Understanding what the lender's interest is may be helpful in choosing a lender and in talking to them about how best to accomplish what you want to do.
Whether it is a residential mortgage or a commercial loan, the bank is going to want to know whether you have a sufficient and steady source of income with which to re-pay the loan. With the commercial loan, they will consider your business plan and the income you can generate from the property you are buying with the loan; for the residential mortgage they will expect you to have some other source of income and will not consider the income you can generate from the property you are buying with the loan.
Obviously a residential mortgage is intended for the purchase of property in which you will live, your residence, and not for non-residential, commercial property.
I think the mortgage lender would only care about your actual use of the property, e.g. converting your residential property into a business (B&B/Farmstay), only to the extent that such conversion reduced the value of the property and made it harder to sell as a residence. Besides having enough income to pay back the loan, the bank also wants to make sure that the property has enough value in it to cover the loan amount should you default.
Related to this latter point, the other thing the bank might care about is whether you have adequate insurance. With a residential loan, they want insurance that will cover them if the house burns down, or if someone sues you for injuries suffered on your property. Turning your residence into a business increases some of your liability exposure, so the bank's expectations around insurance might be that much higher.
Basically, the bank wants to make sure that they are going to get paid back, with interest, no matter what. (That's their goal, anyway. They are not always successful, particularly if the market collapses....).
I hope I don't end up sounding extremely dim here, but I've never needed to use a financial advisor or CPA or anything like that before. So, any suggestions on what I should be looking for? Do they need to be specialized in B&B's or in business or is this something any financial advisor should be able to help with? I've been told to look for small, local banks because they are generally more receptive to situations like this but I've no real idea where we are going to be at this point, so I can't look local if I don't know what local will be.
Also, I would just like to say that my sister thinks I am super smart about B&B's and it is really just because I have been reading archives here. So thanks for all the info ya'll didn't know you gave me =)
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I have been laboring over this answer and I've actually confused myself! But I've decided to throw in my 2 cents worth anyway.
If you're not sure where your property will be and what the loan options are you might want to investigate a
seminar run by a B&B broker if none of the other options I talk about below look good to you. There are going to be variations in zoning for start ups that will vary from city to city, and finding a lawyer to get a business entity set up can occur only after you have found the "perfect" place you want to buy, because any corporation has to be incorporated in the same state.
I live in a state that doesn't have a large number of B&B's, and there were none in my town when I started 6 years ago. So I didn't have access to a local B&B adviser. However, I did have a good, smart general practice attorney who helped me set up my B&B as an LLC (a type of corporation that does provide some protection for my personal assets). In your situation with two couples going into business together it is probably even more important to have some sort of legal entity.
There are a lot of farms in my state, and it is now very common for family farms to incorporate. Many times there will be several siblings, or a father and his children who all own and operate the farm. So, you might find the agricultural part is the type of expertise your local professionals can help you with, and can give you examples of legal entities that work out when more than one couple owns the land. Again there may be some differences depending on what state you end up in.
Even if you decide you don't need a CPA for ongoing tax preparation, there are a whole lot more rules, regulations, and actually in many cases a lot of deductions that are above board that you need to familiarize yourself with. A CPA and/or an attorney can advise you about the options you have about what kind of business entity would work best, be the simplest for you to file all your own taxes, how to set up your accounting software.
It's possible that neither of the above will be as adept at helping you figure out the nuances of what kind of loan will work out the best, but can help you decide what kind of loans are available for partnerships or corporations, etc.
Financial advisers are a mixed bag of individuals. Many of them are more into helping you invest the money you have. There are advisers who specialize in getting B&B's financed and up and running. There are some who hold seminars for aspiring innkeepers where the education is given with a broad brush. Attending such a seminar might get you thinking along the lines of what kind of financing you're likely to be able to find, then you can talk to a local bank to see if they will work with you. These same folks can be hired to help you on an individual basis if you don't find any attorney or CPA to help you out, or if you can't seem to speak the same language the banks are speaking. On the PAII forum not long ago there was a discussion about hiring a broker (paying him a big chunk of money) to specifically go out and find a loan to buy an existing B&B. That indicated to me that money is still tight for borrowing money to buy a B&B.
A B&B started up in my town last winter, parents, a married son and their children. They have already had a serious enough disagreement that they may end up closing because the parents don't like being innkeepers, and the son and daughter-in-law want to buy the business from their parents, but the parents don't want to sell it to them, they would rather sell the house as a residence. Admittedly, it is likely that none of them "did their homework" before opening, but I have seen other couples who have done the research and after opening have decided not to continue. Before the need arises, it might be wise to have a document that says what will happen if one or more of the adults in this undertaking "wants out."
There is no question you could ask that makes you seem "dim". It's the questions you don't ask...
I lurk much more than respond, so my answer might not be what will be the best for you. That's why it's nice to get lots of answers from people who have had a variety of experiences. Although I am very comfortable with my advisers whose B&B experience is now up to one (me), if you have easy access to a specialist, I wouldn't discourage you from talking to one.
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