What Buyers Look For in a Bed and Breakfast or Inn

The house and the business are priced together

An owner-occupied inn is a home, a lodging business and a piece of real estate at once, and buyers split the value in their heads. The building usually carries most of the price, so the first thing a lender orders is an appraisal. If the appraisal comes in below what the buyer agreed to pay, the deal has a gap that someone has to fill, and it is common for that gap to land on the seller as a price cut or a note. Our post on selling a business with real estate attached walks through how that works.

Buyers also want to know how much of the house is guest space and how much is the owner's private quarters. A suite for the innkeeper with its own kitchen and entrance is an asset. A layout where the owner's bedroom is down the hall from the guest rooms makes some buyers hesitate, and those who are fine with it will ask how the private space could be converted if the next owner wants one more room to rent.

Furniture, linens, antiques, the commercial kitchen equipment and the laundry setup normally sell with the property. Get a list made in advance, and mark anything that belongs to you personally and will leave with you. A buyer who walks the house and sees a family heirloom on the mantel will ask whether it stays.

Where the guests come from

Booking channels are the part of an inn that a buyer can analyze most easily, so they do. The questions are how many reservations arrive through the online travel sites, how many through the inn's own website and phone, how many come from guests who have stayed before, and how many come from weddings, retreats and small events. The online travel sites charge a commission on each stay. A property that gets most of its bookings through them earns less on the same room rate than one with a strong direct channel, and a buyer will do that arithmetic.

Review history on the major platforms is read closely. A buyer looks for a steady stream of recent reviews, how the owner responds to the poor ones, and whether the inn ranks well for its town. They also want to know who controls the accounts. The listing profiles, the booking engine, the channel manager that keeps rates in sync, the domain, the email list and the social media pages should all be in the business's name. Many inns have these tied to the innkeeper's personal email, and untangling that takes longer than owners expect.

Gift certificates and advance deposits are liabilities, and buyers treat them that way. Guests who have paid for a stay next spring are owed that stay, and the closing statement usually adjusts for it. Our post on earnouts, holdbacks and working capital covers how adjustments like these are handled.

The innkeeper's labor on paper

Innkeepers often run personal costs through the business. Meals, utilities for the private quarters, the car, the phone, and the repair of things that serve the family as well as the guests. Buyers expect some of this and will accept it when it is documented, which is the work of the add-back schedule. See our post on what counts as an add-back.

The harder question is the value of the owner's own labor. An innkeeper often cooks breakfast, cleans rooms, answers the phone at all hours, does the laundry and fixes the plumbing. A buyer wants to know what it would cost to hire all of that, because many buyers will not do it themselves, or will do it for two years and then want help. If the earnings only look good because the owner works every day without pay, the buyer's lender will adjust them down, and the price follows. We cover the measure buyers use in what seller's discretionary earnings means.

Seasonality needs its own page in the package. A mountain inn and a beach inn have very different months. Buyers will ask for occupancy and revenue by month for several years, because the lender has to be sure the slow season can be carried without dipping into the buyer's own savings.

Condition, permits and what transfers

An inn that is a hundred years old has a hundred years of deferred maintenance in places the guests do not see. Roofs, porches, boilers, plumbing, wiring, septic or sewer lines, and the fire safety equipment are the items a buyer's inspector will go through. Historic buildings may carry restrictions on what can be changed, and a buyer wants to know that before making an offer. Keep service records for the major systems and be ready to explain what was replaced and when.

Operating a lodging business typically takes a handful of approvals: a local business license, a health permit for serving breakfast, a certificate tied to the number of rooms, a registration to collect lodging taxes, and sometimes a liquor license if the inn serves wine. Zoning is a particular concern, since a use permitted for the current owner might be tied to that owner or might be at risk if it lapses. Which of these transfer and which must be applied for again varies a great deal by city and state, and your attorney confirms what applies to your inn.

Insurance deserves attention too. A buyer will ask for the claims history and for the policy that covers the guests, the building and the events. Keep any wedding or event contracts for future dates, since the buyer takes over those obligations along with the deposits.

What sinks a sale

Inn sales most often stall for a few reasons. The appraisal is lower than the price. The buyer's lender is not comfortable with seasonal lodging cash flow. The inspection turns up a roof or a septic system that needs money. The owner's records do not separate personal spending from business spending. Or the buyer discovers that the inn's reputation belongs to the innkeeper personally, and that the guests come back for the person at the front door.

The last one is worth preparing for early. Write down how breakfast is made, how rooms are turned over, how the inn is marketed and who the regular guests and local vendors are. Introduce the buyer to the regulars during the transition. Offer to stay for a stretch after closing, and look at how long you might have to stay before you promise a date.

Getting ready

Start by getting the books, the reservation system and the tax returns to agree with each other. Move every online account into the business's name. Do the repairs you have put off, particularly anything a home inspector will mark. Order a current appraisal if you are not sure where the property sits, and ask your lender for a payoff figure if a mortgage has to be paid at closing.

Business Advisors of America works with innkeepers from the first valuation through closing, and the page on selling a bed and breakfast or inn shows how we think about these sales. A call with us is the next step.

This article shares our opinion and general information. It is not legal or tax advice. Always speak with a licensed attorney for legal advice, and a qualified tax professional for tax questions, before you act.