We are coming into full summer and busy times for many areas of the country. Indications are that 2015 will be an active year for Inns and Bed and Breakfasts. This should be a good year for property transfers as well. Indeed, there is much preliminary activity in the pre-sales arena; information requests, visits to properties for sale and other signs of interest; often detailed requests for information not necessary to move forward.
This is where the Bogeymen step in. Some of them are wide ranging; the economy is going to tank, the Republicans (Democrats) will ruin everything, Global Warming will destroy the coast, skiing, food supply and the climate. These Bogeys are hard to wrestle down. Prospective non-buyers cling to them for the very reason that disputing them is difficult.
Some Bogeymen are more specific and usually less difficult to refute. Among the more popular ones are Airbnb is stealing business from legitimate B&Bs; the market is saturated; financing is difficult to get; interest rates are high and B&Bs are overpriced.
In truth, Airbnb, with its hundreds of millions of subscribers worldwide, is broadening markets at an entry level of interest. Over time it will feed new guests into the mainstream of B&Bs and Inns. More immediately the strong performance of B&Bs in the marketplace currently indicates that the competition, rather than being a threat, has helped to expand the consciousness of the general public in terms of Inns and Bed and Breakfasts.
Insofar as financing is concerned, there has never been a better time to get adequate financing. It is true that the large interstate banks have no interest in our market, as they live off the myths of hospitality as dangerous ground. The opposite is true of smaller, community banks, savings and loan institutions and credit unions. They actively pursue our business. This is supported by the SBA loan programs, particularly the SBA 504 Loan Program which provides the long term, low interest financing portion of an Inn purchase.
Smaller banks in many areas are competing for business and often put more focus on Appraisals than the traditional Cash Flow Ratios. Interest rates for small Inns and Bed and Breakfasts are at historic lows. A typical financing package might provide interest in the range of 4.5%, usually fixed for at least five years. It is true that interest rates will probably go up over time. This is a good argument to think about buying now rather than when the rates have gone up.
Finally, for now at least, we hear the complaint from many frustrated Inn buyers that everything is overpriced. There is some credence to this because many properties are listed by brokers who do not know how to value Bed and Breakfasts, resulting in fantasy prices dreamed up by the owners. However, if you invest the time and effort (our seminar is a good investment) you can learn, at least to some level of understanding, what real prices should be.
Professional services are available, including Inn Partners, to help you to price properly Inns that are available in the marketplace.
This has been by necessity a broad overview. We would be happy to explore any of these with you in greater detail. Also, our Seminar for Future Innkeepers would be a worthwhile investment to tame these bogeyman and put them back in their cages!
For further discussion, contact Inn Partners at 877-957-2360 or inns@innpartners.com.
Great points!! And good info!
How do you get around the following restriction for an SBA Loan
A 504 loan cannot be used for:
– Speculation or investment in rental real estate
The short answer is to purchase a fully operational business. Call us to discuss further.
Thank you Bill. Well thought out and well written.
Some great wisdom here!
We are seminar graduates of Inn Partners from back in 1997 – we eventually bought our Inn (The Woolverton Inn in NJ) in 1999 with their help. We made significant changes and investment – all with Bill’s careful council . By the time we sold in 2004 we saw our occupancy jump from the high 20s to over 70% and gross income up over 400%.
Bill and Heide set us up for success and were there for us every step of the way. These guys offer a service in a different league than an agent or broker – simply some of the smartest folks in the industry.
Thanks for all you have done for us…
Why is it that were then is a discussion about Aribnb the fact that they are in most states illegal? In Wisconsin, to offer lodging, you must be inspected and get an annual license from the Department of Health. local communities require zoning or the application of a special use permit- to be obtained.
Why is it that they are allowed to play in public lodging market- but not disclose their exact location? (something to hide?)
It is hurting sales of legitimate Inns. If you’re interested in becoming an Innkeeper- no need to find a place, deal with the regulations, and banks. Just open your house- list on Airbnb! Or better still, find a community that has lots of B&B’s, buy a house there and start renting. Yes- this is hurting sales.
It’s also hurting revenue. Supply and demand. The inventory of available rooms now is huge, How can that not hurt sales?
Finally, their review system is closed- you can’t review an airbnb if you’ve not stayed there, plus when doing a review- you can’t do it anonymously.
Your “in truth” comment about airbnb not affecting room sales only relates to luxury B&Bs with more than 20 rooms whose clientele is only interested in a high-end experience. In truth, smaller inns are severely affected by airbnb listers. This year more than any of the previous years, smaller B&Bs are experiencing an increase in cancelations, lower occupancy rates, and more guests calling to negotiate lower rates. Our guests are looking for a luxury experience on a budget. My “in truth” comment comes from actual experience. What is the source of your truth?