I'm kind of rambling a little here but we are thinking 1,000 sq ft, although great for resale down the road, is a little big. Especially with the garage on the left side, the backyard may start feeling smaller. 800 sq ft should be plenty. My parents have 717 sqft now so they'll still get an additional 80 sq ft. They lived in a 768 sq ft apartment for a few years in Fremont which was a great size for them, and actually not a bad floor plan (see attached plan "ardenwood", except the kitchen was a little small).
Further notes:
1) If we goto 800 sq ft space guest room is OK at 10.5 x 10.5 and guest room 2 would be ok around 13x12.
2) They'd like a small dining room but 9x9 should be more than enough space
3) Would like to have at least one patio door opening out to garden from living room or dining room (maybe the dining room then they could also have an outdoor table).
4) I liked your first plan but I think a rectangle works better so they are not encroaching on our space too much. For a possible idea see attached drawing "in law 2" but imagine reversed. I also like this but with your bedroom configuration and the jack/jill bath.
Again, jumping on the phone could help me be a little more clear or we can meet up in the AM and go over a few other things all together.
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