Real-World Financing Options

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12/30/2012

I am getting way too many answers to the question of how to finance the purchase of an existing B & B. Owners are now older and want to sell. 4 rooms with private baths and possible to add 4 rooms with shared bath (at lower rate). Minimal marketing (only on State Inn Assoc. website plus their own website that may or may not be found using Search Engines) and they are making money with an 10 year running average 50% Occupancy and $54K income. Could market more (we plan to) and market local usage of grounds for summer weddings, and house for small, formal dinners, etc......

Most Inn Consultants are telling us that in our Plan we need to be looking for funding to reach: Purchase Price, 4 years Operating Expenses, furniture (some does not stay with the property), "salary" for owner, and some repair costs using the data provided by the current owners.  This takes us to $1,000,000 (One Million). This also gives us funds to convert a two car garage into a garden suite/Innkeepers Quarters so we can then offer the 4 rooms with shared bath instead of living in them.  This also puts funds in the bank to earn some interest and service the debt incurred in addition the regular income.

Some banks are telling us we need 30% down for the property and have the rest of the cash on hand before the will even give a loan application. Some tell us they will take our application and NON REFUNDABLE Application Fee before they will tell us exactly what they want or we need.

We do not have much cash on hand. We are a military family getting ready to retire. We pay cash for most things and help our kids instead of them being on any kind of government aid (this economy really hit one daughter and son-in-law hard). We have two loans outstanding, $5K in a Parent Loan for college for one of our kids and $25K in student loan for a graduate degree for DW (military required for promotion but not paid for by GI Bill - silly rules). Cars are 20, 18 and 62 years old - paid cash.

I am looking for some real-world examples of how you did it.

Madeleine's picture
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BTW, thought about this while I was out hiking today... something we didn't do but should have looked into...getting help thru the VA. There is a lot of help available for small businesses owned by Vets. Do a little searching and lots of info will come up. More than likely NO ONE will tell you about these things unless you ask.

If you are both/either still active you may find more info internally than on the web. Ask around.

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12/30/2012

No VA help with this because it is a business. If we purchase the place as a home, we can use our VA benefits of no down payment, lower interest etc...and we get to include our outside income (DWs new civilian job and retirement pay and our retirement fund).

Madeleine's picture
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ThuderingWind wrote:

No VA help with this because it is a business. If we purchase the place as a home, we can use our VA benefits of no down payment, lower interest etc...and we get to include our outside income (DWs new civilian job and retirement pay and our retirement fund).

Check again. There are benefits for vets who are opening/starting businesses. Sorry, I don't have the exact websites but look at Vet Owned Business and there is this once you get going. Contacting the SBA or SCORE may give you leads. There may be info here.

I only mention this because a few years ago DH had a motorcycle accident and the VA said tough toenails, we don't help in the case of an accident. WRONG. If you are getting health care from the VA they DO cover accidents. So, because one person said no, doesn't mean they know what they're talking about.

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We just came from the VA-SBA Pre-retirement briefing. This is one area that was cut back. They are spreading money out to smaller businesses ( <$50K ).

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06/24/2008

Building Loans are hard to come by these days, business or personal!  What you describe is what I hear as common & then you may not be approved.  Sad, but these are the days we are in now!

I am with the others on the shared bath rooms, just don't do it.   If you plan to make the carport change, why not make it into a private cottage rental instead.  These are preferred choices these days.  Wish I had the space to have one (or more) here. 

seashanty's picture
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06/02/2008

welcome

i just want to address one issue only .....

please, please ... DON'T go into this with shared baths if you can avoid them. 

i started with a couple rooms with their own bathrooms and the rest with shared and it is HARD. 

most folks want their own bathroom.  period.

we had two rooms that had their own toilet and sink and shared a shower and it was STILL hard to rent them out. 

hardest of all to rent out were the rooms with no toilet/sinks because who wants to get up in the middle of the night and go into the hallway in jammies and wait to use the toilet?

and when we did rent them out, i was constantly having to rush into the bathroom to clean out the shower etc. for those who were waiting. they were unhappy waiting and they were unhappy that the shared bathroom was moist and yucky. i would be downstairs cooking breakfast/serving breakfast and someone would come down to complain that the shared bathroom was dirty and when was i going to drop everything and go clean it for them??? even those on the third floor getting a really great low rate for a room with breakfast were grumbling at waiting to get into their shared bathroom.

 after a few folks have a shower ahead of you and you are waiting ... even in your own home, with your own family members ... the shower gets yucky, towels and bathmats have to be changed out.  shower stall needs cleaning and wiping down. shower curtain is wet. toilet and sink grubby. trash can full. ugh. guests do not and will not clean out the shower after they use it.

then there were the folks with their own bathrooms who would think of the shared bathroom in the hall as 'extra' and go in there instead of waiting for their partner to come out of their own bathroom.

believe me ... this is a hard way to go.

'nuff said.

 

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12/30/2012

We understand the shared bath concerns. We have them ourselves. We were look at the option so we could increase the room count (at a discount to be sure) and maybe sell more nights. If we are able to work the financing, we will more than likely use the wall pattern in the hallway and create a two bedroom, shared bath suite and also still make the 24x40 garage into a two Garden Suites (there is already water, electric and sewer in the building).  It is not a bad garage and a little more landscaping around it would make it seem like a cottage.

seashanty's picture
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ThuderingWind wrote:

We understand the shared bath concerns. We have them ourselves. We were look at the option so we could increase the room count (at a discount to be sure) and maybe sell more nights. If we are able to work the financing, we will more than likely use the wall pattern in the hallway and create a two bedroom, shared bath suite and also still make the 24x40 garage into a two Garden Suites (there is already water, electric and sewer in the building).  It is not a bad garage and a little more landscaping around it would make it seem like a cottage.

a two room suite with shared bath is a great idea.  sadly, we could not accommodate something like that. 

Joey Camb's picture
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the 4 rooms - id sacrifice one of the bedrooms and make it into 2 bathrooms or is there a way to put more in? people don't even like Private bathrooms (ie accross the landing) shared is very much seen as a last resort.

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gillumhouse's picture
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05/22/2008

Absolutely correct. My en suite room rents 10 or more times more than my rooms with shared. Budget hunters or families are the ones most likely to book the shared but I do get (if the en suite is booked) reservations for the queen room that shares by offering it as a detached private - the third room will not be rented - @ $5 less than the en suite. Does not make up for the unrented, but I usually (although it has happened more than a couple times) would not get a call for that room anyway. If I could get plumbing to that queen room, I would have done it when I did the other bathrooms (all plumbing is at the back of the house and this room is front).

Joey Camb's picture
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04/02/2010

just a thought but couldn't it be put in with a Macerating pump? we had the same problem in room 12 and sorted - with this -

http://www.amazon.co.uk/MACERATOR-SANITARY-WASTE-TOILET-APPROVED/dp/B004...

its not ideal but to be fair it is very quiet sort of a soft swishing sound and does a shower, toilet and sink

 

gillumhouse's picture
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05/22/2008

It is not just waste. It is the problem of getting water lines to the room and it is a room with the old closet that probably is not even 2 feet deep - small enough to not be taxed as another room. I thought about making the original bathroom into two, but one would still be down the hall and both would be teeny-tiny and unfortunately the thought came AFTER the bathrooms were finished. The set-up now is what it will be as long as I am the innkeeper - it is also one that if in the future the house once again becomes a residence, it will be desirable as a residence. The room we took half of to create the en suite bathroom could still be used as an office or a child's room or as I use it, a storage room & linen closet. The pull-down ladder to the attic is in the storage room.

The room in question is over my Library/office, has a guestroom between it and the plumbing of the original bathroom (the en suite is also the back of the house so was able to tie in to the original plumbing) and it overlooks the roof of the front porch.

Joey Camb's picture
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I have no idea how they did it but our room 12 was a lounge on the front - with sewage at the back - I think they brought in the water from the floor above as there is a bathroom directly above. I can't see any of the pipes and its a small bathroom but it means I have another large double bedroom with ensuite so Im not complaining.

gillumhouse's picture
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Yes, I can see how you were able to do it - from above. I am a 2-story, nothing above except attic. My finances would never allow be to do bathrooms again. I do better to offer it as a queen room than I would a having to go back to having a full-size bed with a tiny bathroom. With a large window to the front, next wall has shallow closet next to a fireplace (decorative) and then another window. Then there is the adjoining wall of other guestroom where the head of the bed is (JB would love this room as the sun comes in the large window to bathe you in sunshine each morning), turn the corner and the dresser is on that wall and then the door to the hall. The other guestroom has a dresser on the adjoining wall.

This house is a mass of windows, doors, and fireplaces - very few solid walls.

Breakfast Diva's picture
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05/26/2009

With the numbers you provided, I calculated that their room rates average $74 per night. Is that true?? That's not good. And if that's not their room rate, then they're blowing smoke at you. How much are they asking for the property? By the way, NEVER just believe what the owners tell you...you must do all the research and calculations yourself. Older owners and a property like what you're describing typically keep terrible records.

NO SHARED BATHS!!! It's better to have less rooms with baths than to have shared. No one these days even wants to rent a room that has a private bath that's not attached. It just doesn't work unless you're located outside of the U.S.  Even on a recent trip to Ireland, the thousands of b&bs there have done everything possible to eliminate a shared bathroom. They have signs out front advertising that bathrooms are en suite. Mind you, some of those bathrooms were teeny tiney, but that's better than a shared, any day!

It really sounds like you could learn a lot by taking an aspiring innkeeper course. There are lots around. If you say you can't afford it, then you can't afford buying a b&b.

I hate to be a downer, but if you don't have a lot of cash, then just forget it. Even after purchasing the property, it takes a lot of money to keep it going. Will one of you have an outside job? Have health care you don't have to pay for yourselves? Retirement? These are all things you need to figure out.

 

Madeleine's picture
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09/29/2011

Real world? You will not get a million dollar loan on a property that makes $54k at 50% occ. Even if you ran it up to 100% you still cannot cover that mortgage much less anything else. On a million dollars with limited downpayment you are looking at a monthly bill of around $7000 for the mortgage. (If I am reading correctly what you are planning.)

Another real world bit of info- NO ONE will stay in a room with one bathroom for 4 rooms. You would be better off planning those 4 extra rooms to be smaller but to have their own bathrooms.

Is there another place you can look at? One that is 'done' and making enough money to cover expenses already? There are a LOT of places out there for sale that are less to buy and making way more money than the place you are looking at.

When we bought 10 years ago we needed 20% down and one year's expenses in the bank. We put down a lot more than what we needed but we should have had more. And the property we bought was doing very well (MUCH better than the property you are looking at) and cost substantially less.

Look around for a bank/lending institution that works with B&B's. They have a stronger stomach for the risks and may work with you in a more reasonable manner.

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02/24/2011

We bought a house and converted it and put down the required money and a conventional mortgage. Regular loans where needed and everything is paid off already. It's almost impossible to get a loan here. I have heard of some people doing Balance-of-Sale. We have a neighbour who is trying to sell, she set the price so high that I don't think anyone can afford to buy her house. By my calculations, even at just 20%, someone would need $350K in cash plus have an annual income (not including the B&B) of over $250K to get a mortgage. (It's overpriced in any case.)

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05/22/2008

Sorry but we SAVED what we needed. No one is going to give you a loan these days without a large cash down deposit. Sorry but that is the bottom line these days. You may have to rethink your options. Unless you have a seller who is willing to take back a mortgage for you and that is not likely these days either. And who knows what will happen tomorrow if we go off the fiscal cliff.???

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12/30/2012

We have saved as well, Just not this much is readily accessible. Most is in a retirement plans that is not allowed by Federal law to be used to make the purchase. We never lived off post, so we have always had military housing. Always used the Commissary and PX as much as possible. Saved 80% of lower ranked spouse (me) base pay into retirement accounts. Saved nearly 50% of DWs pay into retirement accounts as well, used the remaining to fund school and take care of the kids. The graduate degree caught us by surprise but since we never had a mortgage or credit card, we thought we should try to get loan to boost the credit rating. It kept her in for another 4 years to it paid for itself.

Madeleine's picture
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If you don't have a credit card or any loans other than the school loan have you checked your credit score? It's a scam but banks use it to determine who is 'worthy'. If you have nothing but that loan your credit score may be VERY low. No one will loan you money. Or, they will charge twice the interest someone else may get. Check this out for yourself before you even apply to a bank.

Money in retirement funds can be accessed. You need to check into this. You can do it by 'investing' the money in yourself/your business. You need an intermediary to oversee the money. But it can be done. Another resource.

Joey Camb's picture
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04/02/2010

Sorry am not much help as I am in the UK - we had a 40% deposit and got a mortgage with that to buy - nothing else was required. However would not a B&B mortgage broker be of more help? I know some have been mentioned on here before as they will like as not be more successful as they understand your property and business more readily. Plus we bought in 2005 when frankly they were handing out mortgages like candy!

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