The Three Legged Stool

My Inn Matchmakers partner, Becky Goldsmith teaches our aspiring innkeeper clients about the three legged stool of innkeeping. She likes to keep things simple and try as hard as I can to overanalyze the data, good innkeeping still comes back to the basics:

1--Great housekeeping.

2--Superior hospitality.

3--Exceptional marketing.

Over the years, we've found that if one of these "legs" is wobbly, the stool cannot support its weight. Sounds so simple, but you'd be stunned at how often we see inns where one of these elements of success is missing.

It's the third leg that is most often the deciding factor, and the hardest in which to excel. I believe that's because the onslaught of changes on the internet marketing front are absolutely overwhelming for most innkeepers. As a new innkeeper myself, I can relate.

That said, each month I face my fears, and participate in Acorn Internet Services' monthly internet marketing webinar. After it's over, I'll usually consider a frontal lobotomy because there's so much to learn. So far, I've opted to stay out of the OR and have a stiff drink instead.

Today I chatted with Lisa Kolb (Acorn's founder and co-owner) for over an hour after the webinar was over. We share the same frustration. She's trying to help innkeepers improve their business and MAKE MORE MONEY. I'm trying to help innkeepers maximize their investment return, and to do that, they NEED TO MAKE MORE MONEY! So, Lisa and I are both trying to accomplish the same thing. Despite our efforts however, more and more inns are going under, and I believe that this is going to continue for some time.

As an ex-business consultant, I know that the biggest problem that small business entrepreneurs face is that they don't stay engaged in their "highest and best use". If something needs to be done, they do it. Like housekeeping for instance.

This, my friends, is the slow kiss of death. If you don't learn to place a higher value on your time, and rise to your highest and best use (which, by the way, unless you are an illiterate monkey, is NEVER EVER cleaning toilets), your business will languish. I promise you that your time is worth more than $10 or $12 bucks an hour, and you can find housekeepers who will do a fine job for that pay. So do yourself a favor, and pony up the $15 bucks or so to get a room cleaned. YOU my friend, have a higher and better use!

ALL innkeepers expect to sell their inns at a profit, and it's an ugly road for those who find out that this dream has turned into a nightmare. I see this more often than you would like to know, believe me! So, don't become an unfortunate statistic. Take the bull by the horns, and get cracking on your marketing! Like castor oil, it may not taste good going down, but you'll be glad you swallowed it by the next morning.

And, over the long run, when it comes time to move on with your life, you won't have to make excuses about why your inn's income is so awful. Don't expect some rich California buyer to come along and pay cash for your money pit. That ship done sailed......

What's Happening with Inn Prices

Wow! It's not pretty out there! We just got back from our travels to the southern part of the state. We previewed several inns/resorts that we have advertised on our website, and concluded that prices are coming down (sometimes WAY down!) on hospitality properties. Take a look at these:

http://www.innmatchmakers.com/prp/190.html (reduced over $400,000)

http://www.innmatchmakers.com/prp/153.html (reduced over $400,000)

http://www.innmatchmakers.com/prp/142.html (reduced $300,000)

http://www.innmatchmakers.com/prp/159.html (reduced $370,000)

http://www.innmatchmakers.com/prp/113.html (reduced $500,000)

http://www.innmatchmakers.com/prp/137.html (reduced over $300,000)

http://www.innmatchmakers.com/property.asp?strUnit=192 (reduced $500,000)

The lesson to be learned from this has to do with pricing. The initial listing price for a hospitality property should never be a number pulled out of the air. We always ask our new listing clients to have an appraisal done on their property. This step can save a ton of headaches down the road, and it certainly helps buyers understand how the price came to be.

Sadly, sometimes the news isn't good for sellers and was the case of a property we were asked to list this week. The owners found out that property values in their area have dropped precipitously, and their bed and breakfast is worth HALF of what they thought. They elected NOT to list at this time, and to wait for a better market. This of course, is always an option for owners who haven't entered the "burnout" stage yet. Saddened though we are, we've also saved ourselves, the owner, and any prospective buyers from future headaches.

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.......