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We were also given false information. We required the information and eventually were given an excel spreadsheet with it all hand typed into it. When we needed the tax return they did a joint return as a corp since they ran it under a different name than the inn name, and included a separate business into the figures.
They also used index cards to maintain their reservations (RED FLAG!) But - not all innkeepers are savvy and they think a blotter or index cards will suffice. When you require data they do not have it and cannot easily get it.
IF they are selling via a B&B broker - beware, this person SHOULD come up with accurate information for you. Our broker had a disclaimer stating they were not responsible for any figures given us, they are only there to take your money. LOL
Utlities vary from place to place and inn to inn. There is no way to speculate what it is without seeing copies of the electric bills. Ask for them! If they want to sell they will FIND THEM FOR YOU! :)
PS Trust a Realtor/Broker only as far as you can throw them....done ps..
Double yikes!
And yes, they can find the records if they try hard enough. In today's market, they sure ought to be motivated to provide whatever a prospective buyer needs to make a decision.
As for the brokers, it is unfortunately quite difficult to find a really good one. But the reality is that they work for the sellers not the buyers. Always useful to remember whose side they're really on in any transaction.
.
Innkeeper To Go said:
But the reality is that they work for the sellers not the buyers. Always useful to remember whose side they're really on in any transaction.
Trust me, we knew that. I've even been a licensed real estate broker in the past. If there ever was a job I was a bad fit for, it was that one. Saw a lot of cool houses, though. We've bought and sold many places in our twenty-some years together, some on our own, many with brokers. We also took at least 1/2 dozen aspiring innkeeper seminars and talked with several brokers before picking one to work with. We verified town ordinances, checked property taxes, and had copies of utility bills. We just never thought to verity the income tax return against the lodging tax collected. No experience with lodging tax, so we just didn't even think about it, until it was too late. Someone who bills themselves as a B&B real estate specialist and consultant really could have clued us in. That's why they have the disclaimer, I suppose.
 
Yes, HUGE red flag when you don't have good business info from the sellers. We walked away from several deals like that....in a hurry.
Or, it is just a sale for the real estate only..
Truthfully, I will be shocked if this property is NOT losing money. It is obvious the owner's heart is no longer in it. It has been run as a B&B for over 20 years; the current owner has had it for about five years, and does not live on site. As catlady said, there is room for improvement -- on many different levels.
When I first found the property, it was a FSBO listing that had not been updated. The owner had subsequently listed it with a realtor almost two hours away from the property. The realtor specializes in historic properties, but not B&B businesses. When I asked for financials/disclosures, etc., along with their confidentiality agreement, I was told that there was another couple -- upgrading from a smaller B&B in another part of the state -- also interested in it, subject to obtaining financing. My response was deafening silence. If there is another couple, they will have extreme difficulty getting financing, especially if the deal is contingent upon selling their previous place. I am not at all interested in getting into a bidding war, and in this market I see no need to.
After a few days, I suddenly got several emails including various pieces of information, but the "financials" were woefully inadequate. I know enough to verify everything, but I was hoping that I could get a quick-and-dirty, broad-brush answer that would help me determine if it was at all worth my time. I was kind of hoping Kathy K. would weigh in on the subject as she is probably the closet match as far as region and climate go, but even then there are so many variables . . .
.
Even within the same region, there are just too many variables for you to ever accurately predict the utilities, especially when you're looking at historic property.
.
I'm not actually trying to predict the utilities. That much I know (as much as I can right now). I'm trying to figure out how much revenue would be necessary -- in very, very squishy numbers, I understand -- to cover all expenses. If an innkeeper in a similar area told me that to keep the house warm, she had to spend over half her budget on gas, then I could start making some other assumptions, given what I "know" about that innkeeper's product. Based on that guessed revenue figure, what occupancy/ADR would be necessary? Given THAT, is it really reasonable that this property might ever operate in the black? It's all a guess, and because "my" inn has not been operated "properly" or in all likelihood profitably for several years, looking at their numbers really doesn't mean anything, anyway.
 
We were also given false information. We required the information and eventually were given an excel spreadsheet with it all hand typed into it. When we needed the tax return they did a joint return as a corp since they ran it under a different name than the inn name, and included a separate business into the figures.
They also used index cards to maintain their reservations (RED FLAG!) But - not all innkeepers are savvy and they think a blotter or index cards will suffice. When you require data they do not have it and cannot easily get it.
IF they are selling via a B&B broker - beware, this person SHOULD come up with accurate information for you. Our broker had a disclaimer stating they were not responsible for any figures given us, they are only there to take your money. LOL
Utlities vary from place to place and inn to inn. There is no way to speculate what it is without seeing copies of the electric bills. Ask for them! If they want to sell they will FIND THEM FOR YOU! :)
PS Trust a Realtor/Broker only as far as you can throw them....done ps..
Double yikes!
And yes, they can find the records if they try hard enough. In today's market, they sure ought to be motivated to provide whatever a prospective buyer needs to make a decision.
As for the brokers, it is unfortunately quite difficult to find a really good one. But the reality is that they work for the sellers not the buyers. Always useful to remember whose side they're really on in any transaction.
.
Innkeeper To Go said:
But the reality is that they work for the sellers not the buyers. Always useful to remember whose side they're really on in any transaction.
Trust me, we knew that. I've even been a licensed real estate broker in the past. If there ever was a job I was a bad fit for, it was that one. Saw a lot of cool houses, though. We've bought and sold many places in our twenty-some years together, some on our own, many with brokers. We also took at least 1/2 dozen aspiring innkeeper seminars and talked with several brokers before picking one to work with. We verified town ordinances, checked property taxes, and had copies of utility bills. We just never thought to verity the income tax return against the lodging tax collected. No experience with lodging tax, so we just didn't even think about it, until it was too late. Someone who bills themselves as a B&B real estate specialist and consultant really could have clued us in. That's why they have the disclaimer, I suppose.
.
muirford said:
We just never thought to verity the income tax return against the lodging tax collected. No experience with lodging tax, so we just didn't even think about it, until it was too late. Someone who bills themselves as a B&B real estate specialist and consultant really could have clued us in. That's why they have the disclaimer, I suppose.
Yep.
Really shocking that they'd submit outright fraudulent information to entice someone to buy.
But yes, the disclaimers are there for a reason, I suppose. Not a pretty reason either.
Sad to say that it's always buyer beware. Which loosely translates to buyer double check everything that's been submitted for accuracy. And honesty.
 
We were also given false information. We required the information and eventually were given an excel spreadsheet with it all hand typed into it. When we needed the tax return they did a joint return as a corp since they ran it under a different name than the inn name, and included a separate business into the figures.
They also used index cards to maintain their reservations (RED FLAG!) But - not all innkeepers are savvy and they think a blotter or index cards will suffice. When you require data they do not have it and cannot easily get it.
IF they are selling via a B&B broker - beware, this person SHOULD come up with accurate information for you. Our broker had a disclaimer stating they were not responsible for any figures given us, they are only there to take your money. LOL
Utlities vary from place to place and inn to inn. There is no way to speculate what it is without seeing copies of the electric bills. Ask for them! If they want to sell they will FIND THEM FOR YOU! :)
PS Trust a Realtor/Broker only as far as you can throw them....done ps..
Double yikes!
And yes, they can find the records if they try hard enough. In today's market, they sure ought to be motivated to provide whatever a prospective buyer needs to make a decision.
As for the brokers, it is unfortunately quite difficult to find a really good one. But the reality is that they work for the sellers not the buyers. Always useful to remember whose side they're really on in any transaction.
.
Innkeeper To Go said:
But the reality is that they work for the sellers not the buyers. Always useful to remember whose side they're really on in any transaction.
Trust me, we knew that. I've even been a licensed real estate broker in the past. If there ever was a job I was a bad fit for, it was that one. Saw a lot of cool houses, though. We've bought and sold many places in our twenty-some years together, some on our own, many with brokers. We also took at least 1/2 dozen aspiring innkeeper seminars and talked with several brokers before picking one to work with. We verified town ordinances, checked property taxes, and had copies of utility bills. We just never thought to verity the income tax return against the lodging tax collected. No experience with lodging tax, so we just didn't even think about it, until it was too late. Someone who bills themselves as a B&B real estate specialist and consultant really could have clued us in. That's why they have the disclaimer, I suppose.
.
When we did do the verify we called them and asked how come there was a discrepancy between the lodging tax income and the IRS income that was filed? Their acct filed their income taxes with the lodging tax claimed as their income. So we lowered our offer based on the real numbers.
 
Yes, HUGE red flag when you don't have good business info from the sellers. We walked away from several deals like that....in a hurry.
Or, it is just a sale for the real estate only..
Truthfully, I will be shocked if this property is NOT losing money. It is obvious the owner's heart is no longer in it. It has been run as a B&B for over 20 years; the current owner has had it for about five years, and does not live on site. As catlady said, there is room for improvement -- on many different levels.
When I first found the property, it was a FSBO listing that had not been updated. The owner had subsequently listed it with a realtor almost two hours away from the property. The realtor specializes in historic properties, but not B&B businesses. When I asked for financials/disclosures, etc., along with their confidentiality agreement, I was told that there was another couple -- upgrading from a smaller B&B in another part of the state -- also interested in it, subject to obtaining financing. My response was deafening silence. If there is another couple, they will have extreme difficulty getting financing, especially if the deal is contingent upon selling their previous place. I am not at all interested in getting into a bidding war, and in this market I see no need to.
After a few days, I suddenly got several emails including various pieces of information, but the "financials" were woefully inadequate. I know enough to verify everything, but I was hoping that I could get a quick-and-dirty, broad-brush answer that would help me determine if it was at all worth my time. I was kind of hoping Kathy K. would weigh in on the subject as she is probably the closet match as far as region and climate go, but even then there are so many variables . . .
.
Even within the same region, there are just too many variables for you to ever accurately predict the utilities, especially when you're looking at historic property.
.
I'm not actually trying to predict the utilities. That much I know (as much as I can right now). I'm trying to figure out how much revenue would be necessary -- in very, very squishy numbers, I understand -- to cover all expenses. If an innkeeper in a similar area told me that to keep the house warm, she had to spend over half her budget on gas, then I could start making some other assumptions, given what I "know" about that innkeeper's product. Based on that guessed revenue figure, what occupancy/ADR would be necessary? Given THAT, is it really reasonable that this property might ever operate in the black? It's all a guess, and because "my" inn has not been operated "properly" or in all likelihood profitably for several years, looking at their numbers really doesn't mean anything, anyway.
.
Whether it can reasonably be expected to generate enough revenue really requires a bit more legwork on your part.
Whatever their past revenue was, the question is will that continue? With the same owners for 20 years, you're probably looking at a lot of repeat guests. Will they continue to come to the inn with new owners and innkeepers? Sometimes they leave in droves.
Can you replace any lost guests with a new revenue stream? To know that, you'd really need to take a look at the potential for tourism in the area. Then you'd need to know how you'd reach those potential guests and have a plan for that.
Is it a college town?
Is there a major recreation area nearby? A major metropolitan area with 100 miles?
Staycations are the new norm for travelers so the closer you are to a metropolitan area (and a steady supply of weekend guests), the better off you'll be.
All in all, there are a gazillion things to look at. So starting off with valid info about prior revenue and expenses is just a starting point. Get there first and then build your information/plan from there.
 
We were also given false information. We required the information and eventually were given an excel spreadsheet with it all hand typed into it. When we needed the tax return they did a joint return as a corp since they ran it under a different name than the inn name, and included a separate business into the figures.
They also used index cards to maintain their reservations (RED FLAG!) But - not all innkeepers are savvy and they think a blotter or index cards will suffice. When you require data they do not have it and cannot easily get it.
IF they are selling via a B&B broker - beware, this person SHOULD come up with accurate information for you. Our broker had a disclaimer stating they were not responsible for any figures given us, they are only there to take your money. LOL
Utlities vary from place to place and inn to inn. There is no way to speculate what it is without seeing copies of the electric bills. Ask for them! If they want to sell they will FIND THEM FOR YOU! :)
PS Trust a Realtor/Broker only as far as you can throw them....done ps..
Double yikes!
And yes, they can find the records if they try hard enough. In today's market, they sure ought to be motivated to provide whatever a prospective buyer needs to make a decision.
As for the brokers, it is unfortunately quite difficult to find a really good one. But the reality is that they work for the sellers not the buyers. Always useful to remember whose side they're really on in any transaction.
.
Innkeeper To Go said:
But the reality is that they work for the sellers not the buyers. Always useful to remember whose side they're really on in any transaction.
Trust me, we knew that. I've even been a licensed real estate broker in the past. If there ever was a job I was a bad fit for, it was that one. Saw a lot of cool houses, though. We've bought and sold many places in our twenty-some years together, some on our own, many with brokers. We also took at least 1/2 dozen aspiring innkeeper seminars and talked with several brokers before picking one to work with. We verified town ordinances, checked property taxes, and had copies of utility bills. We just never thought to verity the income tax return against the lodging tax collected. No experience with lodging tax, so we just didn't even think about it, until it was too late. Someone who bills themselves as a B&B real estate specialist and consultant really could have clued us in. That's why they have the disclaimer, I suppose.
.
When we did do the verify we called them and asked how come there was a discrepancy between the lodging tax income and the IRS income that was filed? Their acct filed their income taxes with the lodging tax claimed as their income. So we lowered our offer based on the real numbers.
.
That was a smart move.
 
Yes, HUGE red flag when you don't have good business info from the sellers. We walked away from several deals like that....in a hurry.
Or, it is just a sale for the real estate only..
Truthfully, I will be shocked if this property is NOT losing money. It is obvious the owner's heart is no longer in it. It has been run as a B&B for over 20 years; the current owner has had it for about five years, and does not live on site. As catlady said, there is room for improvement -- on many different levels.
When I first found the property, it was a FSBO listing that had not been updated. The owner had subsequently listed it with a realtor almost two hours away from the property. The realtor specializes in historic properties, but not B&B businesses. When I asked for financials/disclosures, etc., along with their confidentiality agreement, I was told that there was another couple -- upgrading from a smaller B&B in another part of the state -- also interested in it, subject to obtaining financing. My response was deafening silence. If there is another couple, they will have extreme difficulty getting financing, especially if the deal is contingent upon selling their previous place. I am not at all interested in getting into a bidding war, and in this market I see no need to.
After a few days, I suddenly got several emails including various pieces of information, but the "financials" were woefully inadequate. I know enough to verify everything, but I was hoping that I could get a quick-and-dirty, broad-brush answer that would help me determine if it was at all worth my time. I was kind of hoping Kathy K. would weigh in on the subject as she is probably the closet match as far as region and climate go, but even then there are so many variables . . .
.
Even within the same region, there are just too many variables for you to ever accurately predict the utilities, especially when you're looking at historic property.
.
I'm not actually trying to predict the utilities. That much I know (as much as I can right now). I'm trying to figure out how much revenue would be necessary -- in very, very squishy numbers, I understand -- to cover all expenses. If an innkeeper in a similar area told me that to keep the house warm, she had to spend over half her budget on gas, then I could start making some other assumptions, given what I "know" about that innkeeper's product. Based on that guessed revenue figure, what occupancy/ADR would be necessary? Given THAT, is it really reasonable that this property might ever operate in the black? It's all a guess, and because "my" inn has not been operated "properly" or in all likelihood profitably for several years, looking at their numbers really doesn't mean anything, anyway.
.
Whether it can reasonably be expected to generate enough revenue really requires a bit more legwork on your part.
Whatever their past revenue was, the question is will that continue? With the same owners for 20 years, you're probably looking at a lot of repeat guests. Will they continue to come to the inn with new owners and innkeepers? Sometimes they leave in droves.
Can you replace any lost guests with a new revenue stream? To know that, you'd really need to take a look at the potential for tourism in the area. Then you'd need to know how you'd reach those potential guests and have a plan for that.
Is it a college town?
Is there a major recreation area nearby? A major metropolitan area with 100 miles?
Staycations are the new norm for travelers so the closer you are to a metropolitan area (and a steady supply of weekend guests), the better off you'll be.
All in all, there are a gazillion things to look at. So starting off with valid info about prior revenue and expenses is just a starting point. Get there first and then build your information/plan from there.
.
I did all that analysis before I ever even asked for numbers; so far it passes the smell test. As far as developing a budget, the only "true" figure I have to work with is the actual utilities for last year. So my question is, "For a successful operation, approximately what percentage of the budget is spent on utilities?" If I get answers along the lines of 60-75% of the budget, that will tell me something; if I get answers of 5-10% of the budget, that will tell me something else entirely. From there, I can extrapolate out some other expense and revenue figures. If, for example, it comes out that in order to cover the estimated expenses the ADR needs to be five times the going rate in this town, or occupancy needs to be greater than 60%, then I can apply the reasonableness test pretty easily.
 
Yes, HUGE red flag when you don't have good business info from the sellers. We walked away from several deals like that....in a hurry.
Or, it is just a sale for the real estate only..
Truthfully, I will be shocked if this property is NOT losing money. It is obvious the owner's heart is no longer in it. It has been run as a B&B for over 20 years; the current owner has had it for about five years, and does not live on site. As catlady said, there is room for improvement -- on many different levels.
When I first found the property, it was a FSBO listing that had not been updated. The owner had subsequently listed it with a realtor almost two hours away from the property. The realtor specializes in historic properties, but not B&B businesses. When I asked for financials/disclosures, etc., along with their confidentiality agreement, I was told that there was another couple -- upgrading from a smaller B&B in another part of the state -- also interested in it, subject to obtaining financing. My response was deafening silence. If there is another couple, they will have extreme difficulty getting financing, especially if the deal is contingent upon selling their previous place. I am not at all interested in getting into a bidding war, and in this market I see no need to.
After a few days, I suddenly got several emails including various pieces of information, but the "financials" were woefully inadequate. I know enough to verify everything, but I was hoping that I could get a quick-and-dirty, broad-brush answer that would help me determine if it was at all worth my time. I was kind of hoping Kathy K. would weigh in on the subject as she is probably the closet match as far as region and climate go, but even then there are so many variables . . .
.
Even within the same region, there are just too many variables for you to ever accurately predict the utilities, especially when you're looking at historic property.
.
I'm not actually trying to predict the utilities. That much I know (as much as I can right now). I'm trying to figure out how much revenue would be necessary -- in very, very squishy numbers, I understand -- to cover all expenses. If an innkeeper in a similar area told me that to keep the house warm, she had to spend over half her budget on gas, then I could start making some other assumptions, given what I "know" about that innkeeper's product. Based on that guessed revenue figure, what occupancy/ADR would be necessary? Given THAT, is it really reasonable that this property might ever operate in the black? It's all a guess, and because "my" inn has not been operated "properly" or in all likelihood profitably for several years, looking at their numbers really doesn't mean anything, anyway.
.
Whether it can reasonably be expected to generate enough revenue really requires a bit more legwork on your part.
Whatever their past revenue was, the question is will that continue? With the same owners for 20 years, you're probably looking at a lot of repeat guests. Will they continue to come to the inn with new owners and innkeepers? Sometimes they leave in droves.
Can you replace any lost guests with a new revenue stream? To know that, you'd really need to take a look at the potential for tourism in the area. Then you'd need to know how you'd reach those potential guests and have a plan for that.
Is it a college town?
Is there a major recreation area nearby? A major metropolitan area with 100 miles?
Staycations are the new norm for travelers so the closer you are to a metropolitan area (and a steady supply of weekend guests), the better off you'll be.
All in all, there are a gazillion things to look at. So starting off with valid info about prior revenue and expenses is just a starting point. Get there first and then build your information/plan from there.
.
I did all that analysis before I ever even asked for numbers; so far it passes the smell test. As far as developing a budget, the only "true" figure I have to work with is the actual utilities for last year. So my question is, "For a successful operation, approximately what percentage of the budget is spent on utilities?" If I get answers along the lines of 60-75% of the budget, that will tell me something; if I get answers of 5-10% of the budget, that will tell me something else entirely. From there, I can extrapolate out some other expense and revenue figures. If, for example, it comes out that in order to cover the estimated expenses the ADR needs to be five times the going rate in this town, or occupancy needs to be greater than 60%, then I can apply the reasonableness test pretty easily.
.
Are you a PAII member? Their innkeeping survey results might be helpful to you. If you're not a member, you could probably call their office to find out if it covers that information (although I'm pretty sure it does, but I don't have access to an old copy of it any more).
Here's what I can tell you - my utilities that are charged to the business are 5.6% of my gross revenue. Now a portion of the utilies (for the part of the inn we live in) is not charged to the business. We are a mid-atlantic inn and have both central heating and central air-conditioning. It is not zoned so we run it all the time, even when it's just us here, but we do have essentially a year-round business. I don't know it that helps, though - seems like there are huge number of other variables that go into your equation.
 
Yes, HUGE red flag when you don't have good business info from the sellers. We walked away from several deals like that....in a hurry.
Or, it is just a sale for the real estate only..
Truthfully, I will be shocked if this property is NOT losing money. It is obvious the owner's heart is no longer in it. It has been run as a B&B for over 20 years; the current owner has had it for about five years, and does not live on site. As catlady said, there is room for improvement -- on many different levels.
When I first found the property, it was a FSBO listing that had not been updated. The owner had subsequently listed it with a realtor almost two hours away from the property. The realtor specializes in historic properties, but not B&B businesses. When I asked for financials/disclosures, etc., along with their confidentiality agreement, I was told that there was another couple -- upgrading from a smaller B&B in another part of the state -- also interested in it, subject to obtaining financing. My response was deafening silence. If there is another couple, they will have extreme difficulty getting financing, especially if the deal is contingent upon selling their previous place. I am not at all interested in getting into a bidding war, and in this market I see no need to.
After a few days, I suddenly got several emails including various pieces of information, but the "financials" were woefully inadequate. I know enough to verify everything, but I was hoping that I could get a quick-and-dirty, broad-brush answer that would help me determine if it was at all worth my time. I was kind of hoping Kathy K. would weigh in on the subject as she is probably the closet match as far as region and climate go, but even then there are so many variables . . .
.
Even within the same region, there are just too many variables for you to ever accurately predict the utilities, especially when you're looking at historic property.
.
I'm not actually trying to predict the utilities. That much I know (as much as I can right now). I'm trying to figure out how much revenue would be necessary -- in very, very squishy numbers, I understand -- to cover all expenses. If an innkeeper in a similar area told me that to keep the house warm, she had to spend over half her budget on gas, then I could start making some other assumptions, given what I "know" about that innkeeper's product. Based on that guessed revenue figure, what occupancy/ADR would be necessary? Given THAT, is it really reasonable that this property might ever operate in the black? It's all a guess, and because "my" inn has not been operated "properly" or in all likelihood profitably for several years, looking at their numbers really doesn't mean anything, anyway.
.
IronGate said:
I'm not actually trying to predict the utilities. That much I know (as much as I can right now). I'm trying to figure out how much revenue would be necessary -- in very, very squishy numbers, I understand -- to cover all expenses. If an innkeeper in a similar area told me that to keep the house warm, she had to spend over half her budget on gas, then I could start making some other assumptions, given what I "know" about that innkeeper's product. Based on that guessed revenue figure, what occupancy/ADR would be necessary? Given THAT, is it really reasonable that this property might ever operate in the black? It's all a guess, and because "my" inn has not been operated "properly" or in all likelihood profitably for several years, looking at their numbers really doesn't mean anything, anyway.
Irongate, there are still too many variables to be able to answer your questions. Each B&B has different factors not only with location, climate, type of building but also the amount of (gross) renenue being brought in. As an example take 2 similar B&B's in the same location, of equal size and # of rooms, and lets just say their mortages are similar as well, both doing the same % of business. They still could have a different % tied up in operating costs because one may have their rooms rented for $100 each while the other has an more emenities etc and rents rooms in the $200 range, given all the other factors are similar, the ratio of utilities to budget will be greatly different.
We did not purchase an existing B&B so do not have any experience dealing with brokers etc. I do recall inquiring at our power company what the electic bills for our last home prior to purchasing it. If the seller is not able to find their bills (and if not, how do they do their taxes?) they could easily request a copy from the power company. I would also do a double check with the tax office on the reported sales tax for the property to verify the figures. If you are unable to secure this information from either source I would be very leary of this property.
 
Just under 10%. Keep in mind high fuel oil prices here, which you won't find in many other places. Ditto water/sewer rates and electricty at $.17/kwh.
 
Yes, HUGE red flag when you don't have good business info from the sellers. We walked away from several deals like that....in a hurry.
Or, it is just a sale for the real estate only..
Truthfully, I will be shocked if this property is NOT losing money. It is obvious the owner's heart is no longer in it. It has been run as a B&B for over 20 years; the current owner has had it for about five years, and does not live on site. As catlady said, there is room for improvement -- on many different levels.
When I first found the property, it was a FSBO listing that had not been updated. The owner had subsequently listed it with a realtor almost two hours away from the property. The realtor specializes in historic properties, but not B&B businesses. When I asked for financials/disclosures, etc., along with their confidentiality agreement, I was told that there was another couple -- upgrading from a smaller B&B in another part of the state -- also interested in it, subject to obtaining financing. My response was deafening silence. If there is another couple, they will have extreme difficulty getting financing, especially if the deal is contingent upon selling their previous place. I am not at all interested in getting into a bidding war, and in this market I see no need to.
After a few days, I suddenly got several emails including various pieces of information, but the "financials" were woefully inadequate. I know enough to verify everything, but I was hoping that I could get a quick-and-dirty, broad-brush answer that would help me determine if it was at all worth my time. I was kind of hoping Kathy K. would weigh in on the subject as she is probably the closet match as far as region and climate go, but even then there are so many variables . . .
.
Even within the same region, there are just too many variables for you to ever accurately predict the utilities, especially when you're looking at historic property.
.
I'm not actually trying to predict the utilities. That much I know (as much as I can right now). I'm trying to figure out how much revenue would be necessary -- in very, very squishy numbers, I understand -- to cover all expenses. If an innkeeper in a similar area told me that to keep the house warm, she had to spend over half her budget on gas, then I could start making some other assumptions, given what I "know" about that innkeeper's product. Based on that guessed revenue figure, what occupancy/ADR would be necessary? Given THAT, is it really reasonable that this property might ever operate in the black? It's all a guess, and because "my" inn has not been operated "properly" or in all likelihood profitably for several years, looking at their numbers really doesn't mean anything, anyway.
.
IronGate said:
I'm not actually trying to predict the utilities. That much I know (as much as I can right now). I'm trying to figure out how much revenue would be necessary -- in very, very squishy numbers, I understand -- to cover all expenses. If an innkeeper in a similar area told me that to keep the house warm, she had to spend over half her budget on gas, then I could start making some other assumptions, given what I "know" about that innkeeper's product. Based on that guessed revenue figure, what occupancy/ADR would be necessary? Given THAT, is it really reasonable that this property might ever operate in the black? It's all a guess, and because "my" inn has not been operated "properly" or in all likelihood profitably for several years, looking at their numbers really doesn't mean anything, anyway.
Irongate, there are still too many variables to be able to answer your questions. Each B&B has different factors not only with location, climate, type of building but also the amount of (gross) renenue being brought in. As an example take 2 similar B&B's in the same location, of equal size and # of rooms, and lets just say their mortages are similar as well, both doing the same % of business. They still could have a different % tied up in operating costs because one may have their rooms rented for $100 each while the other has an more emenities etc and rents rooms in the $200 range, given all the other factors are similar, the ratio of utilities to budget will be greatly different.
We did not purchase an existing B&B so do not have any experience dealing with brokers etc. I do recall inquiring at our power company what the electic bills for our last home prior to purchasing it. If the seller is not able to find their bills (and if not, how do they do their taxes?) they could easily request a copy from the power company. I would also do a double check with the tax office on the reported sales tax for the property to verify the figures. If you are unable to secure this information from either source I would be very leary of this property.
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copperhead said:
Irongate, there are still too many variables to be able to answer your questions. Each B&B has different factors not only with location, climate, type of building but also the amount of (gross) renenue being brought in. As an example take 2 similar B&B's in the same location, of equal size and # of rooms, and lets just say their mortages are similar as well, both doing the same % of business. They still could have a different % tied up in operating costs because one may have their rooms rented for $100 each while the other has an more emenities etc and rents rooms in the $200 range, given all the other factors are similar, the ratio of utilities to budget will be greatly different.
Agreed.
I always advocate for B&Bs to learn as much as they can from the budgets of hotels. But in many ways, you're comparing apples and oranges in looking for utility to revenue ratios at small inns.
The whole point of the boutique lodging industry is that each is unique. That's right down to the percentages.
With B&Bs you're just going to have to take a look at the overall picture to see what makes sense for your place and your budget. There is no norm.
 
Sounds kind of familiar to me. We are getting no info. from the sellers. We contacted the utility company directly--I am amazed that they have no problem giving out the amounts and even copies of the bills. Look at the age and type of heating unit used, maybe this can be upgraded--talk to an area HVAC person--they know the area, and may know the property.
What I did was to look at my previous commercial property, and our tax returns, and then put together a spread sheet for what I consider the "carrying" costs of the property. I did my very best to fill in the blanks realistically, contacting the county (here I was sure to allow for the INCREASE in the taxes because of the change in ownership), utilities, insurance agents, etc. For me the biggest kicker was insurance (over 10k). I also added additional lines pertaining to expenses for a B&B.
Then I looked at what we thought the renovations will run (architect, contractors), finally at occupancy figures and room rates for the area We also spoke with a realtor/broker unrelated to the deal who we knew in the area to see what a selling price would be in her estimation.
Sorry if I am preaching to the choir on due diligence, but I don't think there is a percentage that you can plug in to figure this out. I think you need to figure out all the expenses and see where the cash goes.. Then it is a case of OK can it cash-flow? Our lawyer wanted to get a power of attorney on the seller to get copies of his IRS returns. I said no, there would be no point of it, as I don't believe he was making any money, and I wouldn't believe any numbers he gave them anyway!
 
Sounds kind of familiar to me. We are getting no info. from the sellers. We contacted the utility company directly--I am amazed that they have no problem giving out the amounts and even copies of the bills. Look at the age and type of heating unit used, maybe this can be upgraded--talk to an area HVAC person--they know the area, and may know the property.
What I did was to look at my previous commercial property, and our tax returns, and then put together a spread sheet for what I consider the "carrying" costs of the property. I did my very best to fill in the blanks realistically, contacting the county (here I was sure to allow for the INCREASE in the taxes because of the change in ownership), utilities, insurance agents, etc. For me the biggest kicker was insurance (over 10k). I also added additional lines pertaining to expenses for a B&B.
Then I looked at what we thought the renovations will run (architect, contractors), finally at occupancy figures and room rates for the area We also spoke with a realtor/broker unrelated to the deal who we knew in the area to see what a selling price would be in her estimation.
Sorry if I am preaching to the choir on due diligence, but I don't think there is a percentage that you can plug in to figure this out. I think you need to figure out all the expenses and see where the cash goes.. Then it is a case of OK can it cash-flow? Our lawyer wanted to get a power of attorney on the seller to get copies of his IRS returns. I said no, there would be no point of it, as I don't believe he was making any money, and I wouldn't believe any numbers he gave them anyway!.
Our youngest daughter is looking at houses for a get-away and maybe retirement house. So far just about every house she has been interested in has been rejected because of the HVAC. Our s-i-l (married to her twin) had a friend in the town who is HVAC and he has looked at each one. So far they would have needed 10k or more to replace the heating/ducts (if any), etc. The one that was totally done, in move-in condition and gorgeous AND at a price a lot less than her budget was in a small town that made Tobacco Road look as if it was moving on up.
Check if the furnace. wiring for it, ductwork are up to code and how much to replace.
 
Sounds kind of familiar to me. We are getting no info. from the sellers. We contacted the utility company directly--I am amazed that they have no problem giving out the amounts and even copies of the bills. Look at the age and type of heating unit used, maybe this can be upgraded--talk to an area HVAC person--they know the area, and may know the property.
What I did was to look at my previous commercial property, and our tax returns, and then put together a spread sheet for what I consider the "carrying" costs of the property. I did my very best to fill in the blanks realistically, contacting the county (here I was sure to allow for the INCREASE in the taxes because of the change in ownership), utilities, insurance agents, etc. For me the biggest kicker was insurance (over 10k). I also added additional lines pertaining to expenses for a B&B.
Then I looked at what we thought the renovations will run (architect, contractors), finally at occupancy figures and room rates for the area We also spoke with a realtor/broker unrelated to the deal who we knew in the area to see what a selling price would be in her estimation.
Sorry if I am preaching to the choir on due diligence, but I don't think there is a percentage that you can plug in to figure this out. I think you need to figure out all the expenses and see where the cash goes.. Then it is a case of OK can it cash-flow? Our lawyer wanted to get a power of attorney on the seller to get copies of his IRS returns. I said no, there would be no point of it, as I don't believe he was making any money, and I wouldn't believe any numbers he gave them anyway!.
Our youngest daughter is looking at houses for a get-away and maybe retirement house. So far just about every house she has been interested in has been rejected because of the HVAC. Our s-i-l (married to her twin) had a friend in the town who is HVAC and he has looked at each one. So far they would have needed 10k or more to replace the heating/ducts (if any), etc. The one that was totally done, in move-in condition and gorgeous AND at a price a lot less than her budget was in a small town that made Tobacco Road look as if it was moving on up.
Check if the furnace. wiring for it, ductwork are up to code and how much to replace.
.
Agreed. Majors systems upgrades can be a kick in the budget. Check for tax credits (energy and other) on upgrades.
For us, because the basis price of the building is so low relative to the renovation needed, and the fact the property is on the National Register of Historic Properties, apparently we will qualify for a 10% state tax credit as well as 25% federal tax credit on virtually every dollar we put into the place. Work done has to meet their standards which are not as bad as we thought.
This credit can be taken over 10yrs, and can be applied to the income of the persons holding the LLC; it does not have to be a credit off the income of the property. This should help us, others may want to look into it. We met with the State Historic Architect and were surprised at how lenient he was.....local regulations frequently are MUCH stricter. We have no local regs.
 
Sounds kind of familiar to me. We are getting no info. from the sellers. We contacted the utility company directly--I am amazed that they have no problem giving out the amounts and even copies of the bills. Look at the age and type of heating unit used, maybe this can be upgraded--talk to an area HVAC person--they know the area, and may know the property.
What I did was to look at my previous commercial property, and our tax returns, and then put together a spread sheet for what I consider the "carrying" costs of the property. I did my very best to fill in the blanks realistically, contacting the county (here I was sure to allow for the INCREASE in the taxes because of the change in ownership), utilities, insurance agents, etc. For me the biggest kicker was insurance (over 10k). I also added additional lines pertaining to expenses for a B&B.
Then I looked at what we thought the renovations will run (architect, contractors), finally at occupancy figures and room rates for the area We also spoke with a realtor/broker unrelated to the deal who we knew in the area to see what a selling price would be in her estimation.
Sorry if I am preaching to the choir on due diligence, but I don't think there is a percentage that you can plug in to figure this out. I think you need to figure out all the expenses and see where the cash goes.. Then it is a case of OK can it cash-flow? Our lawyer wanted to get a power of attorney on the seller to get copies of his IRS returns. I said no, there would be no point of it, as I don't believe he was making any money, and I wouldn't believe any numbers he gave them anyway!.
Our youngest daughter is looking at houses for a get-away and maybe retirement house. So far just about every house she has been interested in has been rejected because of the HVAC. Our s-i-l (married to her twin) had a friend in the town who is HVAC and he has looked at each one. So far they would have needed 10k or more to replace the heating/ducts (if any), etc. The one that was totally done, in move-in condition and gorgeous AND at a price a lot less than her budget was in a small town that made Tobacco Road look as if it was moving on up.
Check if the furnace. wiring for it, ductwork are up to code and how much to replace.
.
LOL -- the first thought that popped into my head this morning was, "Lead pipes! I'll bet that old house has lead pipes!" Actually, I don't think it does, based on when it was converted to a B&B, but definitely gave me pause.
 
Yes, HUGE red flag when you don't have good business info from the sellers. We walked away from several deals like that....in a hurry.
Or, it is just a sale for the real estate only..
Truthfully, I will be shocked if this property is NOT losing money. It is obvious the owner's heart is no longer in it. It has been run as a B&B for over 20 years; the current owner has had it for about five years, and does not live on site. As catlady said, there is room for improvement -- on many different levels.
When I first found the property, it was a FSBO listing that had not been updated. The owner had subsequently listed it with a realtor almost two hours away from the property. The realtor specializes in historic properties, but not B&B businesses. When I asked for financials/disclosures, etc., along with their confidentiality agreement, I was told that there was another couple -- upgrading from a smaller B&B in another part of the state -- also interested in it, subject to obtaining financing. My response was deafening silence. If there is another couple, they will have extreme difficulty getting financing, especially if the deal is contingent upon selling their previous place. I am not at all interested in getting into a bidding war, and in this market I see no need to.
After a few days, I suddenly got several emails including various pieces of information, but the "financials" were woefully inadequate. I know enough to verify everything, but I was hoping that I could get a quick-and-dirty, broad-brush answer that would help me determine if it was at all worth my time. I was kind of hoping Kathy K. would weigh in on the subject as she is probably the closet match as far as region and climate go, but even then there are so many variables . . .
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Even within the same region, there are just too many variables for you to ever accurately predict the utilities, especially when you're looking at historic property.
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I'm not actually trying to predict the utilities. That much I know (as much as I can right now). I'm trying to figure out how much revenue would be necessary -- in very, very squishy numbers, I understand -- to cover all expenses. If an innkeeper in a similar area told me that to keep the house warm, she had to spend over half her budget on gas, then I could start making some other assumptions, given what I "know" about that innkeeper's product. Based on that guessed revenue figure, what occupancy/ADR would be necessary? Given THAT, is it really reasonable that this property might ever operate in the black? It's all a guess, and because "my" inn has not been operated "properly" or in all likelihood profitably for several years, looking at their numbers really doesn't mean anything, anyway.
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Whether it can reasonably be expected to generate enough revenue really requires a bit more legwork on your part.
Whatever their past revenue was, the question is will that continue? With the same owners for 20 years, you're probably looking at a lot of repeat guests. Will they continue to come to the inn with new owners and innkeepers? Sometimes they leave in droves.
Can you replace any lost guests with a new revenue stream? To know that, you'd really need to take a look at the potential for tourism in the area. Then you'd need to know how you'd reach those potential guests and have a plan for that.
Is it a college town?
Is there a major recreation area nearby? A major metropolitan area with 100 miles?
Staycations are the new norm for travelers so the closer you are to a metropolitan area (and a steady supply of weekend guests), the better off you'll be.
All in all, there are a gazillion things to look at. So starting off with valid info about prior revenue and expenses is just a starting point. Get there first and then build your information/plan from there.
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I did all that analysis before I ever even asked for numbers; so far it passes the smell test. As far as developing a budget, the only "true" figure I have to work with is the actual utilities for last year. So my question is, "For a successful operation, approximately what percentage of the budget is spent on utilities?" If I get answers along the lines of 60-75% of the budget, that will tell me something; if I get answers of 5-10% of the budget, that will tell me something else entirely. From there, I can extrapolate out some other expense and revenue figures. If, for example, it comes out that in order to cover the estimated expenses the ADR needs to be five times the going rate in this town, or occupancy needs to be greater than 60%, then I can apply the reasonableness test pretty easily.
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Are you a PAII member? Their innkeeping survey results might be helpful to you. If you're not a member, you could probably call their office to find out if it covers that information (although I'm pretty sure it does, but I don't have access to an old copy of it any more).
Here's what I can tell you - my utilities that are charged to the business are 5.6% of my gross revenue. Now a portion of the utilies (for the part of the inn we live in) is not charged to the business. We are a mid-atlantic inn and have both central heating and central air-conditioning. It is not zoned so we run it all the time, even when it's just us here, but we do have essentially a year-round business. I don't know it that helps, though - seems like there are huge number of other variables that go into your equation.
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Thank you, that helps. I had not thought to check out PAII information, as I'm not a member (yet).
 
Sounds kind of familiar to me. We are getting no info. from the sellers. We contacted the utility company directly--I am amazed that they have no problem giving out the amounts and even copies of the bills. Look at the age and type of heating unit used, maybe this can be upgraded--talk to an area HVAC person--they know the area, and may know the property.
What I did was to look at my previous commercial property, and our tax returns, and then put together a spread sheet for what I consider the "carrying" costs of the property. I did my very best to fill in the blanks realistically, contacting the county (here I was sure to allow for the INCREASE in the taxes because of the change in ownership), utilities, insurance agents, etc. For me the biggest kicker was insurance (over 10k). I also added additional lines pertaining to expenses for a B&B.
Then I looked at what we thought the renovations will run (architect, contractors), finally at occupancy figures and room rates for the area We also spoke with a realtor/broker unrelated to the deal who we knew in the area to see what a selling price would be in her estimation.
Sorry if I am preaching to the choir on due diligence, but I don't think there is a percentage that you can plug in to figure this out. I think you need to figure out all the expenses and see where the cash goes.. Then it is a case of OK can it cash-flow? Our lawyer wanted to get a power of attorney on the seller to get copies of his IRS returns. I said no, there would be no point of it, as I don't believe he was making any money, and I wouldn't believe any numbers he gave them anyway!.
Our youngest daughter is looking at houses for a get-away and maybe retirement house. So far just about every house she has been interested in has been rejected because of the HVAC. Our s-i-l (married to her twin) had a friend in the town who is HVAC and he has looked at each one. So far they would have needed 10k or more to replace the heating/ducts (if any), etc. The one that was totally done, in move-in condition and gorgeous AND at a price a lot less than her budget was in a small town that made Tobacco Road look as if it was moving on up.
Check if the furnace. wiring for it, ductwork are up to code and how much to replace.
.
LOL -- the first thought that popped into my head this morning was, "Lead pipes! I'll bet that old house has lead pipes!" Actually, I don't think it does, based on when it was converted to a B&B, but definitely gave me pause.
.
If the house is that old, ask about knob and tube wiring also!
 
Sounds kind of familiar to me. We are getting no info. from the sellers. We contacted the utility company directly--I am amazed that they have no problem giving out the amounts and even copies of the bills. Look at the age and type of heating unit used, maybe this can be upgraded--talk to an area HVAC person--they know the area, and may know the property.
What I did was to look at my previous commercial property, and our tax returns, and then put together a spread sheet for what I consider the "carrying" costs of the property. I did my very best to fill in the blanks realistically, contacting the county (here I was sure to allow for the INCREASE in the taxes because of the change in ownership), utilities, insurance agents, etc. For me the biggest kicker was insurance (over 10k). I also added additional lines pertaining to expenses for a B&B.
Then I looked at what we thought the renovations will run (architect, contractors), finally at occupancy figures and room rates for the area We also spoke with a realtor/broker unrelated to the deal who we knew in the area to see what a selling price would be in her estimation.
Sorry if I am preaching to the choir on due diligence, but I don't think there is a percentage that you can plug in to figure this out. I think you need to figure out all the expenses and see where the cash goes.. Then it is a case of OK can it cash-flow? Our lawyer wanted to get a power of attorney on the seller to get copies of his IRS returns. I said no, there would be no point of it, as I don't believe he was making any money, and I wouldn't believe any numbers he gave them anyway!.
Our youngest daughter is looking at houses for a get-away and maybe retirement house. So far just about every house she has been interested in has been rejected because of the HVAC. Our s-i-l (married to her twin) had a friend in the town who is HVAC and he has looked at each one. So far they would have needed 10k or more to replace the heating/ducts (if any), etc. The one that was totally done, in move-in condition and gorgeous AND at a price a lot less than her budget was in a small town that made Tobacco Road look as if it was moving on up.
Check if the furnace. wiring for it, ductwork are up to code and how much to replace.
.
LOL -- the first thought that popped into my head this morning was, "Lead pipes! I'll bet that old house has lead pipes!" Actually, I don't think it does, based on when it was converted to a B&B, but definitely gave me pause.
.
If the house is that old, ask about knob and tube wiring also!
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I can guarantee the insurance company will demand the removal of knob & tube. I had to remove mine! $$$$ The ONLY reason my electrician agreed to do it was because he likes us & he and DH belonged to the same club. He told me he hates old houses and normally quotes a price that guarantees a response of - Next!
 
We looked at a place, too, where they were very sketchy on the particulars of the utilities. One of their reasons was they closed for the winter-ish, so a new owner who was open year round would have different amounts. That was their reason anyway.
I was leery about getting farther into it with them becuase I was so afraid I'd fall in love with the place and then my heart would overtake my brain and we'd be in a big mess...I wonder if they've changed the process of the info they give out to prospective buyers. We contacted them in the early days of their B&B being on the market. It's been on the market for over 2 years now. I wonder if they just "weren't really ready" then...I bet they are now!
 
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