Tuesday, July 31, 2018

New 24 unit motel for sale in Bucksport, Maine. Financially Viable at $1.3m.

Bucksport Motor Inn
click above for the online property presentation

At a Glance:

Total of 24 units (1 is being used as part of the owner's quarters for 2nd bedroom) plus 1 retail building (being leased to a barber shop) with beautiful private wooded
area in back with stone fire pit.

New roof 2006, new furnaces 2007, solar system 2008 for hot water, all new replacement windows, new vinyl shingle siding, new brick veneer. All rooms are on a second round of new mattresses and carpet.

All rooms are non-smoking with parking at each room's front door. All rooms are spacious and have remote controlled TVs/Cable, high speed internet, fridge, microwaves, irons and ironing boards, direct dial telephones, In-room coffee makers, table and chairs in each room and outside each door in front as well. Baths are tub/shower combination, some with new pedestal sinks. All baths have newly grouted tiles and are bright and spotless. Rooms have A/C.

Owners have a spacious 2 bedroom, 2 bath apartment with an open floor plan great room/kitchen/dining area, office, a sitting room off the front lobby and private deck. Floors are carpet and ceramic tile. Kitchen with granite counters. The quarters here is a very comfortable space.

Open year round and Bucksport is growing.

Very strong viable business.

All a buyer has to do is walk in and enhance the marketing to increase the business. A great opportunity for a new buyer.

Tuesday, July 17, 2018

A very strong cap rate on this Maine inn for sale! And WHAT IS A CAP RATE ANYWAY?

Cap rate, (capitalization rate), is a rate that helps us value a real estate investment. Cap rate equals the net operating income (NOI) divided by the purchase price. The cap rate shows the potential rate of return on the investment. So the higher the cap rate, the better. With me so far?

Let me take a step back. NOI is what's crucial here. The NOI is gross revenue, less operating expenses (without owner compensation, interest, depreciation) equals NOI. So let's say an inn has a gross revenue of $300k. Let's assume they have operating expenses of $165k. That leaves $135k for NOI. Let's say the agreed upon sale price is $1.6m. We take the NOI and divide it by the $1.6m to come up with 8.4%. That is the resulting cap rate. So if the buyer was only willing to pay $1.5m and seller agreed, the resulting cap rate would be 9%. A little higher, so the buyer is happy.

I'll take it one step further. Let's say another property is under contract for $1.5m. The gross revenue is also $300k but the operating expenses are higher at $185k. That leaves a NOI of $115k. So the NOI divided by the contract price is 7.6%. That means the buyer is willing to pay more for this property, with the same contract price, the same revenue, but higher operating expenses. So why would a buyer be willing to do that? Several reasons. It could be that the seller continued to put money back into the property to improve it. Maybe the property is in pristine condition with very little deferred maintenance. A buyer may be willing to pay more for a lower cash flow value. Maybe they won't have to put as much money into the asset as the person paying a 9% cap rate. The cap rate is really all about the judicious control of expenses while maintaining and improving the condition (and keeping revenue up).

Does it make more sense now?

With inns varying in size from 6 to 16 rooms or more, we often see cap rates in the 8-9% range. Sometimes a bit lower, sometimes a bit higher. Hotels and motels are usually higher. You might wonder why, but cost of goods is a big part - no gourmet breakfast, afternoon homemade baked goods, no wine and cheese hour (you get it). Less amenities, less costly in general.

So what does this mean to you? You want a high cap rate, a seller wants a low cap rate. High means you're getting a better deal, low means they are. In between is often where the parties end up. If a buyer wishes they could have paid less and a seller wishes they could have gotten more, but end up at the closing table somewhere in the middle, both parties are pleased.

SO WHAT DOES THIS HAVE TO DO WITH BLUE HARBOR HOUSE IN CAMDEN?? An 11% cap rate for an 11 room B&B in a destination location with a full gourmet breakfast is very good. And there's a separate owner's house onsite to boot.

Contact me to discuss details about this one or any other listing I have. I can talk numbers all day long!

Wednesday, July 4, 2018

What about buying an inn that USED to be in operation some years ago?

 The former inn - which is really just a house now without any business vs. an existing inn or going concern

This is a question buyers ask me regularly. And the appeal understandable...the home likely already has the private ensuite baths you want, has the owner's quarters, there wouldn't be much in terms of renovations required (unless it's in a state of disrepair) to start back up, other than maybe decor, linens, kitchen wares, guest soaps, shampoos, dry goods, food, cleaning supplies, etc? What about the expense of a new website, reservation system and the marketing costs? And then the insurance, real estate taxes, business license? And what about the mortgage? And utilities? Landscaping and snow removal? These are fixed costs that you'll have from the start, without any revenue coming in. And don't forget about the attorney fees and accounting fees in the initial stages related to forming your business entities, etc. You can see how it can quickly add up.

After some time, you hope to have revenue coming in, but will the revenue in the early stages cover the expenses AND mortgage?

That's what the bank is going to ask. The bank isn't in the game of risk. They're also not in the game of innkeeping, should you fail. They'll look to you, the buyer, to put a greater amount down and have quite the stock of cash reserves at the ready.

But as a buyer, you aren't without risk either, even if you have the cash required. Although it once was an existing B&B, who can guarantee if it can pick up where it left off? Or if it can get back in the game and compete with the others in the area who never closed their operations? It may take a while to grow your guest database and keep them coming back as your new repeat guests. And you may assume that you'll attract the guests who used to stay at the inn back when. But they may have found new places that became their new go-to inns. 

And what IF you aren't able to get the business up enough to cover your expenses for a few years? 

Doesn't it seem that unless you have the finances required for what we really consider a startup business, isn't it less risky to buy an existing inn with a long financial history that you've reviewed with your advisors? On the other hand, often with high risk can come high reward. It just takes the funds to back such an acquisition. It's only money!

If you want to discuss the financials a bit further, don't hesitate to contact me.