And there’s a much larger audience for residential real estate than for lifestyle B&Bs. In residential real estate, the value is tied to supply and demand and can go up over time organically.
On the other hand, if you own an inn whose size and configuration has no market as a residence (too many bedrooms, too many buildings, commercial kitchen, fireplaces, steam showers and whirlpools in many rooms, etc.) you likely own a “financially viable” inn.
With financially viable inns, the value is directly tied to revenues and cash flow. And, priced correctly, a buyer should be able to put down 25% of the price and “take it to the bank” for financing. Over time, some good things happen with this kind of investment.
First, the innkeeper has a lot of control over the value of their enterprise by carefully making good investment decisions about property improvement and marketing, which, over time, can grow the business and increase cash flow. Please note that cash flow means real, verifiable profit after operating expenses. If you are running personal expenses through the business, it will cost you later when you want to sell your “investment.”
Second, when someone takes on a reasonable and sustainable amount of debt when purchasing an inn (which 97% of all buyers do), your guests are paying down your mortgage, sometimes in very significant amounts. If the inn you bought was mature, meaning it’s hard to grow it significantly, and if you sold it after a few years for the same price you paid for it, you’d still walk away with more cash in your packet, thanks to your guests.
Third, while you were busy increasing the value of your business and your guests were paying down your debt, you also had a roof over your head (if you live on property), many of your expenses of “home ownership” have been paid for by the business (property taxes, utilities, insurance, etc.).
If you own a financially viable inn, run it like a business, for profit, and enjoy the personal and financial return on your investment. If you own a lifestyle inn, make the most of the tax sheltering and quality of life benefits it affords you. But remember that they are different. Know what you have and how you will be rewarded when you sell.
Peter Scherman and Rick Wolf are the Partners / Owners of The B&B Team®, Inn Consultants and Brokers Since 1993. Along with their affiliates, they offer a comprehensive range of consulting, educational, and brokerage solutions for current and aspiring innkeepers across the USA.