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toddburme

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Hi,
I am new to the forum. :) Been reading a ton and really like the practical common sense that I am seeing. So I thought I would see what everyone thought of my idea.
My friend bought a BnB in about 2003 and sold it in 2006 for a nice profit. He increased bookings from 20% to 40%. Did very few improvements to the actual property but did well.
His first BnB was foreclosed on( the new owners had personal problems) and is for sale for a 1/3 of what he sold it for in 2006. BUT it is now just a big house. Everything was removed. The work seems very minimal. His opinion was we could buy all the stuff we need in a month and get her open in about three. 4 suites with another room (bath is down the hall). 50k of furnishings is the budget for 100 year old Victorian to do the 5 rooms plus commons. We would recreate what he had before and resell it. Start to finish 2 years.
I assume 2010 is different then 2006. He increased bookings by embracing the web. Well i assume everyone does that now. With this economy, have rates dropped? Have bookings thinned? resale prices dropped ( a given)? Financing still hard to get?
I know nothing of the BnB business and will probably not have time to be helpful. He and his wife who have run both of their BnB's have full time jobs so we would hire the heavy lifting. This seems the big oops. If we do not get a "Great Person", this whole thing will not work. Having an employee who also would live there seems like a nightmare if it does not work out.
So that is the plan. And thanks for reading this far. ;)
 
If the plan is to get the place going in 3 months and to sell it at a profit in 2 years, I'd say it is not a good plan in today's environment.
There is a glut of B&Bs on the market now. If you put a successful B&B on the market today, it may very well still be on the market in 2 years.
If you really want to run a B&B, that's another thing altogether.
But buying one as an investment to flip in 2 years is just not a good idea.
IMHO.
 
Sorry but buying and flipping a B & B....doesn't work these days. You just have to check the for sale listings to see how many are on the market and not selling. This is not a get rich quick business. You have a lot more studying to do.
 
I do appreciate the feedback. Even at a discounted price? i currently flip houses and even with all the housing inventory out there, we do quite well as we can price lower then people who bought in the last 7 years or so. I was hoping to sell for what my friend bought for in 2003. About 25% lower then the peak price he got in 2006.
I am registering the two votes as strong No's.
 
I do appreciate the feedback. Even at a discounted price? i currently flip houses and even with all the housing inventory out there, we do quite well as we can price lower then people who bought in the last 7 years or so. I was hoping to sell for what my friend bought for in 2003. About 25% lower then the peak price he got in 2006.
I am registering the two votes as strong No's..
Flipping houses is not the same as a B & B. This is a business. I have friends who started at $695K 3 years ago and are now down to $395K..Still no takers...and even if anyone is interested..they can't get financing. Another local...just leased to buy their place for the second time in a year! I am anxious to see if this one takes :-(
You are right..A STRONG NO from me.
 
I have to agree that this is not the right time to put a bunch of capital into a B&B property to flip it as a business in 2 years. You would have to list it for sale as soon as opening it in this economy since the average time to sell a B&B is about 2 years! And, you'd have no business data to back up the sale so most folks would look at it as a property sale only. However, if you wanted to hold onto it longer and it's run properly, you might come out with a small profit. You don't tell us generally where this house is, so there's no way tell if you really have a shot at this either.
Sorry to sound kinda negative, but there are tough times out there now for all small businesses. :-(
Welcome to the forum....we hope you're not discouraged and you stick around!
welcome.gif
 
Work up a proper business plan. Once you have all the current facts the decision will be more apparent. If you need to borrow money the lender will want a business plan before they will consider loaning you money. A good thorough business plan is a heap of work but they work. 17 months later we are still on track on ours.
 
Do the math. 5 rooms at if you are very lucky, 40% occupancy. Is there enough revenue for someone to work full time, pay a mortgage and all expenses and make any profit? Most people can not get a loan on B&Bs today because there is not enough revenue. The numbers are everything.
 
Work up a proper business plan. Once you have all the current facts the decision will be more apparent. If you need to borrow money the lender will want a business plan before they will consider loaning you money. A good thorough business plan is a heap of work but they work. 17 months later we are still on track on ours..
Work up a proper business plan
He doesn't want to run a business...he just wants to flip houses or flip a business...doesn't sound like he wants to bother with a business plan..just fix it up and sell it.
 
Why are the present owners in foreclosure? Did something else happen in the meantime from when your friend sold to when these folks closed? Lots of other lodging open up? Whatever the draw was for the area closed? Why did they close?
Once you know that you'll have an idea of whether this is a good option or not. If they were poor managers or lacked a vision or lacked the capital to back them up and this is a vibrant area, it might just work.
Is the building itself in a condition to just walk in, slap some paint on and refurnish it or did the last owners let it fall apart?
Flipping a B&B is an interesting idea. Take a low-performing biz, bring it up to speed and sell.
Like you said, tho, what does the biz lack now that is an easy fix to get it up to speed again to sell?
 
Work up a proper business plan. Once you have all the current facts the decision will be more apparent. If you need to borrow money the lender will want a business plan before they will consider loaning you money. A good thorough business plan is a heap of work but they work. 17 months later we are still on track on ours..
Work up a proper business plan
He doesn't want to run a business...he just wants to flip houses or flip a business...doesn't sound like he wants to bother with a business plan..just fix it up and sell it.
.
Sorry, I thought flipping houses was a business
 
I do not know the BnB business and admitted that. The business plan is pretty simple in that the old owner is going to simply do what worked before with my help. The house is really ready to go as is. I want to take a month to update some paint etc as it is empty and it is so much easier. There is a room that was not quite matched on colors that can be redone etc. Not reinventing the wheel. Needs the furniture. Some plusses to this in that he did not have all king size beds before and the house can handle them so we would upgrade that point.
The reason it is in foreclosure was a personal reason of the owner and has nothing to do with the property. The small town, not too far from a large city, is in the same shape as it was but maybe even better. A large corporation just opened a small branch there that might provide some opportunity.
Bigger fears - Did the hospitality market take a huge beating in this downturn? Other BnB's in the area appear to be charging the same room rate as in 2006 so they are not rising or better yet falling. Can a BnB even be successful if not owner operated?
I am projecting a large loss the first year and that includes paying the manager. The place has a 20 year history but being closed almost 2 years has to have hurt it. I doubt we can go from closed to running along in less then a year. I would not expect to make a profit in the second year as the manager's salary and mtge would preclude that.
I can finance it as a investment house purchase with 25% down. BUT if the new owner can't get a loan to buy it!
I have been a landlord for 25 years and that is another business where lots of people jump into it and think anyone can do it and get rich. I understand that my lack of knowledge and honestly my lack of passion for doing the actual work of a demanding business is a huge hurdle to my success in this endeaver. I have hired really good people and feel I can again. You are only as good as your worst employee as that is the impression the client remembers. Do 20 things right and one thing wrong and see what sticks out....
 
I do not know the BnB business and admitted that. The business plan is pretty simple in that the old owner is going to simply do what worked before with my help. The house is really ready to go as is. I want to take a month to update some paint etc as it is empty and it is so much easier. There is a room that was not quite matched on colors that can be redone etc. Not reinventing the wheel. Needs the furniture. Some plusses to this in that he did not have all king size beds before and the house can handle them so we would upgrade that point.
The reason it is in foreclosure was a personal reason of the owner and has nothing to do with the property. The small town, not too far from a large city, is in the same shape as it was but maybe even better. A large corporation just opened a small branch there that might provide some opportunity.
Bigger fears - Did the hospitality market take a huge beating in this downturn? Other BnB's in the area appear to be charging the same room rate as in 2006 so they are not rising or better yet falling. Can a BnB even be successful if not owner operated?
I am projecting a large loss the first year and that includes paying the manager. The place has a 20 year history but being closed almost 2 years has to have hurt it. I doubt we can go from closed to running along in less then a year. I would not expect to make a profit in the second year as the manager's salary and mtge would preclude that.
I can finance it as a investment house purchase with 25% down. BUT if the new owner can't get a loan to buy it!
I have been a landlord for 25 years and that is another business where lots of people jump into it and think anyone can do it and get rich. I understand that my lack of knowledge and honestly my lack of passion for doing the actual work of a demanding business is a huge hurdle to my success in this endeaver. I have hired really good people and feel I can again. You are only as good as your worst employee as that is the impression the client remembers. Do 20 things right and one thing wrong and see what sticks out.....
So the place has been closed for 2 years? And the other businesses in town have not raised their rates even with the loss of these rooms? Would you be reopening this property as a location for biz travelers to that newly-opened branch office? Who is the market and are they still out there?
What I'm trying to figure out is if anyone in town even noticed that the biz closed 2 years ago or if it was a sigh of relief that there were now fewer rooms to worry about?
If the occ in the town is high and year around, another 5 rooms won't hurt anyone. If it is low and seasonal, your 5 rooms won't make enough money unless you have some other hook the other places don't have.
I'd look at it from the POV that this is a completely new venture for your friend. As in, this is the first time he's ever laid eyes on this property. What sort of due diligence would he do with a brand new property? Checking tax receipts would help. How have they fared over the past few years? What's new and upcoming in the town that wasn't there before? What closed? Why?
Now, as to how the lodging biz fared overall, it depends is the safest answer. Some on here had their best years ever in the past 2 years; others are barely hanging on. Location, marketing, who your clientele will be all figure into it.
If you're drawing from a population that did not feel a downturn, you have no problems. If the market for that town was hit hard by the recession, you've got an uphill battle to get folks back into the B&B when they're watching their pennies.
Overall, what's the draw for your friend here? Is he hoping to strike gold twice in the same place? Does he just love the property and he's sorry to see it going to waste? That's something he'll have to think over. The 'why' he wants to do this.
 
Morticia, great stuff! We would be the only one in town. there are two chain motels in town. The corporation site is new so I do not have any data on if they will help. I doubt it would hurt. Maybe we see a new hotel come to town and bamm but no signs of that.
The town is pretty solid in that main street is still there and the businesses are still open etc. The local winery which he did business with in the past is still there and said they would look forward to us reopening. One staff member would like to comeback for weekend help.
He wants to get in, get it going and try to resell it. He has moved on and does not want to go back to that on a permanent basis. This is very important as obviously our success rate would be higher if he and his family could move back in and do it exactly like before.
 
Morticia, great stuff! We would be the only one in town. there are two chain motels in town. The corporation site is new so I do not have any data on if they will help. I doubt it would hurt. Maybe we see a new hotel come to town and bamm but no signs of that.
The town is pretty solid in that main street is still there and the businesses are still open etc. The local winery which he did business with in the past is still there and said they would look forward to us reopening. One staff member would like to comeback for weekend help.
He wants to get in, get it going and try to resell it. He has moved on and does not want to go back to that on a permanent basis. This is very important as obviously our success rate would be higher if he and his family could move back in and do it exactly like before..
Can you give us a clue as to where this is located? We have an ex innkeeper here who is fabulous and maybe interested in a position????
 
Morticia, great stuff! We would be the only one in town. there are two chain motels in town. The corporation site is new so I do not have any data on if they will help. I doubt it would hurt. Maybe we see a new hotel come to town and bamm but no signs of that.
The town is pretty solid in that main street is still there and the businesses are still open etc. The local winery which he did business with in the past is still there and said they would look forward to us reopening. One staff member would like to comeback for weekend help.
He wants to get in, get it going and try to resell it. He has moved on and does not want to go back to that on a permanent basis. This is very important as obviously our success rate would be higher if he and his family could move back in and do it exactly like before..
So it is chain hotels in town that have not raised their rates, not other B&B's? Chains can be tricky in that their rates are largely controlled by corporate guidelines. It's hard to determine from their pricing what valid pricing would be. The same chain here has the same $59/night sign out that was out when I moved here 5 years ago.
 
As I see it, two big concerns are with opening this B&B are:
  1. you need a paid "someone" to run it
  2. it needs to be placed on the market immediately
In order to sell, the place needs to have a demonstrated success, and a large part of what makes a place successful is the innkeeper. If the innkeeper knows the job only exists until the place sell, and can't really "own" it, I would be afraid there wouldn't be as much incentive for the innkeeper to do what is necessary to really make it succeed. ("Why should I work my ass off? It's not like it's mine.")
BUT, for the sake of argument you do find someone who is willing to do so. The place needs to be on the market from the day the doors open. Because the pool of B&B buyers is pretty limited (before we even consider the nasty reality that the "ready and able" buyers is a very small subset of those "ready, willing and able"), the property needs broad (i.e. internet) exposure. So, someone who is searching around for a place to stay finds your B&B, and then googles it to get a feel for others' experiences, only to discover that it is for sale. I don't think the limb I'm standing on is very long when I say that will have an ill-effect on generating revenue. (Why would I book my vacation if there is a chance the place won't even be operating when I pull into the driveway? Next!")
The next set of problems revolve around the prospective buyer. Chances are great that financing will be difficult to arrange, especially for a B&B. If it is sold as a residence and converted to a B&B, a whole other can of worms can gets opened. My preference would be for everyone to be honest from the get go. It might also be difficult to find a buyer who has enough cash to not only pay the down payment but also be able to buy all the furniture and fixtures the B&B will need. The pool of buyers is shrinking rapidly.
So, how to get around all this? Find someone who wants to own the place in the end, and work together to get it to that person's dream come true. (If you can, make the offer to buy contingent upon finding such a person, which might not be possible if it is REO property.) The budding innkeeper has a vested interest in the place, and it need not ever be advertised for sale -- because it isn't! It was presold. When the place is ready, sign the closing papers and the new B&B is up and running with all the furniture and fixtures just as the innkeeper wants. If financing is an issue for the buyer, structure the deal such that you can carry the mortgage. Everyone wins. (edited to correct spelling errors)
 
Morticia, there are other BnB's in cities within 30 minutes. They have not raised or lowered rates to any great extent. The chains, I am not sure about.
I like that idea and would love to have it presold but that is asking alot. My understanding is we will have to carry some of the sale price as financing. BnB's just seem to hard to get the price you want without doing that. I agree that this is a small niche market. But you all and me soon have taken the plunge so unless we are the last folks to want to do this, there will be more.
I probably worded this wrong before but we would not have it up for sale immidiately. It would take 2010 to get it running and hopefully have a 2011 year to show to a prospective buyers in spring of 2012. By 2012, hopefully we will be in a better place market wise. I doubt it will be the torrid days of yore but I only need one buyer.
2011 numbers would still be weak as I sure this type of thing needs to build. Hopefully you get some repeat business from past years who never noticed it was shut for a while. The internet presence needs to be built obviously and that takes time. I am getting more and more excited about the prospect of getting busy on it. :)
 
it's hard for me to be objective about the idea of flipping a B&B because running/owning/living in one is a passion that involves mySELF as innkeeper. if you read back through the forum about owners who are not the innkeepers, you see the struggles ... an innkeeper as overworked, disheartened and sometimes heart broken employee is very real. innkeeper/owners at least own the business. innkeeping with no or minimal staff is VERY hard work. just marketing a B&B is a big job ... especially if the place has a bad or nonexistent reputation and/or has closed.
flipping a business is a lot different from flipping a house.
just my two cents
 
Morticia, there are other BnB's in cities within 30 minutes. They have not raised or lowered rates to any great extent. The chains, I am not sure about.
I like that idea and would love to have it presold but that is asking alot. My understanding is we will have to carry some of the sale price as financing. BnB's just seem to hard to get the price you want without doing that. I agree that this is a small niche market. But you all and me soon have taken the plunge so unless we are the last folks to want to do this, there will be more.
I probably worded this wrong before but we would not have it up for sale immidiately. It would take 2010 to get it running and hopefully have a 2011 year to show to a prospective buyers in spring of 2012. By 2012, hopefully we will be in a better place market wise. I doubt it will be the torrid days of yore but I only need one buyer.
2011 numbers would still be weak as I sure this type of thing needs to build. Hopefully you get some repeat business from past years who never noticed it was shut for a while. The internet presence needs to be built obviously and that takes time. I am getting more and more excited about the prospect of getting busy on it. :).
But you all and me soon have taken the plunge so unless we are the last folks to want to do this, there will be more.
My philosophy, too.
 
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