Pursuing a B&B

[Jfbosch]

Hello all, my wife and I are looking at jumping into the B&B world and are looking at various potential opportunities. Can someone share their two cents on the following topics and assuming the following profile:

8-10 beds/baths property, tourism centric destination (8-9 months in the year), currently operating as B&B and has a good record of occupancy and positive customer reviews.

- Securing financing (we can put 15-20 percent down, one corporate job on the side, and have plans to create incremental revenue beyond the rooms)
- Creating a business plan (any good resources and/or general tips?)
- Estimated operating costs (fixed and variable, understanding numbers will vary based on a plethora of factors). I found a few links on the website, but they didn’t work, unfortunately

Thank you!

Jonathan

 

[gillumhouse]

First - WHERE do you want to live? THIS is important because this is whre you will spend most of your time. I made a life for myself in the flatland but was not HAPPY until I got back to my hills. That is what I mean. If you are beach people, do not look in the mountains or the desert. To truly succeed, you need to become part of the community. Are you happier in a CITY (or even smaller city/town) or rural/semi-rural?

Perhaps instead of "creating" events and things beyond the rooms (and verify that is even legal by checking with the Planning/Zoning IN WRITING), look for a B & B already established as a venue.

I would also look at the staffing pool - will there be enough people to help run the business - housekeepers, property maintenance, kitchen, the parts you cannot/fo not want to be doing. I can do my 3 rooms, a 4th would kill me.

There are INN FOR SALE tabs on many of the directory sites as well as here. Sometimes you are wiser to go with an inn broker (B & B Team, Scott Crumpton, Dana Moos, Pete Holliday, Marilyn Bushnell are some of the names I can think of off-hand) as they deal with the larger, higher revenue inns all over the Country.

I have 3-rooms in a city of 2300 and consider myself a success (start-up in 1996) but I would not have succeeded if #1 - I was not where I want to live #2 - had not become part of the community which does, up to a point, bring me business. I would not recommend getting AS involved as I have (I am not in a tourist mecca) necessarily, but join a few organizations, get to know the shopkeepers, buy local, etc. Introduce yourselves to the local funeral homes - I have a bereavement rate that HAS brought business (Example: all 3 rooms for 3 nights & Dad was at a funeral home in the next town in 2020, bill was about $900 and they left a $100 tip) and I have 3 funeral homes IN town.

I hope this is a help.

 

[Jfbosch]

First - WHERE do you want to live? THIS is important because this is whre you will spend most of your time. I made a life for myself in the flatland but was not HAPPY until I got back to my hills. That is what I mean. If you are beach people, do not look in the mountains or the desert. To truly succeed, you need to become part of the community. Are you happier in a CITY (or even smaller city/town) or rural/semi-rural?

Perhaps instead of "creating" events and things beyond the rooms (and verify that is even legal by checking with the Planning/Zoning IN WRITING), look for a B & B already established as a venue.

I would also look at the staffing pool - will there be enough people to help run the business - housekeepers, property maintenance, kitchen, the parts you cannot/fo not want to be doing. I can do my 3 rooms, a 4th would kill me.

There are INN FOR SALE tabs on many of the directory sites as well as here. Sometimes you are wiser to go with an inn broker (B & B Team, Scott Crumpton, Dana Moos, Pete Holliday, Marilyn Bushnell are some of the names I can think of off-hand) as they deal with the larger, higher revenue inns all over the Country.

I have 3-rooms in a city of 2300 and consider myself a success (start-up in 1996) but I would not have succeeded if #1 - I was not where I want to live #2 - had not become part of the community which does, up to a point, bring me business. I would not recommend getting AS involved as I have (I am not in a tourist mecca) necessarily, but join a few organizations, get to know the shopkeepers, buy local, etc. Introduce yourselves to the local funeral homes - I have a bereavement rate that HAS brought business (Example: all 3 rooms for 3 nights & Dad was at a funeral home in the next town in 2020, bill was about $900 and they left a $100 tip) and I have 3 funeral homes IN town.

I hope this is a help.

Thank you, very helpful.
Any insights in terms of the different costs that we need to factor in to operate a B&B, eg. how do we get a better understanding of license fees, taxes, etc?

 

[GoodScout]

Gillum makes some good points. We own an inn that ticks off most of your boxes, and we're in the phase where we're starting to think about listing it for sale, but if northern Vermont isn't where you want to be, it doesn't make much sense to talk to us about buying it. Likewise, if you're not going to want to live on the West Coast, speaking to a California broker would be a waste of time too.

Here's my list of 10 items I'd suggest you should do as first steps:

1. Decide where you want to live. When you buy an inn, you're buying a) a business, b) a home, and c) a lifestyle. If all 3 don't work for you when you check out a B&B, it's not the right one for you.
2. Get serious about financing. Figure out what you can afford. You'll find that most banks will insist on 20% down as a bare minimum, and many now want to see you have another 10% in cash reserve for those inevitable unexpected expenses that will hit you the first year or two. If you've got $300k to put down, then looking at anything priced over $1m is again, a waste of time.
3. Take a test drive. Find a local B&B. Meet the innkeepers. Offer to inn-sit for them when they go on vacation. After a week of running an inn during the slow season, you'll know if you're cut out for it.
4. Figure out if you can do it yourself or need staff. A 3-4 bedroom B&B you can manage on your own. Once you get above 5 rooms (you're saying 8 to 10) then you're going to need housekeeping & cooking staff to help.
5. Think about maintenance. If you're super-handy, then you're good to go. If not, you'll have to either hire a handyman (very hard to find) or be able to find a slate of good repair people who you can call in an emergency.
6. I like that you'd like to find an existing, well-run B&B. Too many people try and turn a house into a business, and getting name-recognition and customers starting from scratch these days is very hard to do.
7. I wouldn't sweat a business plan until you've landed on a property you'd like to buy. Each market is different, each property is different. If you're in a ski area, your plan will be completely different from a Maine coastal B&B.
8. Financials are good, but until you have a property lined up, you won't know what to plan for. When you get one and have signed an NDA with the potential sellers, you can use their financials as a jumping-off point, but be wary of deviating too far from their numbers. You may think you can double their sales, but can you really?
9. For financing, you're going to find that banks located in the state or area of the property will be your best bet. National banks are useless, and unless you already have a relationship with one where you can secure a $2m line of credit, don't bother. This local bank will use the SBA's 504 or 7a loan programs, so start familiarizing yourself with those. And be prepared for two things: Lots of paperwork to fill out, and lots of waiting.
10. Don't get discouraged. It's a great life if you're cut out for it. My significant other and I are so happy to be working for ourselves.

You're welcome to DM me with any questions you don't want to post on this public forum, but you'll find almost everyone here was in your shoes at some point, so learn from our successes -- and mistakes.

 

[gillumhouse]

Thank you, very helpful.
Any insights in terms of the different costs that we need to factor in to operate a B&B, eg. how do we get a better understanding of license fees, taxes, etc?

Those costs will differ according to location. From discussions here in the past, what some pay in real estate taxes for 1 year would cover mine for more than 10 years. Utility costs also vary. Those costs will be part of what the broker can tell you. Teal estate ads that I see here give estimated utility costs and what the taxes are per year so I would expect the broker to know. there will be (at least there is here) municipal license, Health Department fee, State sales tax, Municipal sales tax, County personal property tax (and I have to submit my Schedule C when I submit my personal property form for the B & B (also have a personal property tax on MY stuff that is not B & B), Municipal Business & Occupation tax. Real Estate on the business portion of the house is the highest rate possible (commercial rate) and the portion that is residence would be residential rate - here I get a break, since I am over 65 & have lived in this, my primary residence for over a year, I applied for and got the Homestead exemption and the taxable valuation on my 1/3 of the house is less than 20k so I pay nothing.

 

[FHI2426]

Both of the above make excellent points. You really need to look at each property uniquely and they will have their own cost and price and occupancy structure. For example where we live (Annapolis MD) we are high RE cost and property taxes but very high ADR. So even our 6 room place could very well make as much $$ as an 8-10 room place in a lower price/ more rural/ lower occupancy % location...

We have more than doubled the revenue and more than tripled the NOI and are starting our 5th year, a success story is possible for any property. Our biggest realization was a B&B is a high fixed cost operation so occupancy is important and second once we got settled in we saw a huge variation in selling price (weekday/weekend and time of year) in town so for us we really watch price and adjust as needed...

We're actually for sale, so if you or anyone else on this board is interested, ping us at [email protected] and we can give the details, I dont want to be overly commercial on this board....

 

[Morticia]

Hello all, my wife and I are looking at jumping into the B&B world and are looking at various potential opportunities. Can someone share their two cents on the following topics and assuming the following profile:

8-10 beds/baths property, tourism centric destination (8-9 months in the year), currently operating as B&B and has a good record of occupancy and positive customer reviews.

- Securing financing (we can put 15-20 percent down, one corporate job on the side, and have plans to create incremental revenue beyond the rooms)
- Creating a business plan (any good resources and/or general tips?)
- Estimated operating costs (fixed and variable, understanding numbers will vary based on a plethora of factors). I found a few links on the website, but they didn’t work, unfortunately

Thank you!

Jonathan

Jonathan: @GoodScout has given you an excellent list.

When we were looking, We used a spreadsheet to compare properties. You’ll need financials from the business. We signed a lot of NDA’s to get those financials. If you work with a broker it’s easier to get them than if you’re looking at properties on your own. You’d be amazed at how many Lookie Lous just want to know how much money you make without the least plan to seriously buy the place, so innkeepers are leery of talking with everyone who approaches them. Plus, innkeepers are busy people.

We had zero experience, no jobs to fall back on to pay bills, put down 20%, had $75k in the bank for ‘disasters,’ and never figured out how to increase revenue. We retired last year after 18 years. It was fun, and it was a challenge. We survived thru awful reviews, the 2008 recession, and the Covid shutdown. We totally missed last year’s boomerang where there was so much pent up demand for travel that our former innkeeping pals came close to doubling their usual revenue. But, we were happily house hunting at that point and happy to be out of the clamor.

Good luck in your search!

 

[Jfbosch]

Thank you all for the wonderful and helpful inputs!

 

[JimBoone]

Hello all, my wife and I are looking at jumping into the B&B world and are looking at various potential opportunities. Can someone share their two cents on the following topics and assuming the following profile:

8-10 beds/baths property, tourism centric destination (8-9 months in the year), currently operating as B&B and has a good record of occupancy and positive customer reviews.

- Securing financing (we can put 15-20 percent down, one corporate job on the side, and have plans to create incremental revenue beyond the rooms)
- Creating a business plan (any good resources and/or general tips?)
- Estimated operating costs (fixed and variable, understanding numbers will vary based on a plethora of factors). I found a few links on the website, but they didn’t work, unfortunately

Thank you!

Jonathan

I'm the odd guy, mom & pop motel, 8 rooms & 16 beds, winter season for skiers, and a summer/fall season, our area probably fits that 8 to 9 month of business. We have used those off months for holidays or projects at various times.

My question, why do you want to go into this business? Not really important that you answer me but be honest with yourself. My answer is that I wanted a life change and as part of that I wanted to move to our vacation area. It created a home base job for my wife with me as the helper outside of my daily working hours. We operated as mom and pop, neither of us afraid of work. If you're not a chef, the motel eliminates some of the headaches I see members complain about, we don't serve food and guests don't have to come into our quarters although many have, it can free your time.

The great place with lots of occupancy and super reviews, that sounds expensive to me, and honest to my view the innkeeper makes the inn, everyone has rooms to rent, YOU, will be the reason your place is chosen. For us we purchased the "sow's ear" and created our "silk purse".

I confess, I didn't have a business plan, I had about 40% borrowed against property, financed 40% with the original owners, and had a couple of years to sell a house and payoff the current owner, it took a while, but 30 years in I still love it, I'll die here.

You should be able to find out expenses, gas, power, taxes. I once remember seeing something here on the forum a guide for food type expenses, is that the sort of thing you are hoping to find? Perhaps someone here could offer, but food and everything seems high at present, and it may depend on the type of food you offer.

 

[gillumhouse]

Jim makes a good point with the WHY? I also neglected to mention decide what you expect the B & B to do for you. To explain what I mean by that: since I am in "Podunk" with 3-rooms, ALL I expected and asked of my B & B was to pay the expenses of the house. It has done that and more. IF I was not always supporting all the organizations in town, most years it would almost support me.

 

[KenW]

Ours is a very seasonal biz...open May through 1st week of September. We work pretty much 7 days a week for those months. Then our work just consists of booking and taking it easy for the other 8 months. It's a good fit for us as our place is in Alaska...and in Texas for the fall and winters.

 

[CoffeeTreks]

You know, all of these are great thoughts from experience, and I just wanted to add another point of view. Write a business plan if you want to...and it is OK to fill in the nitty gritty details later when you know more. I like order. I love planning. When I first thought of buying, I totally did a rough business plan for ME before I knew where I was going to purchase. A one pager that documented my vision and what I saw for growth and what I wanted the business to be. And then I ran some different rough scenarios in Excel for the actual start up and operation details. As we actually purchased, and started operating, I went back to those numbers and even went back to the business plan. Some numbers were off, some were eerily correct, but it really helped me have the confidence with my conservative estimates and still seeing us break even, to launch the business.

It was about ten years ago when we started, and I used a template, I believe from the Canadian government for Bed and Breakfasts.

 

[timberbandb]

When I first thought of buying, I totally did a rough business plan for ME before I knew where I was going to purchase. A one pager that documented my vision and what I saw for growth and what I wanted the business to be.

A starting point (or "rough biz plan for ME"): Business Model Canvas Explained