Is Your Inn an Investment or a Tax Shelter?
Most innkeepers dream of retiring one day. It’s a logical progression to go from eager aspiring innkeeper, to perspiring innkeeper, to seller and innkeeper emeritus. But when the day comes to find out “what is my inn worth?” many innkeepers are surprised and even disappointed.
“But we need more than that to retire!” “We have invested much more than that in the inn; we can’t sell for a loss.” “We hoped for a better number.” As the song goes, “We feel the earth move under our feet….” We’re here to tell you that the earth doesn’t need to move, you just need to know where the value is (or isn’t) in your inn.
All inns are an investment when you put your savings into buying it. The questions is, a few years later, will you reap a return on your investment, or will you discover that you’ve been investing in a tax shelter and not a business that people want to buy? People buy profitable businesses; they don’t buy your tax shelter.
Historically, many B&Bs were small (3-5 rooms) and were bought as a retirement project. “I’ve always wanted to run a B&B when I retire.” Innkeepers know that running a B&B is hard work, so waiting for true retirement age to begin is hard, unless it’s a modest business that is manageable, can be closed for days off and vacations, and is fundamentally a lovely home where you run a small business.
The world is full of small businesses, and when most owners of those small businesses are ready to quit, they simply close up shop and go home. But when there is a valuable piece of real estate involved, that’s not so easy to do. When you are “finished,” either you take down the sign and enjoy living in the house, or you sell the house. But the operative description is “sell the house,” as the “business” may not be able to pay for the house.
This is what we call a “lifestyle” inn, where the value is in the real estate as a residence, and the business affords some extra income, a fun and rewarding lifestyle, and valuable tax benefits. No one is going to pay any significant premium for a “business” that cannot pay for the investment.
By Peter Scherman and Rick Wolf