Information for B&B Owners
Information for Prospective B&B Owners:
Will It Work For You?
If you are considering the property for your continued use as a B&B, you will be concerned
about the financial viability of such a plan. It may or may not make sense for you, depending on your circumstances and goals.
The real estate itself is more valuable than the B&B business which is based on it. The usual methods consider which value is greater: the value of the business or the value of
the real estate alone. Because the real estate is worth more than the business, the substantial B&B income does not add to the formal valuation of the property.
Does this mean that the B&B income doesn't add value to the property? Of course not. The real answer depends on what the prospective owner wishes to do. For example, if a
buyer wants to use the property as a family compound, or as a retreat for a company or other group, the B&B business is not relevant. On the other hand, if the buyer wants or
needs the property to help pay for itself, the difference is huge. The B&B business can make the difference between whether the prospective buyer can acquire a beach compound or not.
This means that we must pay attention to the prospective owner's circumstances and goals.
The idea of operating a B&B appeals to many. This is especially so for a special B&B at the beach. While many people have such a dream,
each person will have their own ideas about what it means to them, about the degree they wish to be involved in daily operations, and about what they need the property to do
for them. For example,
- Some people may be in a position (such as we were when we began) in which operating a B&B is worthwhile simply as a way to acquire a beach compound that will
grow in value over time, while having the property pay for itself along the way.
- Others might require a B&B to fully support their life: not only paying its own bills, but also supporting the owner's personal living expenses.
- Still others might find the B&B attractive primarily as a means of enjoying the Owner's Cottage side of The Breezeway House as a second home while the B&B pays for it.
Each of these scenarios is viable. Each one has its own requirements. These include requirements about what the owner needs from the business, and about
what the business needs from the owner. On this page, we provide information that will help you decide if it will work for you.
As you can imagine, we are reluctant to post details of our finances online. At the same time, we know that prospective buyers will want some basis for
judging whether the B&B can work for them by supporting the purchase of the property. On this page, we have used our firsthand knowledge of operational costs
to provide summary information about the financial implications of operating the compound as a B&B. This information is based
on actual operational costs, our current rate structure, and what we know from first-hand experience about various levels of owner involvement. We are happy to
share information with serious prospective buyers about the finer details.
The information below is based on using our 2007 rates at 2006 occupancy rates. Year-to-date 2007 occupancy is actually higher for 5 of the first 7 months.
However, we use 2006 occupancy because that is the last calendar year for which full data is known. For this reason, we believe the numbers below are conservative.
In addition, because our Spring 2007 rate increase did nothing to inhibit occupancy rates, we believe that rates can be increased further, and we intend to do so for the
2008 season. However, the numbers below are based on our current rates, not future rates. This is yet another reason why we believe the revenue numbers provided below are
Profit and Loss information:
Revenue (according to the conservative assumptions mentioned above):
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.
- At last year's 45.4% annual occupancy rate, the property can be expected to generate $325,000.
- At an annual occupancy rate of 50%, income can be expected to be more than $360,000.
- At an annual occupancy rate of 55%, income can be expected to be more than $395,000.
- At an annual occupancy rate of 60%, income can be expected to be nearly $435,000.
- At an annual occupancy rate of 65%, income can be expected to be $470,000.
- At an annual occupancy rate of 70%, income can be expected to be $505,000.
- At an annual occupancy rate of 75%, income can be expected to be more than $540,000.
Level of owner involvement:
- 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.
- The operating expenses include staffing costs for all aspects of daily operation.
- For prospective B&B owners who wish to be more actively involved than we are in daily operational tasks, staffing expenses can be reduced by more than $40,000, depending on the desired
level of effort.
We have made a good faith effort to provide the most accurate picture we can of what you can reasonably expect, based on our experience. We believe the revenue numbers are conservative,
for the reasons given above. We cannot warrant that your experience will be what ours has been.
Any prospective buyer will need to be thoughtful about what adjustments they think are appropriate. If necessary, you should
modify this information 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 may have.
This page is about Info for B&B Owners: Will it work for you?
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 the Investor's Scenario.
Look below for links to the parcels of The Beach Compound.
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.
A Rare & Special Place by the Sea
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