Having a guest house is an enticing option — your in-laws, friends, or kids home from college can have their own space when they visit, not to mention you could rent out the extra space for added income. But, is it worth the extra work and cost?
Nothing can quite throw you into a panic as much as when you hear your in-laws are coming to town for two weeks. What a joy! And even if you get along swimmingly with your in-laws, it can be stress inducing to have to share your space with two additional people for an extended time.
This is where a guest house can be a lifesaver. Whenever the in-laws pop up out of the blue or your freshman kid comes home from college for the summer, a guest house can be the perfect oasis for both you and your guests who crave that extra bit of privacy and space.
But, is a guest house a good idea?
Buying a home with two properties is a whole different ball game. So before you buy a home with a guest house and shuffle your in-laws and out-of-town friends out of your home and into the guest house, you’ll want to first consider a few factors.
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1. What Will You Use Your Guest House For?
A guest house can be versatile. While the extra space can house the in-laws, kids home from college, and friends from out of town, you can also take advantage of the guest house for personal use and turn it into an office, home theater, man cave, or the trending she-shed.
Or, you might instead see dollar signs. Your guest house can be a great source of passive income through renting — whether for long-term renters or for short-term vacation rentals like an Airbnb or VRBO.
If you go the renting route, you must check with your city for any requirements regarding permits or zoning laws that may prohibit you renting out your space. In particular, vacation rentals using Airbnb have specific rules and zoning laws you need to follow.
Take into account with a vacation rental you must pay to furnish and stock the home, hire a cleaning crew, keep up with landscaping, and repairs. And is your home in a popular area? Will you even have renters that will want to stay there?
Ensure you factor in vacancy when you consider costs. How many renters need to be consistently renting your guest house to make a profit, let alone break even?
2. Guests May Invade Your Personal Bubble
“Burst your bubble” can take on a whole new meaning with a guest house. That daily morning backyard stretch you take in your skivvies may have to go by the wayside if you have visitors or renters living in your guest house. Not everyone appreciates the view.
Consider your comfort zone and if you’ll be okay with strangers lounging in your backyard, playing music, and having their own guests over. Will you be sharing the driveway, garage, or certain entrances?
One way to mitigate any uncomfortable situations is to put in privacy measures like tall bushes, greenery, or fences between you and the guesthouse. You’ll also want to factor in these landscaping and upkeep costs into your budget.
3. You Might Run Into More Obstacles with Lenders
Depending on how you plan to use your guest house, lenders will adjust their rates, loan options, and borrowing limits. For instance, if you will use your guest house as a rental to earn income you may have more borrowing power from lenders as they’ll see it as an investment.
For conventional, FHA, and VA loans, you may run into stricter requirements as, for example, while FHA loans don’t hand out loans for investment properties, they offer loans for multi-family homes meaning you must live in one home while renting the other.
And show lenders a record of earned income from your guest house — this could help reduce your riskiness in the eyes of your lender. Either way, prepare for lenders to require you to put down a larger down payment on a property with two homes.
4. Will a Guest House Increase Your Home’s Value?
At some point, you may want to sell your home and guest house — perhaps you move for a job or want to downsize when you retire. Whatever the reason, you’ll want your home to have gone up in value so you can walk away with more cash in your pocket.
Homes with guest houses, also called in-law suites, are growing in popularity. More families are choosing to live in multi-generational homes either to care for their aging parents or because of financial reasons.
Mostly associated with the millennial generation, more young adults are staying home and living with their parents for longer to give them the time to earn money and gain financial independence before they strike out on their own.
Guest homes are ideal in this situation giving both parents and the young adult plenty of privacy and personal space.
However, while homes with guest homes are increasing in demand, future buyers may still run into trouble securing loans for two-home properties. There’s also the added difficulty for appraisers to accurately value your home, as there are fewer homes like yours to do a proper comparative market analysis.
5. Who Pays the Bills?
While your in-laws and friends may not be so keen on splitting utilities for the week when they’re in town, if you instead rent out your guest house for long-term renters or as a short-term vacation rental, you’ll want to decide who pays what.
Will you take care of the electric, heating, cooling, water, garbage, lawn care, cleaning, and internet? Or, will you require your Airbnb guests to cover their own costs? You’ll want to plan out beforehand so there’s no confusion or legal recourse down the road.
Work with an Experienced Real Estate Agent
While it may be worth it for when your in-laws come to town, buying a home with a guest house is a big financial decision that can quickly get overwhelming when you maneuver through the extra paperwork and city requirements.
Take away the stress and work with an experienced, local Clever Partner Agent who can help you navigate your market, city laws, and find an affordable two-home property that fits your budget so you have cash leftover to cover any extra guest home expenses and upkeep costs.
Get in touch with Clever to learn more and connect with a Partner Agent in your area.