(Illustration by Kevin Spaulding.)

“I always considered it a good investment because it was a good location, and the separateness of the properties meant I could rent one and cover my overhead if I had to,” Bickford reflects. “In the East Hampton market, a summer rental of a house with a pool could pull in $40,000.”

Subdivide and Conquer
Turning a home into a compound is not as simple as calling an architect and contractor and telling them to start building. Zoning rules can be difficult to navigate, and depending on how extravagant one’s tastes are, costs can quickly skyrocket. But families across the country are increasingly creating their own Kennebunkports, driven as much by the chance to increase their home’s value by up to 300 percent as by the emotional satisfaction of being master of their own manor.

Bickford and McCarthy’s ideas may seem idiosyncratic, but one aspect of their plan is typical of many owners who want to build a guesthouse, particularly those in the Hamptons. Zoning rules in East Hampton restrict new building to one dwelling per residential parcel of land. To have a guesthouse, you must make a choice: either buy a separate lot, as Bickford and McCarthy did, or buy an older estate that already has a separate guesthouse grandfathered in.

Peter Turino, principal broker at Brown Harris Stevens in the Hamptons, says the tactic of buying a lot near or adjacent to your home and creating a compound has become popular in recent years. “The multidwelling compound is often worth more than the sum of its parts. It’s a good real estate strategy, because you’re enhancing the value of the property you own already,” he explains. “It’s also a nice defensive move, protecting yourself from someone else building next door.”

Owners of two combined properties in the Hamptons, he explains, can often sell their compound for anywhere from 150 to 300 percent of their original, separate sales prices. “A lot of the big players, as soon as they buy one property they are already looking to buy the adjacent property,” Turino adds.

The crunch in the Hamptons is mirrored in other exclusive regions of the country. As many desirable communities are becoming more popular, neighborhoods are cracking down on overbuilding. Zoning despots are placing strict limits on the number of stories per house, on the number of structures on a piece of property and on their use. In many communities, for example, it is unlawful to rent out a poolhouse or guesthouse. Because so many homeowners succumb to these rules and regulations, abandoning their plans, those who fight through the red tape to build a guesthouse can improve property values to a surprising degree.

Residential Dilemma
Shauna and Barry Montgomery are old hands when it comes to building guesthouses amid arduous zoning issues, having constructed one with an additional garage at their vacation home in Loblolly, Fla., and another on Lake Geneva, Wis. The couple, whose primary residence is in Chicago, have since sold both vacation properties, and are building another vacation home in a different municipality on Lake Geneva. With each construction project, they have been forced to navigate different types of zoning restrictions.

The first Lake Geneva municipality, Fontana, required setbacks of at least 75 feet from the water, special permission to install a pier, connections to access roads, fire hydrants, soil erosion permits and other vagaries. While the couple toed the line on these regulations, one they simply ignored: that second houses can only be constructed as servants’ quarters. This anachronism remains from the turn of the last century, when wealthy Chicago businessmen flocked to holiday in the area with their large household and domestic staffs in tow.

TOP VIEW Building a guest house is becoming a popular strategy for increasing both the aesthetic appeal and overall value of residential property. But owners must beware of meticulous construction regulations and environmental rules that can drive up building costs and mire projects for years.

Despite all the restrictions, Barry Montgomery says that building the five-bedroom, 3,500-square-foot house was worth the aggravation, both to enable his extended family to visit in comfort and to pad his bottom line. “It certainly made the property more valuable,” he points out.

At their second Lake Geneva home, in Linn Township, none of those regulations is at issue. The couple simply cannot build a guesthouse. The local zoning rules limit the number of structures available for use on a particular lot, according to John Engerman, the Montgomery’s builder. In other residential hot spots, the story is much the same.

Suzanne Frisbie, a real estate broker at Corcoran in Palm Beach, says that after owners negotiate the local zoning maze, guesthouses can add tremendously to a property’s aesthetics. “Any time you can create spaces in your togetherness, it tends to make for a greater sense of happiness. The guest’s freedom to come and go and not be under your feet is a tremendous treat to be able to offer your friends,” she says. Of course, in locales such as South Florida, it follows that a guesthouse should be nearly as well-planned and well-appointed as the main residence. Palm Beach’s newest high-end guesthouses are marked primarily by more luxury. Bathrooms are bigger and more sumptuous. Marble abounds. Frank Symons, executive vice president at Sotheby’s International Realty in Beverly Hills, agrees that lavishness is in on his coast as well.

Kitchens must be larger to accommodate entire groups of Food Network addicts, private chefs and catering staffs. Larger gathering areas near the kitchens are also de rigueur for handling foodie friends who want to participate in meal preparation. “Now people hang out and enjoy the process,” Frisbie says.

In other parts of the country, guest homes offer sportier amusements. Clayton Andrews, a managing broker in Sotheby’s office in Jackson Hole, Wyo., says guesthouses in Teton County are generally limited to only 1,000 square feet, imposing a more minimal magnificence. Andrews notes that most visitors arrive to take in the scenery and experience nature, so the must-haves are more basic. “You want a living room with a woodburning fireplace and large picture windows that bring the outdoors indoors so you can appreciate it—the Tetons, wildlife, flora and fauna.” If the guesthouse is near a river or fishing stream, so much the better. However, as in the Hamptons and Lake Geneva, waterways dictate precisely where and how owners are allowed to build and require owners to leap through numerous environmental hoops.

Andrews estimates that proximity to mountain views means a guesthouse will earn an owner at least 150 percent on his overall investment—200 to 300 percent if near a riparian habitat. “You’re not going to lose money on it,” he claims.

Elsewhere in the rugged West, there seems to be a bit more space for guest homes, but at a steep cost. Dave Wilson owns his own construction company that builds high-end homes in Sun Valley, Idaho, the oldest ski resort in North America. Like other regions rapidly filling with second homes, Blaine County has zoning limits: one accessory dwelling unit per parcel of land. Wilson’s most recent Blaine County project was a 2,000-square-foot guesthouse, sharing space with an 18,000-square-foot home. The cost of building in the area ranges from $300 to $500 per square foot—or $600,000 to $1 million for a 2,000-square-foot guesthouse alone.

While brokers vow that opulent guesthouses invariably increase resale values, some financial advisors say homeowners should not justify spending for master-chef kitchens or pools with visions of hefty resale profits. Bob Confessore, a certified financial planner and real estate expert with Wealth Builders, a Little Silver, N.J.-based manager of family offices, concedes, “This is a lifestyle decision rather than an investment decision.”

House Rules
Property owners offer these tips for streamlining a guesthouse project:

• Learn the city rules. Meet with the local building department to discuss zoning requirements and limitations. For example, your guesthouse’s total square footage might be determined by the size of your lot. In the 2-acre zoning category in East Hampton, houses must be a minimum of 800 square feet.

• Learn the countryside rules. Check to see if your property carries environmental restrictions. If the property includes wetlands, woodlands, dunes, farmland or waterfront, it will likely have restrictions on how close you can build to these features, and there will likely be areas where oil and septic tanks cannot be buried. Local land engineers can help navigate the maze of agencies and paperwork.

Elizabeth Wine is a freelance journalist based in Brooklyn.
elizabethwine1@yahoo.com.