how do you price your b&b, when putting it up for sale?

[Emeo2004]

Hi, i am new here. I was looking for bnb forums and found you guys online. What a wonderful site that we all innkeepers get to share and vent! : ) My partner and i are also selling our guest house and just did an appraisal in Dec. We got an appraiser that is approved by the local banks. Due to the credit crunch, the banks these days are only using conservative appraisers. It cost us 3k but we think its worth it because we do want to get a more realistic price to avoid later disappointment. Our appraiser used capitalization approach - which divides your net operating income over capitalization rate. If your net income is not that high and it comes out less than your real estate value, the the appraiser is likely going to use homes sold in the area comparables. If no home is like yours sold in the last 6 months, then the appraiser is likely to use land + cost to build approach. We have 11 rooms in our guest house. So we use a cleaning lady for housekeeping. We sent out most of our laundry because electricty and water is kind of expensive here in puerto rico. We also use help at the front desk a couple of mornings and saturdays so that my partner and i get to take a break. Yes, all thses expenses add up and pull our net operatoring income down but that's the cost to be our own boss. : )

 

[toddburme]

Hi, i am new here. I was looking for bnb forums and found you guys online. What a wonderful site that we all innkeepers get to share and vent! : ) My partner and i are also selling our guest house and just did an appraisal in Dec. We got an appraiser that is approved by the local banks. Due to the credit crunch, the banks these days are only using conservative appraisers. It cost us 3k but we think its worth it because we do want to get a more realistic price to avoid later disappointment. Our appraiser used capitalization approach - which divides your net operating income over capitalization rate. If your net income is not that high and it comes out less than your real estate value, the the appraiser is likely going to use homes sold in the area comparables. If no home is like yours sold in the last 6 months, then the appraiser is likely to use land + cost to build approach. We have 11 rooms in our guest house. So we use a cleaning lady for housekeeping. We sent out most of our laundry because electricty and water is kind of expensive here in puerto rico. We also use help at the front desk a couple of mornings and saturdays so that my partner and i get to take a break. Yes, all thses expenses add up and pull our net operatoring income down but that's the cost to be our own boss. : ).

Do you know what Cap rate they used? I am assuming this is very country and even state dependent.

 

[Generic]

In the UK it used to work as 2/3 for the building and 1/3 for the business however now banks will not loan at all on the business value so thats that, plus to a certain extent I can see their point if it all goes bottom up then the bank isn't going to run a B&B so they are only looking at what they can sell. To be honest I would be selling as a house with only 3 rooms as even if it was their intention to do B&B I am guessing they would get a domestic mortgage anyway..

We have never had the banks lend on the value of the business. And selling the business and B&B together has tax consequences (captial gains, sales tax, etc). The smarter of the B&Bs around here sell the building and gift the business to avoid all the taxes, because otherwise the house is considered commercial.
There is a lady who is trying to sell her B&B for $1M plus $.5M for the B&B. That will net her less money then if she sold the building for $1.1M plus gifted the B&B, but she asked a real estate agent instead of an accountant. She loses her capital gains exemption on the house and the new owners will have to pay VAT on the total. And the bank will lend only on the $1M, meaning that someone would need to have $.7M in cash... and a $.8M in a mortgage, not likely to happen. The $1.1M would mean $220K down, something that is much more likely to be affordable.

 

[Emeo2004]

Hi, i am new here. I was looking for bnb forums and found you guys online. What a wonderful site that we all innkeepers get to share and vent! : ) My partner and i are also selling our guest house and just did an appraisal in Dec. We got an appraiser that is approved by the local banks. Due to the credit crunch, the banks these days are only using conservative appraisers. It cost us 3k but we think its worth it because we do want to get a more realistic price to avoid later disappointment. Our appraiser used capitalization approach - which divides your net operating income over capitalization rate. If your net income is not that high and it comes out less than your real estate value, the the appraiser is likely going to use homes sold in the area comparables. If no home is like yours sold in the last 6 months, then the appraiser is likely to use land + cost to build approach. We have 11 rooms in our guest house. So we use a cleaning lady for housekeeping. We sent out most of our laundry because electricty and water is kind of expensive here in puerto rico. We also use help at the front desk a couple of mornings and saturdays so that my partner and i get to take a break. Yes, all thses expenses add up and pull our net operatoring income down but that's the cost to be our own boss. : ).

Do you know what Cap rate they used? I am assuming this is very country and even state dependent.
.

Well i wouldn't want to go too specific but if you google "hotel cap rates", you are likely to find a range of 7 to 12% where 12 is being very conservative. I tend to agree with you that the cap rate will depend on your inn type, performance, location, and cost of credit available for financing. It can go up all the way to 17%.