Saturday, January 29, 2011

Maine Innkeeping Academy's 2011 Seminar and Workshop Schedule Now Posted

I've just posted our 2011 workshops - we are offering 3 of our two-day aspiring innkeeper seminars and several 3 hour Art of Breakfast and Social Media Marketing workshops from March to October.

Contact me with any questions. Hope to meet some of you this year.

Friday, January 28, 2011

I am mobile, hear me roar!

Gone are the days of "I'll take care of that when I get back to my office". I can operate from any where, any time.

Technology has enabled us the freedom to work from home, on the boat or on a mountain somewhere. Some look at this as being tied to work 7 days a week; but as the eternal optimist I look at this as allowing me the freedom to work when I want. And if that means on Saturday and Sunday, so be it. But it also means that I can take off on a Wednesday afternoon to go hiking in Acadia. And while I'm on that hike in Acadia, if I get a call and need to forward documents on, I can do so. I carry electronic files with me on my flash drives, Google Docs and by cloud storage such as Dropbox and can even access all of my files via my online backup, Carbonite. I can send and receive faxes by e-fax. No signal? No problem, I have a Verizon Wireless Mi-Fi (an older stick version in the photo) which can power up to 5 devices for data/internet connection. In the car? I have an AC car outlet with 2 USB ports for power options. 

My clients know that I am available, accessible and at the ready, any time. For them, for new inquiries, for anything that comes my way. 

Are you working with someone like this?

Sunday, January 23, 2011

Portland Press Herald reports "Tourism leads Maine out of the recession"


Charles Lawton is senior economist for Planning Decisions, a public policy research firm. Lawton reports positive numbers for Maine's Tourism industry and related industries. Read the full story.

Maine Innkeeping Academy Workshops...

On Tuesday we will be ironing out our 2011 workshop schedule. This will include the 2-day Get INNspired all-inclusive seminar for aspiring innkeepers, 3 hour workshops on Social Media, Online Marketing, The Art of Breakfast, and more, for those already in the industry or those looking to get into it but can't attend the 2 day seminar. We will post the schedule on Maine Innkeeping Academy on Facebook, my Maine Inn Broker page on Facebook and on We have a great deal of flexibility to add 3 hour workshops in Portland so if you would like to request a topic, please let me know.

Friday, January 7, 2011

What You Need To Know About Inn Financing

One of my clients recently said "You are fabulous at what you do.  Thank you for giving us such great information. No one had explained this to us before so clearly".

One aspect of my job that I really enjoy is educating buyers and sellers. One of the most important things I can do is educate them on the financing side of things. And it's been challenging in our market over the past few years with commercial lodging properties. Buyers need to understand what they'll have to pay and sellers need to understand what their business is worth. Notice I'm only talking about the business, not the real estate or land and building.

A bed and breakfast/lodging property is a hybrid - clearly it's a home or a dwelling of sorts, it has land, and it has a business it operates within the real estate. But when we talk in terms of financing a business, we are  talking business value and not real estate value.

So, let's do the math...

Often when buyers start their bed and breakfast search, they assume they'll obtain a residential loan: 20% down for a 30 year term. And that's just not the case. If the existing use of a property is a business and a buyer is looking to continue with that use, they're going to have to obtain a commercial loan. This means 25-30% down for a 20-25 year term at a slightly higher interest rate. However, the criteria that must be met in order to obtain the commercial loan is very different from a residential loan. The bank will look at how the business is performing; they'll look at the gross income, the cash flow and the capitalization rate (cap rate). Put simply, if the cash flow is inadequate, the bank will not lend as much. They'll base their loan amount on the business performance. Using simple numbers, let's assume a 6 room bed and breakfast is under contract for $675,000. The buyer at this point is hoping to put down $168,500 (25%). Now, let's assume the inn's gross income is $100,000, expenses are $80,000 (including mortgage for this exercise) with a cash flow of $20,000. The bank informs the buyer that they would really like to see a stronger cash flow. Based on the business analysis, the bank feels the business will support a sales price of $515,000. The bank will lend 75% of loan-to-value, or LTV which equals $386,250. Given that the agreed upon sales price is $675,000, the buyer is now facing a required down payment of $288,750. Let's assume the gross income was $125,000 and the cash flow around $40,000, in this scenario, the bank might say that the business will support a sales price of  $640,000, lend 75% or $480,000 leaving the buyer with a down payment of $195,000. If the buyer has to put down an additional $26,500 to make the deal work, negotiations might be tough but they could work. If a buyer is looking at having to put down an additional $120,250 to make it work, chances are the deal will fall through. I've seen sellers come down a great deal in price to make the deal work when the bank can't get the appraisal up to the agreed upon sales price but I've also seen deals fall through.

What we see in this exercise (other than the obvious possible dead deal) is what an additional $25,000 in gross income can do to the business value. This might help visualize it:

So the seller responds to the buyer's agent with "my property has a higher residential value"; this may very well be the case. But it's the business value that matters when the use will remain the same. Sellers often ask if the buyer can obtain a residential loan and use the residential appraisal and the answer is sometimes, yes. However, the buyer would have to qualify on the purchase of the property as their primary residence based on their current income. If they're leaving their jobs to purchase a bed and breakfast, they can't apply for a residential loan based on their income.  If the buyers have an alternative source of income, then they increase their chance of being able to work on creative financing.

So what can the seller do to increase their bottom line? Most importantly, try to increase the business - it's what will most greatly affect the value of your business.