Friday, October 23, 2009

What's happening in the bed and breakfast brokerage market?

It's a frequently asked question by both buyers and sellers. Actually, add in appraisers and bankers as well. Everyone wants to know if there are buyers out there. The answer is absolutely, yes. However, the ratio of buyers in certain buyer pools has shifted during the economic slowdown. The following represents the bed and breakfast brokerage industry's pool of buyers:
  1. buyers who want strong performing businesses
  2. buyers who want "deals" on under performing business for growth potential (even though a property may be fairly priced for the residential market)
  3. buyers who have cash to buy an under performing property; this buyer sees the real potential and has the necessary cash to subsidize the business until the income grows to enable the business to support itself
  4. buyers who have cash to buy a "hobby" property where the financial performance isn't essential; they may have other income or retirement income
  5. a buyer who just wants to buy a B&B to have as a private residence (this desire can vary greatly by property and location)
What we are experiencing at present is a great deal of interest from buyers in pool #1 and #2. And many sellers are in need of buyers in pool #3 and #4 (and naturally #5). Can the two meet? The answer is yes, but with compromise.

Buyers should recognize that in some cases it makes perfect sense to pay a higher price for an under-performing property with real potential; buyers should also understand that properties with very strong income are going to be priced higher at perhaps 6-7 x gross income (known as a GIM - gross income multiplier); if the income isn't where it should be, chances are a property will be priced either on its potential value, it's residential value, or a combination of both. Buyers should also realize that innkeeping is about the lifestyle, and there's a price to pay for that lifestyle. Keep in mind you're buying a home and a business, not just a business. If you can enjoy innkeeping and make it a highly profitable investment, you're in the ideal situation and life is good.

Sellers should price their property fairly; understand the possibility of sitting on it longer than expected, particularly if in a situation of a limited buyer pool (unintentionally, by not having a strong income or buying at the height of the market and selling when it's down, hoping to get out without a loss); during this time it's very important that the seller try to increase the revenue. Buyers are very concerned about the financial stability of leaving their current jobs in order to buy into the lifestyle. Today's buyer is simply risk averse.

The fish are biting...just cautiously...

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