Purchasing a Bed & Breakfast with Thoughts on “Exit Strategies”

This week's Blog was contributed by Johanna Welty, California Inn Sales Specialist and Team Member of The B&B and Country Inn MarketPlace®.

Increasingly, when speaking with aspiring Innkeepers or even with existing Inn owners who may be considering the sale of their current Inn in order to purchase yet another hospitality establishment, I find myself bringing up the crucial – cruel?-- topic of establishing an all-important “exit strategy” before making any Inn purchase.
Is this like suggesting a class on divorce to a couple who has just become engaged? And, are there even classes available for wonderfully happy and blissful, pre-nuptial couples that cover “what you should know about divorce?” I truly wish that such classes did exist since informative early education, indeed, could serve to make for less frivolous and far sounder unions.

But, returning to formulating a serious “exit strategy” before taking the adventuresome and rewarding leap of purchasing an Inn may be well worth some fruitful discussion.

Although I have been a Realtor since the late 1970s, I did take a few years break during the 1990s to serve as a Morgan Stanley Investment Advisor. As a result, I now see all real estate as “investment “– even if it involves only residential property. We all know that, traditionally, real estate makes up the single greatest investment for any American property owner.

And, since so many aspiring Innkeepers see the sale of their longtime family residence as providing, at least, part of the proceeds to help realize their dream of owning an Inn, many prospective Inn owners already know what a wise, earlier residential purchase will mean. Even in our challenging, current market, Inn dreams are made possible often by proceeds from a strong residential sale.

Location! Location! Location! How often have we heard this dictum -- this ultimate rule that claims to determine real estate value? As trite as it may sound, in fact, it is LOCATION that ultimately also so determines an Inn’s chances of real growth and resale success. I do not mean to underestimate the management and marketing skills so essential to operating a successful Inn but none of these human talents can ever override the death toll impact of a poor location.

There are many reasons to buy an Inn. I myself could be tempted by a historic building or a charming Victorian surrounded by lush ferns and a rose garden. But such temptations more reveal those qualities that I personally would treasure for my own private residence. In contrast, if I am seriously considering an Inn – a “business” that must grow its revenue as a result of attracting repeat guests --, then I must consider far more how LOCATION will serve to attract others -- guests -- so that my revenue can, and will, grow. I can no longer think selfishly about what only pleases me; instead, I must think in terms of what the world wants and what, indeed, pleases the world.

Currently, I count as one of my clients an outstanding Innkeeper/owner who is brilliant with a highly analytical mind. In one of her more human moments, she openly confessed to me how she erred when purchasing her Inn. She saw it as a beautiful structure and was pleased that it was only an hour from the sea. During her first year of ownership, she was dismayed that revenue was not what she expected it to be … but blamed it on the fact that it was her first year ever running an Inn. By the end of her second year, she began painfully to “see” that it really was the “sea” – just a mere hour away – that, indeed, was the attraction – the DESTINATION LOCATION – that so consistently attracted the many travelers who daily simply “drove past” her beautiful Inn.

In the meantime, as a thoroughly responsible owner, she paid off her mortgage in record time. Ironically, that simply left her in the end with little more than a “title” to a building – a business without clients. As a result, her business financials reflect only a building – her “business” now can only be sold as a residence, one that is an hour from the sea.

This may be an extreme story but, if an Inn is not situated in a location that offers attractions that draw guests, that particular Inn may be an unsound business investment. I do not believe that, for Inns, the old “if you build it, they will come” saying applies. An Inn can only thrive if it is surrounded by a greater DESTINATION LOCATION.

Ideally, an Inn should be “supportive of” and convenient to good restaurants, theatre, wineries and wine tasting rooms; or it should be located along a majestic coast for exciting whale watching, surfing, sailing and romantic sunsets; or found nestled among the towering Redwoods where hiking trails and salmon fishing are both at its front door. A ski resort is ideal because within that dramatic LOCATION an Inn can serve guests who already are there to ski – they are not there only because of the Inn. Also an ideal location is an historic district, such as a mid-nineteenth century gold mining community, where living museums, vintage auto shows, Victorian Christmas celebrations all thrive and compete with National Trust architectural treasures. Too, any location must be studied in relation to its Chamber of Commerce. If there is a vibrantly active, committed and responsive Chamber that continually sponsors a variety of events that attract visitors to the community’s location, the Inn in that same location will also thrive.

And, lest the reader now believes that the writer only believes in California leisure destinations – wineries, historic gold mining towns, the Redwoods, ski resorts, the coast --, an effort must also be made to highlight the supreme value of “urban” Inns that in every city around the world so carefully cultivate and cater to business travelers.

“Business district” Inns count endless opportunities to serve business travelers. Ask Mariette and Claude Gagne, The B&B and Country Inn MarketPlace® Brokers, who have sold more Inns and B&Bs than any of us ever have or ever will! These Inn sales professionals can confirm that Inns located in business districts often offer the highest occupancy rates of all! The Gagnes further note: “These business district Inns are busy during weekdays with business travelers and on weekends as well. A B&B or Inn located in a city and near many other businesses, including a University or Hospital, is usually successful if the management is top notch.”

One of the very best Inns that I have ever had the opportunity to enjoy is, in fact, located along the High Plains in Wyoming’s capitol city of Cheyenne – a far cry from the California coast! The astute Innkeeper/owner, Jim Osterfoss, is not one of my clients but, if I were an aspiring Innkeeper looking to purchase an outstanding business Inn/success story, I would have Jim Osterfoss and his Nagle Warren Mansion Bed & Breakfast at the very top of my list. His is an “urban” Inn located in a Rocky Mountain capitol city – an Inn that benefits from the year-round presence of state legislators as well as, in Jim’s case, Warren Air Force Base. Beyond these obvious advantages, the Nagle Warren benefits from an Innkeeper who understands his “urban” location and how to grow an Inn business with the essential ingredient of Internet marketing. His impressive website, The Nagle Warren Mansion, should be thoroughly studied by any aspiring Innkeeper anywhere – but particularly by aspiring “urban” Innkeepers.

During past stays, I have witnessed Jim’s Mansion hosting an impressive array of “Theme Getaway Weekends” and Murder Mystery Dinners attended by fun-loving residents who happily drive from all over Wyoming as well as from next door Nebraska and Colorado – Denver is just a short distance to the south. The Nagle Warren most probably fundamentally benefits by capitalizing on a regional “pent up demand” phenomenon – addressing this “ local need” by hosting delightful romantic getaways to Rocky Mountain residents who are not close to a romantic coast and who may secretly yearn for a seaside sunset! My guess is that, after staying at the Nagle Warren Mansion, “California dreamin’” simply becomes a distant memory!

More importantly, Jim’s Nagle Warren has consistently targeted an international business community by providing meeting planners and business travelers with rooms all equipped with high speed Internet access (with POP 300), 24-hour telephone call attendant and voice messaging, 24-hour business center with fax, copier and computer and an onsite Conference Center that can accommodate up to 30 people! His comprehensive website devotes two pages purely to “Business and Conferences.”

When considering the purchase of an Inn, the LOCATION of the Inn should be key to any acquisition decision. Most probably a day will come in the future when you will want to sell that same Inn. If you have not selected an Inn that enjoys the many benefits offered by a true DESTINATION LOCATION – business or leisure --, you will have a far more difficult time building your Inn business to include the all-important supporting business financials that, in the end, are what serve to attract the most qualified Inn buyers and their all-important commercial lenders.


Your InnMarketing Specialists
Claude & Mariette Gagne