We are downsizing to 1400 sq ft NEXT WEEK to kick off our FIRE plan. And I'm completely fine with it except there will be zero room for guests, and I want to have family/friends be able to come and stay, not have to pay for accommodation and most of all stay close to us. I just need some extra sleeping quarters in the backyard. Like a bunk-house.
Ah. Yeah. You want an older travel trailer of some sort. If you've got a way to hook it into septic, that's the easiest option for dealing with waste, though "You wanna use the toilet, you come in the house" is also acceptable.
You could build something, but for that particular use case, I wouldn't bother. Some sort of trailer will work just fine. If you can put up a roof over it, you can get a pretty old and beat one that's still structurally sound and it'll last a long time.
You could also offer them tents and sleeping bags!
We don't have much in the way of guest space (sort of by design), so it limits long term family visiting.