I am actively looking for a B&B to purchase, but have been disappointed time and time again when I think I have found a property that may have promise.  They say "income supports asking price", but upon analysis of the financials, nothing could be further from the truth unless you are able to pay for the inn in cash or darn near close! I have been told I am crazy for wanting to do this so badly; that I would only be "buying" a job.  Is innkeeping really only for retired people now?  I am recently divorced, so it's just me.  I am getting somewhat discouraged, but still have hope.  Kids are grown. I'm no millionaire, but would love an inn that has about 6 rooms; possibly more. I'm well aware of SBA requirements regarding % down.  That isn't the issue! Finding an inn that makes money is!! Any pearls of wisdom anyone??

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SuzyQ

I wish I could help, I can only share your frustration. All I have seen in over two years of looking is expsensive real estate and folks hoping to cash in on the the boom....... now gone bust. Good Luck on your search

I agree...as Innkeeper of a small 4-year old start-up Inn, I am constantly suprised at area Inns that go up for sale at exorbitant prices.

We looked for quite some time at going concerns...not one of them would even come close to supporting itself.  We decided to start from scratch just in case we decided innkeeping was not for us, or it didn't work out for whatever reason.  We did not want to be stuck with an expensive Inn that we hated but couldn't sell.

Now, we will be able to sell our Inn for a reasonable price and new owners will have plenty of room for growth in a popular Michigan lake region...a win win situation.

Don't let anyone tell you that you're crazy...we love Innkeeping!  The lifestyle can be a little confining but well worth it.  When we sell, we will have no regrets and plenty of wonderful memories!

Good Luck!

Wendy Keene
Applesauce Inn B&B
www.applesauceinn.com

Just a comment.  Some people can make anything work and some people can't make anything work.  Perhaps you can take a loser and make it a winner regardless of how the last owners performed.  But maybe this business isn't a gold mine or a big money maker. How much cash flow do you want generate?

When looking for a B&B, we always recommend working with an experienced B&B broker -- The lead article in September's Innkeeper News, for example, was written by the B&B Team -- they work with their clients to make a deal that makes sense to everyone. There are other such specialists around the country -- you'll find some others here: http://www.bedandbreakfast.com/innkeepers/Vendors.aspx

Last but not least, if you find a property that's very affordable, remember to allocate ample funds to market both the property and the destination!

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Sandy Soule
BedandBreakfast.com
Sandy@BedandBreakfast.com

I'm sure not looking to get rich, but the property MUST generate enough to pay all the expenses/bills with about $24,000 extra! I don't think that is asking for too much, but given the price of so many inns, it just doesn't seem to make sense.  I'm considering the possibility of a start-up, but I would have to continue to work my "day job" to be able to do that.  This is a lot harder than I thought it would be! Thanks for your input!

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SuzyQ

Thanks Wendy! I'll keep on plugging away.  I have thought about a start-up; just didn't want to have to continue to work at my 40+ hr "day job" in the meantime.  But, it's sure a good thought!

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SuzyQ

Believe it not, I have been working with an experience innbroker!  She is as frustrated as I am!! She thinks I should hold off for a year or two.  That may be what happens! The economy is "iffy" and mortgages can be very tough to get.  Everything happens for a reason....whether we like it or not! Thanks!!

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SuzyQ

The rule of thumb for many years is that a business loses money for the first three years.  This is called “barrier to entry” in business school.  If buying, starting and running a business were easy then everyone would be doing so.

 

A banker once told me he is looking for people who can hold onto a brick wall with their fingernails if that is what is need to save their business.  His point is that a running a business is not for the weak hearted.

 

Starting a bed and breakfast is expensive because it requires real estate and real estate in a desirable location is always expensive.  Then follows the taxes, insurance, advertising, memberships, décor, spa, etc. on and on.

 

I haven’t talked to anyone who is getting rich owning a bed and breakfast.  They hope to break even or a little better and meet some really nice people. 

 

I am not complaining but I will comment that when I opened my B&B the very first guests ruined a set of sheets and the next guests knocked an antique picture off the wall and broke the glass and the frame.  I don’t believe an innkeeper can ask guests to pay for these items anymore than I would expect a friend to reimburse me for an accident.

You are soooo right! I have heard these things too and thought I had it all figured out (ha!). I am learning that it WILL take blood, sweat and tears and by George I am willing to keep on lookin'.  I currently work at a 4 diamond resort so I know all too well about the types of things guests do. Even though I am in sales, we hear many of the crazy stories that happen each day. The only time we charge a guest for damages is if they violate policies (such as our non-smoking policy) or intentionally trash the place....cost of doing business otherwise! Do you still own your inn?

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SuzyQ

Suzy Q

Hang in there, fact of the matter is all businesses are hard to run. It is not hard to find the old "it will lose money for yadda yadda yadda" comment. The fact that you have been working with a broker and even they are frustrated points to what I have been seeing since I have been looking. There is a great deal of expensive real estate out there, the question is, are they businesses? No matter how good you might be at marketing, if the property does not pay the mortgage you are in trouble. We are seeing that now with people who "over bought" and now cannot make the payments in the residential market.

Money is not coming easy from the banks. The answer to the question of how much cash flow do you want is simple. There must be enough to pay the debt service, it is not complicated.

Of course you are not going to make lots of money, anyone who has looked into Innkeeping learns that, the first week. The problem right now is the overpriced real estate. Hang in there SuzyQ. Time is on your side right now. Some Inns I have seen have been listed on the internet for years and they are still for sale. If a property was purchased at the top of the market the price expected from owners just may not be there, but the reality may not have set in yet.

There is another truism in business that comes to mind. "the best business to buy may be one that is not for sale" bottom line, if it is up for sale maybe it is not making any money.

I am like you, I am still optimistic that I will find something at a reasonable price. But I am still looking.

Commentator

Actually, as with many businesses and even real estate, now may be the best time to buy.  When times are down, sellers may be more willing to deal on price.  Smaller Inns with room for expansion and potential for growth are going to be the best buys.  If you can market the inn better (or at least more effectively) than the seller can or has been (or if you can add rooms and/or baths), then there is nowhere to go but up.

The key is to find a location that has visitor draw throughout all or most of the year.  If you can purchase in your home area and continue working for a litttle while to get you through this economic slump, that may be the way to go.

As far as mortgages go, that's a toughie.  It's tough to get a regular mortgage these days...a mortgage for a B&B is like pulling teeth...even to refinance.  Perhaps you could buy a small Inn or a former Inn as a residence and reopen once your mortgage financing is in place and you have the house the way you want it?  That would be easier to pull off if you're still working....and with the economic downturn, things would be slow to start out anyway.

Wendy
Applesauce Inn B&B
www.applesauceinn.com

Thanks to Sandy Soule for bringing this to my attention (and for her kind words about The B&B Team). Your problem is nothing new, and many of the other comments in response to your post are also very valid. The key is to match your available resources (cash or assets for down payment and closing costs plus working capital and reserves). Knowing what you have to work with, then you have to seek out inns that are large enough to have the potential to be viable businesses (not three or four rooms), get the detailed financials, and do your own analysis. Either there is adequate cash flow to cover YOUR debt service, or there isn't.

When you look at a P&L or tax return, however, remember to look closely for all the numbers, not just the bottom line. Some people include depreciation expense and mortgage or interest payments, which should be added back, others don't. You'll want to study their numbers to know if there are any peculiarities about how they operate their inn that you should understand. And, if you're going to be on your own, you'll need to factor in enough labor to cover you when the current owners may have TWO (or more) who are not on the payroll.

If you don't get actual numbers, in detail, then don't waste your time. If someone is selling a business, they'll be forthcoming. If they say they're selling a business, or the price is $xxx for the real estate and $yyy for the business, then you need to ask why. My rule is never believe occupancy rates that are quoted on websites; ask for number of room nights sold.

In the end, it's a game of patience. Search diligently, ask lots of questions, and, above all, get good information. Only then can you find a property that cash flows. And remember, too, that if there is cash flow but not enough to support the asking price, maybe the business is good enough but the price isn't. Use the numbers to support your offering price. Eventually you'll find the right place at the right price.

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Peter Scherman
The B&B Team, Inc.
Inn Consultants and Brokers
The Innkeeper's Resource blog
www.innkeepersresource.com

I disagree with Peter's definition of "Viable".  A three or four room Inn can certainly be viable; lower asking price, lower operating costs and more one-on-one guest/Innkeeper interaction.  Mine is a three room Inn, and I consider it viable...especially in that I don't have to work outside the house and my revenue covers my mortgage, marketing efforts, utilities, taxes and all other operating expenses with some left over. 

What's viable for one person may not be for another...for some, it might be better to start small and work your way up.  Buying a large Inn is not for everyone...higher asking price, higher operating costs, immediate employee concerns.  Anything over four rooms and you need to have hired help. After 20 years in hotel management, being able to handle it myself was the #1 priority for me.

Not to mention, what if you decide you don't like the business?  Will you ever be able to sell it for what you paid or what you have into it?  Can you stand doing it for another 10 years (because you have no choice) until it sells??

A large Inn sure wasn't for me, and I had years of experience behind me.  I'm glad I went with my little start-up...Five years later, I still wouldn't trade it for a bigger place with 10 times the revenue! 

One of the biggest advantages?  When we sell, we'll probably be the least expensive Inn in the state!   Win for us, win for a new buyer!

Wendy Keene
Applesauce Inn B&B
Bellaire, Michigan

Thank you Peter and thanks to everyone else that has responded!  It looks like I will be doing a start-up (or more like a "redo").  Should be closing on the property in about 2 weeks, then I have LOTS of work to do to "redo" things and to start a new business.  I'm scared, excited, terrified, thrilled....! But I believe that if God leads you to it, He will lead you through it!  I might need some more helpful insights along this journey.  It is comforting to have so many helpful folks out there! Blessings on you all. I'll keep you posted!

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SuzyQ