|By Pattie Detwiler | June 30, 2016 at 11:48 AM EDT|
Some innkeepers consider their Inn a Lifestyle Inn. What does that mean and give me a good example, you ask? Grady House in High Springs, Florida is a good example of a Lifestyle Inn. It’s owners bought the property because they loved it and the area. The Inn is a beautiful Craftsman style house with 7 guest rooms, 5 en-suite in the main house, plus a 2 bedroom, 2 bath owner’s quarters in the main house. It addition, it’s divided over two properties, one being Skeets Cottage which has two bedrooms, one bath and a kitchen.
The husband is a successful attorney and the wife is a retired attorney who wanted to live a simpler lifestyle that’s not in the middle of a big town. High Springs is a great area of Florida not to far from the University of Florida in Gainesville, which is about 20 minutes away and unique offerings of art, antiques and outdoor adventures that make it a refreshing getaway. Considered an international eco-tourism destination the area is surrounded by natural attractions, the town attracts canoeists, cave divers and campers heading to the nearby Santa Fe River. High Springs is a place for snorkeling, diving, tubing or swimming in natural springs that flow at a steady 72 degrees all year long. Ginnie Springs was listed in Country Living Magazine in 2015 as one of the Nation' s Best Swimming Holes. They received the best of both worlds. Not too far from a major city and in the heart of a smaller town with award winning restaurants. Would this be a good investment for someone who wants to own and operate an Inn? Yes, for the right buyer.
Is the Inn financially sustainable? Yes. Can the owners prove the income? Yes. Does the owner’s tax returns reflect the accurate expenses of the Inn? No. That’s why I always say, only write off the expenses of the Inn and nothing else. All lenders look at the tax returns for the past 3 years to verify growth, income and expenses. Are all the deductions legal? Yes!
Why would someone want to buy this type of Inn? Most likely for the same reasons these owners did. Is it harder to find the right buyer? Yes. Will it take longer to sell? Most likely. How will lenders look at this property from their point of view? Well, they will look at the proven revenue, which is a good thing. They will also look at the expenses and at first glance see there is not enough net operating income to cover the new debt. Unless you have a cash buyer, or the owner is interested in holding the financing, this could be a problem for a potential buyer.
What can you do if you have a lifestyle inn and want to sell it? I recommend you document the expenses that are not directly related to running the inn. Some lenders will look at your documentation and take that into consideration when underwriting the loan. Also, there are many potential buyers who will have one person operate the inn and the other work outside of the Inn. I’ve seen several examples of this over the years. One was a fireman, the other an attorney and one a doctor, while some are in technology. It doesn’t matter the profession, it matters if the outside income can support the debt of the lifestyle inn one is looking to purchase.
If you find yourself in this position and would like an evaluation of what needs to be done before considering a sale, I’m always willing to help. The reason to ask a professional is to save you time, money... and the aggravation of having to reinvent the wheel!