Timing is Critical when Purchasing a Hospitality Property

Despite the fact that we've been involved in listing and selling inns for a number of years, I'm still amazed at how critical the timing of the inn transfer is for the buyer.

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!

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.

Strike While the Iron is Hot!

I just got off the phone with a potential inn buyer who had his sights set on a property that appeared to be a perfect fit for him. A one-of-a-kind mountain lodge in a town outside of Rocky Mountain National Park, it's a place where this man has owned a cabin for over 35 years. In other words, it's a place he knows and loves well.

He's had his eye on the property for over two years, even stopping by to take a closer look. Now, he's on his way to the area next month and would like to see it. Finally. Well, guess what? There are two other offers pending on the property now so it's likely that he'll lose out on what would have been a match made in heaven. And, if he wants to move forward and make an offer, he's in a competitive situation, never a good place for a buyer to be in.

Amazingly, this happens often! It's almost as though a message is sent out into the cosmos that brings people out of the woodwork so that they can all bid on the same property.

The truth is, you never know when a property is going to get some action. When you're searching for a needle in a haystack, if the opportunity comes along, it's better to strike while the iron's hot! That way you'll avoid the disappointment that's sure to follow if that dream property of yours slips through your fingers because you thought it would sit on the market forever.

I HATE it when that happens!