Income Valued Bed and Breakfasts: Like Searching for the Unicorn!

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.......