If I had a nickel for every time we've been asked to find an income producing bed and breakfast, I'd be retired by now! I really wish that people could get it into their heads that owning a bed and breakfast is NOT about the current income.How much you pay for real estate has a lot more to do with where it is LOCATED rather than what it produces in income. Real estate in Manhattan, New York costs A LOT more than it does in Manhattan, Kansas. PERIOD. Different cap rates apply, and I would venture to say that the cap rate used on Manhattan, NY real estate is HALF that of Manhattan, KS. Which means, in English, that the income value for New York property is twice that of property in Kansas. Even though it's TWICE as expensive, which do you think is the better investment? No contest! Manhattan, NY beats Manhattan, KS, any day of the week.
Location. Location. Location. THAT'S the cardinal rule of real estate, and it's no different when evaluating bed and breakfast properties. The more touristed the area, the more beautiful the property, the more expensive it will be. PERIOD.
Trying to find a bed and breakfast in a highly touristed part of Colorado that is priced at a 10% cap rate or better, and which also happens to include a nice owner's quarters AND sits on acreage, is a fool's errand. Please don't call us if that's your expectation. I'm sorry that you went to that aspiring innkeeper's class where you were taught to value the income stream of a bed and breakfast above its other attributes. Is there any way you can get your money back?
The attribute you SHOULD be focusing on, PARTICULARLY with bed and breakfast properties, is its potential for APPRECIATION. That is where the REAL money is, and the sooner you realize this and adjust your expectations, the better off you will be. 9 times out of 10, the inn owner will make the lion's share of his/her investment return when the property is sold. And, all things being equal, the longer they own it, the more they will make when they sell it. (For help with this concept, please check out the investment return calculator on our website, http://www.innmatchmakers.com/investmentreturncalculator.asp.)
So, inn buyers out there, do yourself a favor! Adjust your income expectations, and start evaluating opportunities based upon a property's appreciation potential. Cease your search for a bed and breakfast that cash flows with 10% down. It's like looking for the unicorn.......
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Wow....strong message to follow for those brave enough to stay engaged....and heed the wise words of one brutally honest and occasionally tactful inn broker/owner, whom I happen to love and respect and know she knows of what she speaks. So, whoever the chastised and now cowering potential inn buyer out there is who inspired this Rant by Roxanne, take heart...buck up...and get back at it, Becky and Roxanne know their business and will guide you into a wise and well informed purchase....but you must have a tough hide and a willing heart! Rox, you are priceless and I love ya! Kaki
ReplyDeleteVery well written and right on the money. Love your honesty and ability to get the attention, hopefully, of the reader/buyer. They may not have any idea how much hard work a B&B can be and what a commitment it is to own one. I think you are doing them a big favor with this publication. Thank you!
ReplyDeleteGary W.
You know, I have to say, when we worked together, your candid response was always the most helpful part of the experience. I think that your blog is a great idea and has good information Roxanne!
ReplyDelete:) Your Maryland Gal--Jenn B.
So buying an Inn should always be viewed as an investment? What happened to a lifestyle change and making sure there is enough income to pay the bills?
ReplyDeleteWhen you work in a market with no shortage of unrealistic sellers it does not hurt to try to move the expectations of the buyers. It must be frustrating working with overpriced B&B owners and also buyers who also have impossible expectations.
ReplyDeleteAnd then are those of us who get caught up in circumstances. I bought my property in 2005, Katrina hit, the $125,000 set aside for reserves went poof when building materials increased by 30%. Had to refinance the first yaar. 6% mortgage went to 8%. Needed cash so took a second at 10.6%. Mortgage went from a very affordable $2300 to painful $3500. Great business for 3 years, economy tanked, got a job 120 miles away (glad to have it), come "home" every weekend while significant other becomes head innkeeper. I work 7 days a week. I own a 4800 square foot b and b and live in a 600 square foot apartment. I'd like to have a lifestyle. I don't have impossible expectations, never did - but I didn't count on a hurricane in Louisiana affecting building costs in Colorado either. Nor did I expect the economy to tank in such a drastic way. So I am working in a different town, love my business and wonder if I can get back to it. Ya think?
ReplyDeleteSandy, I hear what you're saying. Sometimes our best laid plans are foiled. After getting together last week, and sharing a much needed cocktail, I must say, you are a true inspiration! You have weathered the Katrina aftermath with grace....
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