This is the million-dollar question…
Most aspiring innkeepers who contact me, do so prior to beginning a serious search for a property. This makes sense to me since as they have been successful in some other career, and have learned that “An ounce of prevention is worth a pound of cure.” They want to do their homework to narrow their search to a price range they can afford. Weather they are pursuing a lifelong dream as partners or a single person moving on to a new challenge in a new place, it is my objective help make the experience a positive, productive and profitable one…
Step 1 – Prequalification: My first task is to conduct a pre-qualification the with respect to what assets are available what the buyer/s are willing to commit to an acquisition. We need to verify capital sources, what can be used and how. Credit history and professional qualifications are also important to understand so that any limitations or challenges can be addressed. My most important job as I see it, is to get an aspiring innkeeper focused on identifying an inn that is well suited for their qualifications, and to guide them along their journey to make sure their energy is focused and their expectations are properly directed.
Most sellers will be more receptive to a buyer who has been pre-qualified, in fact, this is generally a requirement before the seller will share or authorize their realtor to provide financial information at all. A strong buyer may be able to purchase an under-performing inn if they have adequate capital and an abundance of direct industry experience, but a strong performing inn helps offset a buyer’s borderline or short comings in experience and or capital.
Step 2 – Identifying qualified properties: I recommend that a knowledgeable “B&B Industry Specialist Realtor” be engaged very early on to recommend available inns that match your qualifications and vision. Many of these professionals have been innkeepers themselves and are intimately familiar with operations and valuation methods. They can expertly compare the asking price with their own analysis of the inn’s financial performance and comparable sales.
They can also critically analyze expenses, ADR and occupancy rates as compared to industry norms considering location and the seasonal nature (if any) of the business.
Since the underwriting of a commercial loan combines the qualifications of the buyer with the financials of the inn, it is important to collect as much data as possible from the owners to sort through available inns in the geographical areas of interest. It makes little sense to invest time and money to visit a list of available inns until you have reviewed as much information as possible. Why get excited about an inn, love the sellers, have them love you, and see yourself as the next innkeeper if the deal can’t work because the net income cannot support the desired level of debt or the asking price is unsubstantiated by is historical performance. It is in the interest of all concerned to know that the property is fairly price, an offer is squarely based on solid historical data not what the inn is capable of under new management. You don’t pay a price based on what an inn can do, the value is substantiated by its historical performance.
It is my professional mission to guide aspiring innkeepers along their journey to enhance their experience and increase the likelihood they will be successful and happy managing “The Inn of Their Dreams.”
About the author: Rick Newman founded Commercial Capital Network in 2004. His website www.InnFinancing.com provides useful information to Aspiring Innkeepers who wish to purchase “The Inn of their dreams” and Innkeepers who seek to re-finance or re-structure debt obligations.
In 2007 Rick introduced an innovative program to the hospitality industry, which liberates the use of retirement assets for the purchase of an inn without incurring penalties or tax liabilities. This program has helped many of Rick’s clients access capital to fund a more significant down payment.
Rick’s connection to the hospitality industry has its roots in his family’s 30-year ownership of a twenty-eight-room inn in New Hope, Pennsylvania. He maintains relationships with leading hospitality professionals and industry specialists, and has authored numerous articles on subjects of special interest to aspiring innkeepers. His testimonials pay tribute to the relationships he has developed with his valued clients.