have to worry about when it comes to prefabricated options. 

In general, you’ll pay between $100 to $500 per square foot on average. For a 600-square-foot cottage, this cost ranges from $60,000 to $300,000. 

Converting a Garage or Shed

The cost to convert a garage into a guest house is $15,000 to $30,000 at least. Expect to go beyond this price range if you need a lot of plumbing and other work to get the space up to building code. 

In general, opting to convert an existing structure, like remodeling a shed, will almost always be more cost-effective than building something new. Some people add a guest house above their garage. This home addition costs between $110 and $120 per square foot.

Ready-Made

Small, prefabricated structures, like tiny homes, are easy to find and widely available online at affordable price points. Options range from anywhere from $5,000 to $100,000 for a ready-made kit, though that doesn’t include what you’ll also have to pay in permits, labor, plumbing, and electricity. 

Building a Guest House on a Budget

It’s not impossible to build a guest house on a budget if you’re willing to make a few sacrifices and work with what you already have. Building a tiny, 130-square-foot escape in your backyard can cost as little as $5,000 if you’re prepared to DIY a ready-made kit. 

Converting an existing space is also a lot easier to do yourself than, for example, building an entirely new structure. While you may still need to pay for the services of a pro when it comes to electric and plumbing installation, there are many parts of the project that you can save on costs by going the DIY route. 

DIY vs. Hiring a Professional

Architects, engineers, and contractors have years of experience and licensing to perform the complex process of building a house. Unless you’re a contractor, you’re taking on a massively expensive and time-consuming task.

Just to get a permit, you’ll need to prepare a site plan and build your own blueprint; this can take experts weeks to months before they get approval. If you go the DIY route and have little to no experience, there’s a good chance the city will reject your plan, thus adding even more time to your project.

FAQs

Can I build a guest house on my property?

States allow you to build a guest house on your property, but each municipality has different rules and building codes. Some states are more lenient than others for building, but every build and remodel needs an approved permit before beginning. Contact a home builder near you to learn more.

Two instances where you might not be able to build on your property are if you live in a historic district or have an HOA. Do some research in your area to find out specific rules.

Does a guest house increase home value?

Guest houses can increase home value when built properly by a licensed professional. Some homeowners are able to rent out their cottage as a vacation rental and others turn theirs into an accessory dwelling unit for long-term tenant rental. This provides homeowners with a pretty quick turnaround of ROI; in some instances, the guest house could pay for itself.

On the flip side, a guest house that’s poorly built (or even some prefab units) could actually harm your home’s value. Prefab or modular homes require regular maintenance to ensure they last. If you try to sell your property 30 years from now with a decrepit guest house that’s falling apart, it will almost certainly lower your ROI.

Can you finance a guest house?

There are a few smart ways to finance a guest house. HELOC or home equity lines of credit allow homeowners to borrow money from a lender by using their home equity as a guarantee.  Others use construction loans, which are a short-term option that covers the costs of building and materials from start to finish and becomes another mortgage when the project is done. 

Before or after your guest house is complete, you can also find ways to fund your project by refinancing your home. At the start of a project, you can use cash-out refinancing to replace your old mortgage with a new one and use cash from that increase to fund your build. Alternatively, you can have someone assess your home after the build to determine the increase in property value and potentially reduce your existing mortgage. 

What’s the difference between a guest house and an accessory dwelling unit?

An accessory dwelling unit (or ADU) always has at least one kitchen and one bathroom and a guest house cannot have a kitchen because it is not seen by building codes as a permanent residence.