Build Air BnB Cottage in Backyard or Invest $ in another SFR?

[Ana Marie B.]

Hi BP! My husband and I own and occupy an SFR in the SF Bay Area. With real estate prices so high around here, we're unwilling to invest in another property until this bubble bursts. Therefore, we're thinking about the following options --

A.) Build a cottage/bath in our backyard (w/ full permits) and use it for short-term rental via Air BnB. Cost of construction would cost around $40-50k. We live 15-20 mins from SF and have bus/train stations close by.

B.) Put that $ toward another out-of-state investment (leaning toward SFR).

Curious what your thoughts are. Thanks in advance for your input!