How do you price a potential B&B?

From “Ask Kit!”:

Q: I’m a real estate professional preparing to work with a client to sell a former 5BR B&B in a beautiful historic neighborhood in a small town, about 12 miles from the center of a 4-season resort area (lake, ski slope, state forests and parks). They had a successful small-scale business for approximately 8 years (booking as many guests as they could handle given outside responsiblities) before discontinuing the business about 2 years ago.

Of course I want to get the best possible price for them, but I also want to give them advice that will lead to the house actually *selling*, especially since they plan to build a new home. I’m concerned that the value is to be found in the house itself, especially since the business has been discontinued. Unfortunately, using neighborhood comps may cost them as much as $100K, vs. comparing with operating B&B’s in our part of the country — does that train of thought make sense?

We may be able to recoup some of that by including the FF&E [furniture, fixtures, and equipment], if a buyer wants it — is there a market among aspiring B&B buyers for an opportunity such as this, or is there an ample supply of active operations with good numbers? Is there value in marketing this “former B&B” in online B&B forums?

A: All B&B brokers have different ways of pricing inns for sale. I hope some of the brokers on the list will chime in here so you get a mare diverse response than just from hearing from me. I’m a firm believer in using cash flow to guide the pricing of a B&B. I learned from Michael Yovino-Young — THE B&B appraiser in the country — that it’s hard to price a hobby or new B&B. It seems to me you are trying to price a B&B potential, not a B&B business.

So what is the potential in this B&B? Is the B&B zoning still in place for this property? How much of their former marketing is in place — websites, business phone number(s), memberships in the Chamber of visitor’s bureau, etc?

How much business FF&E is included in their sale? Do they have their guest lists that can be included in the sale?

How well do the local B&Bs network; can new owner’s benefit from that network?

My approach to pricing such a property is to add any business value to the real estate value. Setting the business value is subjective of course, but I don’t see that you can treat it as an active B&B in your pricing or marketing.

Now let’s see what the others have to say….

1 thought on “How do you price a potential B&B?”

  1. I agree with Kit on this. If there’s no business actively being engaged in, there is no business, therefore little to no “good will.” If they closed just three months ago and still had a web site and active marketing in place, it would be different, but as time passes the value of the good will dissipates very quickly. After two years, there’s nothing left, in my opinion.
    My advice is to do what you thought you should do as a real estate professional: price the house based on comps in the area. My personal opinion is that the property should be marketed both ways: primarily (for a quicker sale) as residential real estate, secondarily as a “former B&B” at a price that reflects the real and personal property through B&B marketing channels. The fact is, it’s not worth more than that, despite what an optimistic owner might hope for.
    The main problem is always going to be financing once the personal property is added in and there’s no income. So, any buyer will necessarily need to qualify for the purchase based on outside income.
    Peter Scherman
    “The B&B Team”
    Inn Brokerage and Consulting, From Check-in to Check-out

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