Running a Bed and Breakfast business, Motel or Airbnb is a dream for many.
Standing behind the counter as happy guests pour in to your establishment, paying good
money while you basically do nothing but greet guests!
Good morning thanks for coming, good morning thanks for staying that will be $500 please.
This is the romantic vision of owning a Bed and Breakfast which is not quite accurate.Today we'll look at reasons you may not want to own a B&B
I shouldnt have to say it, but for some people buying a bed and breakfast could be a good
business.
Everyone is different, has different goals and operational preferences and all we do
in these videos is to provide a few reasons..... **that nobody else tells you why owning one
may not be the best option.
Last summer I almost succumbed to the romantic notion of of owning a Bed and Breakfast and
started looking into buying one.
At first glance - what a great business, you buy a beautiful mansion, maybe by the ocean,
you rent out rooms, maybe have a restaurant in it as well, and its an all cash business.
Here is how people think - I buy a B&B with 8 rooms, I rent those rooms for $200 a night,
at peak capacity that is $1600 a day, $11,200 a week over $44,000 a month.
Over half a million dollars just for smiling and welcoming people.
And here is where most people stop researching because they dont want their dream shattered.
So spoiler alert, if you dont want your dream shattered click the link above.
Ok for you redpill people - let's say we invested about one million dollars for this bed and
breakfast and are grossing $500k annually.
We won't get into ways of valuating a bed and breakfast but we'll use this fairly conservative
number.
So in most cases buyers will need to finance a portion of the investment which brings us
to the first barrier to entry with your hotel or B&B.
Financing.
So the loan on your house was pretty easy right?
Signed some papers, bang here is $800,000.
Not so easy with a B&B.
First, keep in mind if you get a commercial loan they'll typically need at least 25% down
so you'll need $250K liquid available to invest.
Now you can possibly get a residential mortgage in situations where your residential use is
higher than commercial, but it can be risky.
Also loans on commercial property are not secured by Fannie or Freddie so the banks
are not wanting to part with their money quite as easily.
Interest rates are higher than residential, and they can ask for a balloon payment, which
means in a few years you could be on the hook to pay off the entire amount, be aware of that.
The banks will also want to see a complete business plan, so if you are buying a failing
or struggling Bed and Breakfast chances are you will find it very difficult to find financing.
There are a couple of SBA options in the US that can make things a bit easier but it will
still be a challenge.
We won't get much deeper on this topic but just be prepared to jump through a lot of
hoops, and end up paying a lot more in fees and interest than you envisioned.
But let's say you have money and will be buying your B&B or Motel cash.
How much can you make with a Bed and Breakfast?
I'm going to show you some listings in my own area.
These listings are current and are not far off most listings I looked at across the country.
So first we have a 12-14 room motel, asking $675K, revenue of $185 and cash flow of $100K,
Next is a Motel and cottages, asking $650 cash flow of $50-$100k.
The Castle Inn, nice place asking just under a million, 13 rooms and 49 seat restaurant,
cash flow between $50-$100k.
Here is a hotel, asking 3 million, cash flow is $250K to $500k.
Another one here 3.3 million asking with cash flow $250k to $500k.
So most people never take the time to compare this industry with others, so they run their
motel or B&B for years, never knowing if they made a good investment decision.
So let's take a look.
Here is another listing in that same directory for a QSR franchise restaurant.
$175k investment, with cash flow pretty much the same as the $700,000 motels we looked
at.
Here is an Asian food franchise $225 asking with cash flow of $182,000.
So an investment one third the price with cash flow almost double the amount over the
motels.
Here is an online business asking $265k cash flow of $87K. And these are just random examples
that are on this directory today.
I can tell you there are franchises available with a $100,000 investment that average 1.5
million annually gross.
Now there are some nuances here as your expenses can tie back to building equity in your asset,
but from a purely cash flow perspective, and you can check listings in your own area, this
industry is just not a the top of the scale.
Now beyond brick and mortar businesses we also have online businesses, let's look at
some current listings.
So this is a listing right now on empire flippers - asking 1.4 million with a net monthly profit
of almost $60,000.
Thats a 720,000 net profit a year.
Remember our hotel for over 3 million dollars was cash flowing under $500k.
Heres a technology app asking $500k with a net profit of almost a quarter of a million
a year.
And you will see most online businesses selling for between 20-40 times multiple of their
monthly net earnings.
So within 20-40 months you would have made your money back.
There are hundreds of online businesses for sale at any given moment.
Of course if you have no idea about the online world probably not a good fit for you.
But in a world where Walmart is closing over 200 retail stores we can see that online commerce
is trending right now, and it is highly advisable to at least learn the basics of the online
world.
Which brings me to the next reason why to not buy a B&B - you have no idea how to market
online.
In order to rent your rooms you need people to visit.
If you look at so many of these bed and breakfast and motel websites they have a shoddy template
from the mid 90's, tiny, grainy pictures, useless social media, and they wonder why
its so hard to get people to find them.
They end up paying a fortune to third party websites just to fill the rooms.
If you buy a motel, B&B, or any business for that matter, learn online marketing and social
media.
Within 6 months to a year you could be enjoying warm leads globally from your optimized website,
building your social media tribe, and never have to pay for leads again.
For some reason its like this industry is the land that the internet forgot - when they
have the single greatest opportunity to build a global presence and attract visitors from
around the world.
So, if you have no idea about social media or how to upgrade the horrible website that
came with your purchase, be prepared to pay a fortune for leads, and to lose business
to the owners who actually take the time to market their business and post pictures over
12kb in size.
Next up is your personality.
Your vision is of happy people shaking your hand, thanking you for the stay, leaving great
reviews, life is good and your getting rich.
Reality check - Not all people are like that.
So here at franchise city we have a tool that assesses peoples personality to find strengths
and weaknesses and match those to a franchise.
Some people are just not a good fit for social situations.
So yes, you'll have some nice people who leave good reviews.
You'll also have entitled, unreasonable, and just mean and nasty people.
Now there are some people who are just great dealing with that.
No matter how cranky or unreasonable a guest gets, no matter how bad the situation, they
are always diplomatic and cheerful.
They see the bright side.
Most people however, myself included, are not like that.
So yes, most stays are uneventful.
Guests come, they stay, they leave.
But, sometimes they will break things.
Adults or kids can and will soil the bed.
Are you hiring maids or doing this yourself?
If yourself - are you ready for any eventuality?
People will bring bed bugs that if you dont rectify immediately will spread to other rooms.
there will be dirty people who leave stuff everywhere, who clog the toilets and the sinks.
There will be smells of people ranging from heavy perfume, to cigarette smoke from people
who ignored the signs.
There will be stains that dont come out on furniture, bedding and towels.
You will have awkwardly loud honeymooners, or loud guests in general that you will have
to get up at midnight, knock on the door and have to ask them to chill.
All while knowing if you do ask them to be quiet you'll probably get feedback, "we were
quietly knitting and praying and the very rude owner banged on our door and told us
to be quiet or he would call the police.
zero stars, do not stay here" There will be phone calls from people who ask 10 million
questions, and never book a room.
There will be people who book a room for two, and have 6 people in the room.
Is it worth the negative feedback to say anything?
There will be people, who think it is reasonable to call you for extra towels at 2am, and people
checking in tipsy and loud, at 2am.
You better smile and get up there or be forever known on Yelp as the one star towel miser
or the cranky host.
For me this is really the main reason I could never own a B&B, way too cranky to deal with
that.And it can be a bottomless slide where more bad feedback leads to more crankiness. No good.
So think very hard not just about the happy people, but also the problem people as well. Because they will visit!
So, if you are great with people and impervious to negativity, your are up on and motivated
by the thought of digital marketing your business, your prepared for some conflict and difficult
situations, you are motivated more by lifestyle than money, and your financing situation is
all good - A Bed and Breakfast or Hotel might be a suitable business for you.
But dont hesitate to look at other businesses as well just to to compare.
please like and subscribe and thanks for watching.