In this continuation of the four-part series on questions to ask your B&B Broker read about lenders, inspections and allocation. It doesn’t sound like much, but it’s important, especially the last two questions, with associated discussion.
- Do you have lenders you suggest I work with who have experience lending to B&Bs?
I’ve thrown this question in not to be a deal breaker but to be a reminder to both you and the agent that lending can be the most difficult part of buying a bed and breakfast. Some people think finding their B&B is challenging, but it’s often nothing compared to finding a loan. If you are looking for a B&B in areas the Broker hasn’t worked before it wouldn’t be unusual for a lender to not be known.
- What building (structural, electric, septic, water, bridge) inspectors do you suggest I use?
Inspectors are important in getting a solid house, or at least in informing you of what you exactly are buying. If there are major problems found in an inspection you may still opt to go forward with the purchase, but it might alter the price or terms you are willing to offer.Don’t forget that renovation and repair costs are always more than anticipated. The work takes longer too. Some of the problems found may be merely cosmetic, so not a big deal to repair or replace, but they might be huge. Unless you have a strong business plan that supports your business model in that property, it might be prudent to walk away from a property that has lots of bad problems.
On the other hand, if you can get a great deal on the purchase of a B&B that has inspection problems, and you love the challenge of major repair, buying this kind of property might be perfect for you. Be honest with yourself about the energy, time, stamina and funds you have in tackling such a project though. It would be a shame to start on a repair job, after buying a bed and breakfast, only to have to give it up because you didn’t have all you needed to complete the task.
- What allocation of purchase price do you suggest?
I’ve seen an interesting array of approaches to this topic. It’s not straightforward. Even with your Broker’s guidance on this, let me urge you strongly to get your tax person involved the final allocation.At the very least you’ll allocate the real estate and personal property (FF&E — furniture, fixtures and equipment) values. You may have a break out for goodwill too. And some opinions are that the real estate value be broken into land and improvements, while some lump it all together.
I’ve seen allocation for the real estate range from 74-79 percent. Allocation values for personal property range from 4-7 percent. Goodwill allocation percentages range from 15-22 percent. As tax code changes, attitudes and ideas about this change. Individual situations also impact how the valuation is approached.
Just to learn more, ask what your Broker suggests.
This batch of questions builds on the questions you’ve already been reviewing and thinking about. This education will help ensure you make a wise B&B Broker decision, as well as bed and breakfast purchase.