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How Much It Cost to Build a Small Guesthouse in your Backyard

Do you want to start a guesthouse and you want to know the cost? If YES, here is an estimated cost breakdown to build and open a guesthouse in your backyard. Building a guest house in your backyard is a wonderful way to provide potential guests with a private, comfortable space.

With a well built guesthouse in the backyard, you can comfortably invite friends for extended stays without worrying whether you will get sick of each other. You can ideally host your in-laws without feeling they are encroaching into your space.

In this modern age, there are various uses of backyard guest houses and these uses go beyond just guests. Some people use the guest house to put up adult children who are down on their luck or transitioning from one place to another. Others use it as a rental property to generate extra income.

Factors That Determine the Cost of Building a Small Guesthouse

However, some guest houses are traditionally-built structures. Others are modular, meaning most of the construction takes place in a factory and only the foundation and finishing work are completed on site. Note that modular guest houses are more popular because they are far less expensive, but there are some limitations to design and size. Guest houses are commonly referred to as ADUs (accessory dwelling units).

Before you start building a guest house in your own backyard, it is pertinent you find out what’s legal and what’s not in your municipality, because different rules on guest houses exist depending on where you are. It is also important you make sure you aren’t living in a subdivision where the homeowner’s association doesn’t allow guest houses.

Just because it is called a guest house doesn’t mean it can’t be done without due diligence and proper business intricacies, because it’s like any other construction job that requires permits and strict adherence to construction regulations. Note that working with an architect or a design and build contractor can help you a great deal.

When choosing to build a guesthouse in your backyard, also ensure the structure doesn’t block your favourite view. Take your time to visualize how the addition of a new structure in your backyard is going to impact your surroundings and the space you already enjoy.

Indeed, there is a cost associated with building a guest house in your backyard, which is why you need to look into financing ahead of time so you have more options.

Although you might be limited to the size of your existing land on which the house will be built, cost is also going to be a very crucial factor, especially since most guest homes cost more to build per square foot than larger homes. If you have a sizeable backyard, you also have to consider how much of that yard you would like to continue to use for outdoor activity.

At this point, one of the biggest factors that must also be considered is the purpose of the guest house. Having a solid idea of how it will be used will help guide you to the right size, whether it’s a 400-foot tiny home or a more substantial 1,200-foot residence for the in-laws or renters.

Different Types of Guest Houses and How Much They Cost to Build

There are many details to take into account when determining how much a guest house in your backyard will cost, but you can get a ballpark idea of expense by looking at square footage.

For instance, if you’re planning on a 600-700 square-foot structure, you can plan on paying between $45,000 and $65,000, which doesn’t include permits and legal regulation costs. However, the overall price tag will vary depending on the type of guesthouse, the complexity of the layout, and what finishes you choose to adorn your home with.

1. Detached New Construction Guest Houses: $100 – $500 per square foot

This type of guesthouse is one of the most popular choices in backyard guest house designs. When yard space isn’t an issue, this can be the best choice, as it doesn’t involve the same amount of disruption that occurs when a guest house is attached to the existing home.

The cost of building this sort of guest house tends to vary dramatically in price depending on size, layout, materials, finishing options and your location. The cost might be anywhere from $100-$500 per square foot for a well designed, built and finished guest house.

2. Garage Conversion Guest Houses: $102,000

In the United States, one of the benefits of converting a garage into a guest house is that the foundation is already there, which can eliminate the need to spend a chunk of change on new cement and labour. There are also existing walls, electricity and some plumbing (usually), all of which can aid in cutting project time and cost.

The contract cost to convert a two-car garage into a 400-square-foot studio in the United States is estimated at $102,000, or about $250 a square foot. The ballpark estimates for this project might go as high as $160,000. Note that this $102,000 figure doesn’t include permits, most fixtures, and other big-ticket items like doors, windows, flooring, and the mini-split AC unit.

3. Above garage or Workshop Guest Houses: $170 – $600 per square foot

For individuals without the suitable space in their backyard, or if you don’t even have a backyard, going up instead of out becomes the only option. The cost of building this sort of guest house tend to vary dramatically in price depending on size, layout, materials, finishing options, location, and required permits. The cost might be anywhere from $170-$600 per square foot for a well designed, built and finished above garage or workshop guest house.

4. Bump Out Guest Houses – $75,615

A bump out is essentially extra space that is smaller than a full addition. While most homeowners choose bump outs that are quite small, construction crews can create bump outs that fit what you have on your list of needs for a guest house, but on a smaller scale. Expect the running total of constructing this guest house to be around $75,615.97, with $31,000 in required stage payments to go.

5. Modular Guest Houses: $70,000 – $80,000

To save on time and money, most people consider a modular guest house. Many of the parts that make up the modular home are constructed off site and assembled at your home. The only requirement is to have the foundation ready before the construction crew can assemble the house. Note that an average modular guest house with about 1,000 – 1,200 square feet of space cost $70,000 – $80,000 to build and install.


Note that guest houses often do not produce a high return on investment (ROI), unless you live in a high-end neighbourhood where they are very common. When you go to sell the house, chances are you won’t get a dollar-for-dollar return.

Nonetheless, most people who build guest houses are more focused on creating a comfortable environment, not resale value. These people also intend to stay in their homes for many years, making ROI less important. However, note that building a guest house doesn’t have to be a burden.

When you hire the right remodelling contractor, the process goes quite smoothly, especially if you partner with a design and build contractor. Building a guest house involves a big investment of time and money, and you don’t want any missteps along the way. That’s why it’s smart to bring in a qualified, certified, knowledgeable and experienced professional to walk you through every step.