Share Your ‘Castle’ for Fun and Profit: Buying a Bed and Breakfast
Beginning in Europe in the late 19th century, the bed-and-breakfast type of accommodation has spread across the globe. Bed-and-breakfasts (B&Bs), which range in size from middle-class homes to stately manors and even castles, offer a pleasant, homey alternative to motels and hotels. For many owners, their B&B property generates a significant income, allowing them to do part-time work or pursue other interests after taking care of their guest(s) in the morning. A B&B that is attractive, well-maintained, and properly marketed can be a very good real estate investment.
For many individuals, preparing a delicious breakfast for friendly B&B patrons and suggesting local places to visit is a dream come true, particularly since they used to deal with rush-hour traffic, a grumpy boss, and office politics. Maybe it’s your dream as well, but before you quit your job, there are several things to consider about buying a B&B property or a home to be converted into a bed-and-breakfast.
First and foremost, a B&B is a business and investing in a B&B property needs to be a business decision. To start, you need to ask yourself some key questions: Do you have the right type of personality to work in the hospitality industry? Do you enjoy meeting and talking with strangers? Would you enjoy preparing and serving breakfast to people each day? Would having to frequently do housekeeping chores bother you? Owning a B&B takes effort and work, so before you buy one, be sure that it’s a good fit for you. Talk with some B&B owners to find out the pros and cons.
Security is an important consideration. If the thought of having someone you don’t know stay in your home makes you feel uncomfortable, then owning a B&B is not for you. Contact your local police department for information on B&B-related crimes in your area (if any).
The location of your B&B will play a large role in its financial success. As a general rule, successful B&B’s are located close to attractions. Buying a heritage home near Niagara Falls and converting it into a B&B is far more likely to be financially successful than doing the same with a 3-bedroom home in a small pulp mill town. Whether in a rural or urban area, be sure to check with the local municipality about B&B regulations. Review the websites of local B&Bs to get a better idea of the type of accommodation already available locally.
Hand-in-hand with location is cost. A successful B&B’s is worth not only the value of the property, but also the income that it generates. If you’re going to buy a profitable, established B&B, you will be paying a premium for it. If you’re thinking of buying a property that has not been a B&B, you need to consider how it will work as one. Are there enough rooms? Will each patron have their own bathroom, or will you need to pay to have one installed? Do you want your B&B patrons to use the front door, or enter via a separate door? If a separate entrance for guest doesn’t exist, you’ll need to hire a contractor to have a door installed.
Are you thinking of selling your current home and using the money to acquire an existing B&B property, or a larger home and turning it into a bed-and-breakfast? If you need financing to purchase a B&B, the loan manager will probably insist that you submit a business plan. Your local library should have books on preparing a business plan, and there is a lot of information on the Internet on this subject. A well-written, comprehensive business plan will show the loan manager that you have done your homework and understand the business that you are asking your financial institution to invest in.
If you want to buy an established B&B, ask the current owner for copies of their expense and income statements (to show to the loan manager). If you can demonstrate that the B&B has a history of good cash flow, your financial institution will be more likely to approve financing. If there is no history of B&B income, you will need to prove that there is a strong potential to make money as a B&B business. This will require marketing research and a marketing plan for your business plan. Contact your local or provincial tourism association for data on the number of people who visit your area and stay in motels, hotels, etc. A percentage of those people are your potential customers. Also shop around for financing; your bank or trust company may not be offering you the best value for your money.
Review the real estate listings in the area where you want to have your bed-and-breakfast, and visit the properties to get an idea of what’s being offered. Another great source of B&B information is your real estate professional. He or she is likely to know of the best choices in your area. If you are considering properties in many communities, your agent can also help you find experts in other towns and cities through Sutton’s extensive referral network.
Once you find a B&B property that you like, or a home that you want to convert into a B&B, before you make a formal offer, hire a certified home inspector to inspect the property. Knowing about necessary repairs will allow you to either reduce your offer, or make the purchase conditional upon completion of the repairs that you and the current owner agree should be done. If the property is an established B&B, it is recommended that you have an accountant review the expense and income statements before you make an offer, to confirm that the revenues match the owner’s claims.
Buying a bed-and-breakfast or converting a home into a B&B can be an exciting project as well as a great investment. Protect your money by first learning about what’s involved in owning and running a B&B, and work closely with your banker and other professionals to ensure that there are no nasty surprises in the purchase. The rewards of your efforts will be as delightful as the expressions on the faces of the people who come to stay in your bed-and-breakfast!