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

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 set-up, and continued compliance year after year.

How long does it take to process and close a transaction once I/we have identified a hospitality property?

ANSWER: After the contract has been negotiated and accepted, the inspections and mortgage contingency period will begin. Generally speaking, 45 days is established to obtain a mortgage commitment. Due diligence also 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. The contract should best case, allow 90 days for closing but closings sometimes occur in 60 days.

Is seller financing a useful tool when financing an inn?

ANSWER: Yes, it can be used, particularly when the property has been underperforming for any number of reasons; in fact, some sellers may find it attractive to offer a seller-held second mortgage to defer some portion of a gain from the sale of the inn. 

If the property is free from debt, the owner may consider financing the entire purchase at a rate and term which would be competitive with local banks. 

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

ANSWER: It is difficult to know until all financial documentation has been provided by the seller.  A knowledgeable “B&B Industry Specialist Consultant/Realtor” should be consulted on matters of value.  These professionals are intimately familiar with the industry and can provide time-saving advice on the viability of the business and the value of its assets.  It generally makes good sense to support your offer with comparable sales data. 

How does a Pre-qualification differ from a Pre-approval?

ANSWER: A Pre-approval differs from Pre-qualification in commercial lending in that the “Pre-approval” or Term Sheet/Letter of Interest 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.

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. A Pre-approval will have been issued conditioned upon certain events, and due diligence has been completed.

What does a Pre-qualification accomplish?

ANSWER: The Pre-qualification process establishes a range in purchasing power a buyer/s has as it relates to identifying hospitality properties that best fit their financial qualifications and professional/personal objectives.

A Pre-Qualified Buyer identifies a person or persons as having submitted, the required proofs and documentation for verification and analysis; prior to identifying or contracting to purchase a specific hospitality property.  This process must be completed on all parties with 20% stock interest beginning with a complete application including, identification/s, Financial Statement/s, Account Statements, Credit Scores, Personal Debt Schedule, three (3) most recent years Federal Tax Returns and Resumes for all partners.

Realtors and sellers alike are more receptive to investing time with a Pre-qualified buyer, because their qualifications and assets have been independently verified. A Pre-qualified Buyer negotiates with confidence knowing they have the capacity to consummate a transaction.

How can I know how much of a loan I qualify for to purchase a B&B/inn?

ANSWER: A pre-qualification encompasses reviewing the loan application and supporting documentation. The review includes data and documentation for the buyer/s and may include a particular property of interest.

The buyer/s must have adequate capital, credit, and professional credentials, and the “property in question” (PIQ) must be able to support the desired level of debt.  The pre-qualification process helps determine the buyer/s price range before the search begins and may also be used to evaluate the feasibility of a particular property.

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 of historical financial data and comparable sales.

Location, location, location….

ANSWER: We have all heard this before.  As it related to financing, hospitality properties may represent a challenge depending on the historical cash flow.  In certain states, 2020 and 2021 may have seen closures due to Covid-19, so gross revenues during this period may have been compromised to some extent.  Most banks understand this and will be flexible in underwriting. 

It is also worth noting the real estate values in certain markets may overshadow the value of a property as a “going concern” AKA “business value.”  Its “highest and best use” may be apparent, but it will ultimately be determined by an appraiser if financing is necessary.

In high-cost real estate markets, it may be challenging to finance an acquisition with a high loan to value (LTV) i.e., 80%, as the NOI may be insufficient to carry the desired loan; this can be analyzed in underwriting before an offer is made.

Owners Quarters

ANSWER: Aspiring innkeeper’s needs vary based on many factors.  Moving from a single-family home into an inn may be challenging depending on the nature of the space allocated to the innkeeper and their family.  Aspiring Innkeepers are getting younger, so children may be a factor in the equation.  Some inns have separate residences for the innkeepers/owners, the accommodations may be inside the inn, attached, detached or on separate deeded lots altogether.  If the owner’s quarters are on a separate lot, the income from the inn may or may not be sufficient to debt service the home, as such; the buyers be required to purchase the home separately with a residential loan supported by outside income.  It is not uncommon today for one partner to maintain outside employment and, as such, may be able to qualify for a residential mortgage on the separate owners’ quarters. 

This can be reviewed early on to develop a strategy that best fits the buyer’s financial objectives.  It is best to seek professional advice from a knowledgeable advisor to understand your options.

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

ANSWER: Aspiring innkeepers should attend industry conferences and aspiring innkeeper 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.