The most efficient way to have us help you in your search is to e-mail or fax to us the BUYER QUESTIONAIRE form which helps us with your geographic, physical, business and economic needs. Many sellers request that a buyer submit this form prior to showings in order to help identify and address any incompatibilities up front. The more information provided the better. However if you find any questions too intrusive, or are not yet far enough along in the process to have all the answers, its OK to forward the form completed to the extent you desire. You are welcome to call us anytime for information.
Please try to schedule showings in advance for best results. Because of pre-bookings, it may not always be possible to accommodate short notice or next day appointments. Most often if an Inn has rooms booked the best time to view the property will be between check-out and check-in time (11:00 am -3:00 pm). In busier seasons, Saturdays may be the most difficult day to see the guest rooms if Friday night guests are also staying Saturday night. Please do not call the Inn keeper direct. They listed the property with a real estate practitioner because they didn't wish to handle the sale themselves (just like one who rather than pull their own tooth out has a dentist do it). Often Inn keepers are present and available for questions at showings. However the owners prefer that all inquires and offers be coordinated through us. Keep in mind that if you are just tire kicking for now, you can always get the feel of an Inn by staying a night, or booking a dinner reservation if it is a restaurant. If you choose to do this, please do not ask the owners for an impromptu showing. Try to be sensitive to scenarios in which the owner may not want employees knowing the property is for sale. Some sellers will require a Confidentiality Statement be agreed to by prospective buyers prior to showings or divulging property identity. On showings we try to be courteous to any guests that may be present and respectful to the fact that they may be on a getaway. The means knowing when to pass through an area being low key rather than arriving dressed in business attire holding a stack of papers and commencing a sales presentation without regard to the presence of guests or employees.
When purchasing an Inn one is buying both Real Estate and a Business. A difficult challenge is how in recent years real estate values have escalated dramatically while hospitality revenues have not. To afford the real estate buyers must have larger down payments or supplemental income in order to make the numbers work. The first item to address in any appraisal is defining a property's highest and best economic use. In some areas like Nantucket and Cape Cod, the number of Inn rooms is dropping dramatically because Inns are selling as homes. The demand from the residential market sector has become so overwhelming that in some cases the fact that the property receives revenue as an Inn becomes meaningless. This sort of demand becomes less likely as one moves towards larger more commercial or restaurant properties in which the financial indexes are more relevant to highest & best economic use.
Gross Revenue Multiplier:
In a market that supports a GRM of 6 for example, if the Inn grosses $300k per year the value is $1.8 Million (Annual gross x GRM equals indicated value). In the Northeast expect to find a GRM range of 4 to 12. A property may only support itself if the GRM is in the 4 to 6 range. Beyond that one is paying a premium due to area Real Estate values. GRM should not be used as a unit of comparison when comparing restaurant properties with non restaurant properties because food and beverage sales can drive the gross revenue way up and the margin is not the same.
Capitalization rate is the rate of return to an investor based on cash flow alone (not Real Estate appreciation) and is based on net operating income. Net operating income is arrived at by crediting "add backs" toward the net income. Add backs are expenses that are tax deductions rather than out of pocket expenses solely isolated to the operation of an Inn. They include write offs such as mortgage payments, depreciation, health insurance, one time capital improvements (such as adding a guest room) etc. The goal of many Inn keepers is to have as little taxable income as possible. An Inn reporting no profit may actually have a net operating income of $100,000. The cap rate is income divided by rate = value. In a market that supports a cap rate of 10%. The indicated value of a property netting $100,000 would be $1,000,000. Capitalization rate as an applicable index is not used as often with B&B's that are elegant landmark or trophy properties since in a competitive context those who prioritize number crunching will be better served pursuing lower grade specification real estate such as multi unit apartment complexes, strip plazas and hotel/motels. We use it primarily when comparing a non restaurant property with a property with a restaurant. Since restaurant sales may drive up the gross revenue, comparing the net is more reliable. One challenge here is that the small amount of "disappearing cash" that occurs in the business is much more prevalent in the restaurant industry.
Price Per Guest Room:
This unit of comparison will be affected by area Real Estate values and/or revenue per room. For example, Inns in one area might sell for $75,000 to $125,000 per guest room and experience between $10,000 to $20,000 per year revenue per room.
Price Per Square Foot:
This is another basic unit of comparison that can be used when comparing area real estate values. Active residential listings for a town can be found on www.realtor.com.
A standard commercial loan underwriting criteria is to approve a loan in which the net operating income (formulated after "add backs") is 1.2 to 1.25 times what the mortgage payments will be. In other words, if the annual net operating income is $125,000, the lender will make a loan in which the annual payments are $100,000. SBA loans are frequently used to finance hospitality properties through SBA insured programs. Funds can be provided for purchase and working capital. More information about SBA programs is available at www.sba.gov. When determining what your borrowing possibilities might be, it's beneficial to contact loan consultants who understand the complexities of SBA, such as www.imatryx.com. Next, it is sometimes possible to finance inns with a residential mortgage. Residential mortgages are always the best rate and terms. Contrary to popular belief, financing B&Bs with residential mortgages happens often but can only be done in certain circumstances. First and most importantly, the appraiser and the lender's underwiritng department (not the loan officer) need to accept an appraised value based on a residential highest and best use. The time to determine this is up front before the loan application is made. The time not to determine this is weeks after commencing the loan application and receiving a call from the appraiser who just drove up and saw the B&B sign and says "I can't appraise this as a house, it's an inn". Other limitations: If the property is commercially zoned you probably can't obtain a residential loan. Larger properties and/or restaurants that really would not be conducive for residential use may not qualify. Buyers with credit scores in the 700 range and up need to provide little if any documentation and down payment funds for residential loans. But the appraisal will be based on residential real estate alone. Depending on how much the business is worth, the appraisal could come up short of the sales price and the loan amount will be based on the appraisal, not the sales price. Income from an Inn cannot be used on a residential loan application. Another source to check out is what lender presently holds the existing mortgage on the property? Occasionally a local lender who holds the mortgage is already familiar with the property and may be amenable to providing the new loan at competitive terms.
The time, money and effort it has taken us to acquire all the state licenses, multiple listing service access, and posting each listing one at a time in order to bring all the information on this web site, has been extensive. We update listing status on a regular basis. It has all been possible due to the continued support of our customers. Your patronage and support of our business is very much appreciated.