How do I determine how much I can afford before I begin shopping for a B&B/Inn?

Answer:  A pre-qualification involves the review of a loan application and supporting documentation and is comprised of data and documentation for the buyer/s and quite often a property that is of particular interest to the principals. The buyer/s must have adequate capital, credit, and credentials, and the property in question (PIQ) must be able to support the desired level of debt.  The pre-qualification process is most useful to evaluate the buyer/s price range before the search for a B&B/inn begins.

How can I know how much of a loan I need to purchase the “Inn of my/our dreams?”

Answer:  A LOI (Letter of Interest or Term Sheet) in commercial lending is issued after a preliminary underwriting determination has been made. The buyer’s qualifications and the data from the commercial property are combined to assess the risks versus the merits of the loan application.

Financial records on the business/property being acquired will be needed to determine that the Debt Service Coverage Ratio (DSCR) will comply with general underwriting guidelines after items such as depreciation, officer’s salaries, mortgage interest, and certain non-re-occurring expenses are added back to the net profit/loss.  The loan amount will be determined after all data from the borrower/s and the subject property is compiled and analyzed by one of our Commercial Loan Underwriters.

How long will it take, beginning to end, to close once we have identified the Inn of our dreams?

Answer:  After the offer and contract have been negotiated and accepted, the mortgage contingency period will begin. 45 days is allocated to obtain a mortgage commitment. Due diligence now begins in earnest with the ordering of inspections, title insurance, environmental, and survey (if needed). Once received, the mortgage processors review the title, appraisal, and environmental issues if any, to build their file for closing. The contract should best case allow 90 days for closing, but closings often occur in 45 to 60 days on average.

How do I determine a fair offering price for the inn/s I am considering?

Answer:  A knowledgeable “B&B Industry Specialist Realtor” should be engaged very early on to consult on matters of value. Realtors who have been innkeepers themselves and are intimately familiar with their market area provide time-saving expertise. They can expertly evaluate the viability of the business and support your offer with their own analysis of comparable sales data, the inn’s Financial Performance, Real Estate Improvements, Good Will, and Furniture and Fixtures & Equipment (FF&E). “A buyer or seller of a business who chooses to represent himself/herself has a fool for a client”.

Can I really use my retirement funds to open a business without taxes or penalty?

Answer: In most cases, yes. Our plans are designed to meet the IRS requirements for qualified retirement plans. IRS regulations permit the rollover of funds from qualified plans to qualified plans without taxes or penalties. Regulations also permit the investment of retirement funds in the stock of the sponsoring company. The benefits of the plan do come with responsibility. It is imperative that a qualified retirement plan is established for the new company, and that it be used and operated as such. It is also required that this qualified retirement plan be made available to all eligible company employees. Because compliance is essential, it’s important to work with a company that specializes in retirement plan design and administration, to ensure compliance at setup, and continued compliance year after year.

 

What if my accountant (or lawyer) isn’t familiar with this type of financing plan or isn’t sure it could be done?

Answer:  Retirement planning is a highly specialized field; for this reason, we recommend that you use a firm that deals only with retirement and pension fund planning and administration when dealing with your retirement or pension funds. While your accountant or attorney may not be familiar with this type of plan, we’ll be happy to walk through the process with them.  Our partners have decades of experience in designing retirement plans to comply with the Employee Retirement Income Security Act (ERISA) of 1974, as well as Internal Revenue Code provisions. In fact, the plan was designed by our partner, an ERISA attorney himself. We feel so confident about the design of these plans that the company stands behind his plans with the industry’s only written guarantee for plan design, and he provides this guarantee up-front to each one of our clients.

 

 

What should I look for when shopping for the inn of my dreams?

Answer:  Aspiring innkeepers should attend industry conferences and aspiring seminars to get a feel for the kind of operation that would best suit their financial and lifestyle objectives. This is fundamental to the beginning of a well-planned investment and will save time, capital, and energy. Do all that is possible to enjoy the journey by learning from the unpleasant experiences of others.

Are inns offered “For Sale by Owner” worth considering?

Answer:  They could be, but it is difficult for a seller to impartially establish the value of the business and its assets without the benefit of a valuation undertaken by an industry specialist realtor or an appraiser. The asking price should be backed up with three (3) years historical financial data and comparable sales.

What should I look for when shopping for the inn of my dreams?

Aspiring innkeepers should attend industry conferences and aspiring seminars to get a feel for the kind of operation that would best suit their financial and lifestyle objectives. This is fundamental to the beginning of a well-planned investment and will save time, capital and energy. Do all that is possible to enjoy the journey by learning from the unpleasant experiences of others.

Are inns offered “For Sale by Owner” worth considering?

They could be, but it is difficult for a seller to impartially establish the value of the business and its assets without the benefit of a valuation undertaken by an industry specialist realtor or an appraiser. The asking price should be backed up with three (3) years historical financial data and comparable sales.

How do I determine a fair offering price for the inn/s I am considering?

A knowledgeable “B&B Industry Specialist Realtor” should be engaged very early on to consult on matters of value. Realtors who have been innkeepers themselves and are intimately familiar with their market area provide time-saving expertise. They can expertly evaluate the viability of the business and support your offer with their own analysis of comparable sales data, the inn’s Financial Performance, Real Estate Improvements, Good Will, and Furniture and Fixtures & Equipment (FF&E).

“A buyer or seller of a business who chooses to represent himself/herself has a fool for a client”.

How can I know if I qualify for a loan to purchase an inn?

A prequalification involves the review of a loan application and supporting documentation and is comprised of data and documentation for the buyer/s and quite often a property that is of particular interest. The buyer/s must have adequate capital, credit, and credentials, and the property in question (PIQ) must be able to support the desired level of debt; the Prequalification process is most useful to evaluate the buyer/s price range before the search begins of course but may be employed to evaluate the feasibility of an acquisition.

 

How long will it take, beginning to end, to close once I have identified the Inn of our dreams and made a buying decision?

After the offer and contract have been negotiated and accepted, the mortgage contingency period will begin. Contracts generally allocate 45 days to obtain a mortgage commitment. Due diligence now begins in earnest with the ordering of inspections, title insurance, environmental and survey (if needed). Once received, the mortgage processors review the title, appraisal, and environmental issues if any, to build their file for closing. The contract should best case allow 90 days for closing but closings often occur in 45 to 60 days on average. How can I know if I qualify for a loan to purchase an inn? A Prequalification involves the review of a loan application and supporting documentation, and is comprised of data and documentation for the buyer/s and quite often a property that is of interest to the buyer/s.

Can the Inn I love be… “The Inn of My Dreams?”

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, 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. Whether they are single pursuing a lifelong dream to run their own business or partners 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 understand what assets are available, where they are invested and what the buyer/s are willing to commit to fund an acquisition. We need to verify assets, 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 early on. My most important job as I see it, is to get aspiring innkeepers focused on identifying an inn that is well suited for their qualifications, to make sure their energy is properly directed, and their expectations are realistic and achievable.

Most sellers will be more receptive to a buyer who has been prequalified. In fact, this is generally a requirement before sellers 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 borderline buyer’s shortcomings 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 matching the aspiring’s 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 current 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 and data 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 your lifestyle, the desired level of debt. What is the asking price is unsubstantiated by the inn’s historical performance. It is in the interest of all concerned to know that the asking prices is well supported by comparable sales and three (3) years of financial data derived from the business tax returns.

Any offer should be thoughtfully 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 determined by a combination of its historical performance over time, real estate value and other assets of the sale.

It is my professional mission to guide aspiring innkeepers along their journey, to enhance their experience and increase the likelihood they will be successful in finding the “The Inn of Their Dreams.”