Last year I bought an inn out in Sonoma County, California, and learned that lesson the hard way! No matter how much homework you may think you have done, there's always surprises. As I sit here in the dead of winter, looking out the window at the vineyards, verdantly green and just about to ready to flower with the mustard plants that form the ground cover for most vineyards in the area, I just can't believe how quiet it is! It's 70 degrees outside in January and there's not a single guest at the inn.
Where is everyone? Well, as it turns out, few visitors come to wine country (despite the fine weather) because the wineries do little with their wine until barrel tasting in March. They may be open for business, but they're neither harvesting, nor blending, etc., and apparently visitors don't come during this period. Who knew?!!
Projections for a hospitality property investments are always required by lenders, and a property's income is projected on an annual basis, so oftentimes monthly revenues are not even reviewed.
The variance in monthly revenue is typically huge for hospitality properties located in heavily touristed areas. At this inn, revenue in October is about 20 times as much as it is in January! So, creating reserves for off season months MUST be done in high season. Missing even a SINGLE month of high season will usually dramatically increase the working capital requirement for the off season months.
Timing is critical! Make sure you closely review a property's revenue by month so that you'll understand the best time to close on an inn. This will vary according to how much time and investment must be made in preparation for the busiest months.
For example, if a new website is being created, you'll need several extra months to get that squared away. I went through 16 drafts of mine before it was ready to be submitted to our developer, Acorn Internet Services.
If you're updating decor, allow extra time for that. Etc, etc. It always takes longer than you think, but if you don't hit the ground running when the season hits, you'll be playing catch-up, sometimes for years.
Today I reviewed a revenue/expense projection for a prospective buyer looking at a property in Estes Park. Even though it's still January, these buyers are almost too late to get started! They have to sell a house, the "fly in the ointment" for most, and are likely to miss out because they really aren't "ready".
Buyers will often wait to sell their homes because they want to find the right inn first. Sounds reasonable but it's often a blunder, and we've seen many buyers lose out on their dream property because they wait to put their house on the market. It's a quandary, and we have several buyers in that position right now.
In Colorado, if you haven't found the right property by the end of February, it'll be too late in the year to take over an inn.
That said, January is the month that most buyers come out of the woodwork, and I think it has something to do with taking stock of one's life as the prior year draws to a close. Well, get going!!! If you sit on your computer late into the evenings, looking at inns for sale on the internet, by the time you find one, work up the nerve to call the owner/broker and put the wheels in motion, it'll be too late.
Timing is critical and putting your house in order a must if you want to time a transition to a hospitality property correctly.
To all you dreamers out there, get cracking!
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