Having a guesthouse in the backyard might seem ideal, especially if you like to have family and friends visit or you’re looking for a way to earn passive income. Buying a home with an accessory dwelling unit can have advantages, but there are potential problems to consider.
Is the Guest House Allowed?
Don’t assume that the previous homeowner went through the proper procedures and obtained the necessary permits before building a guesthouse. Verify that the accessory dwelling unit complies with local regulations and building codes. If it doesn’t, you might be unable to buy the property or get homeowners insurance.
Can You Get a Mortgage for a Property With a Guest House?
Some lenders won’t approve a loan for a property with more than one dwelling. Other lenders will approve a mortgage for a property with a guesthouse, but they won’t allow the owner to rent out the guesthouse to generate income.
If a lender is willing to approve a mortgage and let you rent out a guesthouse, it may or may not include projected rental income when considering your loan application. If a lender doesn’t factor rent into your total income, you might not qualify for a mortgage.
Will You Be Able to Make Money Renting Out the Guest House?
Simply having a guesthouse doesn’t guarantee a steady stream of income. Research trends in the local rental market. Look at how much comparable houses and apartments are being rented for and how long rental properties typically sit unoccupied before the landlord finds a tenant.
Renting out a guesthouse to short-term guests is another way to generate income. If you go that route, you’ll need to have the guest house cleaned frequently and comply with strict rules. Maintenance and repairs can take a bite out of your profits.
Do You Want to Be a Landlord?
Many people like the idea of collecting rent, but they don’t consider all the responsibilities and hassles of being a landlord, such as screening applicants, collecting rent, and handling maintenance and repairs. If you have a tenant who is loud or disrespectful living in your backyard, that can make life particularly stressful.
Should You Reserve the Guesthouse for Family and Friends?
If you enjoy having loved ones come and visit, having a guesthouse in your backyard might seem like a dream come true. Your family and friends will have their own private space, and they’ll get to stay as long as they would like.
That might turn out to be a problem. If you have a guesthouse, people might want to visit more often and stay significantly longer than they did in the past. That can lead to stress and arguments with friends and relatives.
What Are Other Ways to Use a Guesthouse?
A guesthouse can serve as a residence for an elderly parent who craves independence but wants to have family nearby. You can also use a guesthouse as a home office, an art studio, or just a quiet place to relax and enjoy some alone time.
