Relaxing on the deck


Intro the Beach House Compound
A Rare and Special Place
#1-The High Dunes House
#2-The Breezeway House
#3-The Perfect View Lot
Prices and Availability
Property Values
Info for Investors

  Scenario #5 for Investors


Aerial Image
 

Investors' Scenario:
Using the B&B to support the purchase cost.

We assume that investors will be interested in the property for what and where it is:

  • A compound of three contiguous properties
  • On the beach
  • Adjacent to miles of virgin beach and dunes that will never be developed.

    For those who anticipate a growing demand for rare and special seaside retreats, the property presents a combination of qualities that is hard, if not impossible, to find anywhere else.

  • The real estate itself is more valuable than the B&B business which is based on it. The usual valuation methods consider only the greater of two values: the value of the business or the value of the real estate alone. Does this mean that the B&B income doesn't contribute to the property? Of course not. The simple fact is that the property generates very substantial income. From a purely investment perspective, the primary value of the B&B business is its ability to help support the cost of acquiring contiguous beach property in such a special location. To the extent that the new owner uses marketing to increase occupancy, the B&B has the potential to not only pay for the cost of purchase but also generate substantial additional profit.

    The information on this page assume that the owner's primary interest in operating the B&B is as a way to help support the purchase of the property. It assumes that the owner will not occupy the Owner's Cottage in The Breezeway House and thus can use it to generate additional income.

    Because we have never used the Owner's Cottage to generate revenue, we've had to make some assumptions about the revenue it can generate. To generate the numbers below, we have assumed only it will generate revenue comparable to the highest priced B&B suite. We think this is a low estimate. Like the suites, the Owner's Cottage provides accommodations for a couple. However, it is significantly larger and includes additional amenities, such as a second screened porch, a full gourment kitchen, a fireplace, and garage parking for two cars. Thus, we think it is reasonable to expect it to generate more revenue than the B&B suites. However, we do not include any such increase. Instead, we project the same income as the most expensive suite. Thus, the numbers below are conservative.

    Below, we summarize what you can expect from various levels of occupancy. Because we don't advertise beyond a small ad in the local Visitors Guide, the key to increasing occupancy is to do what we don't do: marketing. The numbers below exclude any advertising costs you might undertake to increase the level of business.

    Below, we show this scenario using our 2006 occupancy and 2007 prices . To date, 2007 occupancy has been higher than 2006 for 5 of the first 7 months and comparable for the other 2. This is yet another reason why the numbers below are conservative.




    Profit and Loss information:

    Revenue (according to the conservative assumptions mentioned above):

    • At last year's 45.4% annual occupancy rate, the property can be expected to generate ~$391,000.
    • At an annual occupancy rate of 50%, income can be expected to be ~$435,000.
    • At an annual occupancy rate of 55%, income can be expected to be nearly $480,000.
    • At an annual occupancy rate of 60%, income can be expected to be more than $520,000.
    • At an annual occupancy rate of 65%, income can be expected to be $565,000.
    • At an annual occupancy rate of 70%, income can be expected to be nearly $610,000.
    • At an annual occupancy rate of 75%, income can be expected to be more than $650,000.
    These figures are based on the current rate structure. We believe there is room for further rate increases. This year's rate increase did nothing to inhibit increased occupancy, and we intend to adjust rates again for the 2008 season. The numbers above are based on current rates, not the increased rates we project for the future.

    Expenses:
    • Annual operating are about $137,000.
    • This figure includes all expenses, including insurance (wind, flood, liability), property taxes, maintenace, repairs, utilities, supplies, and staffing costs.
    • Staff handle all aspects of daily operation.
    • Operating expenses do not include any adjustments for depreciation or other tax breaks.
    • Of the total operating expenses, approximately $92,000 are attributable to B&B operation. The rest are basic property expenses (such as property taxes, insurance, maintainance and basic utilities) associated with the 2 houses and the 3rd empty lot.
    • Most B&B operational expenses are fixed. Most staffing is subcontracted on a fixed montly-fee basis. Lodging taxes (state, county, city) are a varible expense (8.5% of B&B income). Other variable costs are small: about $2,600 for every addtional 5% in occupancy rate.
    All figures are based on the income from the 2 developed properties. The third empty lot generates no revenue. In addition to rate increases, another approach to increase revenue is for the new owner to build a small rental cottage on The Perfect View Lot. We believe that income from a small, high quality rental cottage can fully support the cost of financing both the empty lot and constructing a new cottage on it, and still generate additional net profit.


    Note:

    We have made a good faith effort to provide the most accurate picture we can of what is reasonable to expect. The numbers above are based on our direct experience, and we believe they are conservative, for the reasons given above. We cannot warrant that your experience will be what ours has been. We have extrapolated from our first-hand experience, and made the adjustments we believe are appropriate.

    Any prospective buyer will need to be thoughtful about what adjustments they think are appropriate. If necessary, you should modify these scenarios according to whatever facts and assumptions you think are suitable. If you are a serious prospective buyer, we will be happy to help you do this by answering any questions you might have.




    This page is about the Investor's Scenario: Using the B&B to Support the Purchase Cost.

    Here are links to other pages about Information for Investors and Prospective B&B Owners

       Click here for the Intro page about Info for Investors and B&B Owners.

       Click here for Info for B&B Owners: Will it work for you?

    Look below for links to the parcels of The Beach Compound.


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    If you want to stop by and view the property, you are welcome to visit...
    but, please, it is very important that you work with us to make arrangements in advance.

    Please understand that we cannot accommodate unplanned drop-in visits.


    Introduction to The Beach Compound
    Overview of the Compound: A Rare and Special Place
      Parcel #1: The High Dunes House   | Parcel #2: The Breezeway House   |   Parcel #3: The Perfect View Beach Lot
    Price and Availability   |    Property Values in the Area   |   Info for B&B Owners and Investors
    Site Map    |    Contact Us


    The Beach Compound
    A Rare & Special Place by the Sea

    An exclusive, informal refuge...

    Call or e-mail Russell for information
    1-251-540-7509

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