Best Methods for Finding the Ideal Inn

Written by: Howard J. Levitan, Oates & Bredfeldt, LLC

This is one of the most asked questions at every one of Oates & Bredfeldt’s Innkeeping Seminars. How can I find my ideal Inn? The answer is very easy, but counterintuitive. We say simply to “Stop looking at Inns for sale!” Here is why:

Location, location, location is still the golden rule. Searching for an Inn is not like buying a home (it is a business first!). We often hear, “Well, I have moved all over the United States during my business career, I can live anywhere.” Better yet, we often hear prospective innkeepers say “I will know my ideal Inn when I find it.” In order to take control of the process, every prospective Innkeeper needs to first decide clearly what they are looking for in an Inn, and, most importantly, where that Inn is located. Location will dictate the one clear factor in the Inn’s business model, the occupancy rate. While the occupancy rate at Inns will vary depending on the rate charged, or the amenities, or the size and furnishing of the rooms, or especially the hospitality provided, the key factor is location.

If the Inn is in a destination location (each state has only a few true historical destination locations), the occupancy rate will be significantly higher on average than if it is located in the countryside. Thus, occupancy rates at Inns located in destination areas like Stowe, Manchester, and Woodstock, Vermont, or North Conway, NH, or Bar Harbor, Camden, and Kennebunkport, ME can be almost twice the occupancy rates of their counterparts in non-destination areas of the same states. This is a historical factor. People have been vacationing at these locations since travel was made easy by the Industrial Age. They have a recognition factor, and Inns in these types of locations do not need to sell coming there, only how their Inn is differentiated from the other Inns. The Internet and particularly the Search Engines have heightened this effect. People may enter “Boothbay Harbor bed and breakfast” into Google, but few are going to enter “Newcastle bed and breakfast” (where our Inn was located) even though it is only a few miles away. Thus, Inns in non-destination locations need to be at the very top of their electronic marketing game just to hold their own against the destinations. Location is a critical factor, but what about price? The other side of the equation is that with higher occupancy rates, and, potentially, more net cash flow, the Inns in destination locations tend to be very expensive. You need to decide what factors are your ideals!

Creating Your Model Inn. This is the key to success. Take control of the process by clearly defining what you want in an Inn; your ideal “model.” What does it look like (style of architecture), is it full service or bed and breakfast, what kind of food service will you serve, how many rooms (dictates the need for and number of staff), is it a mature business or a start-up, and, most of all, where is the location? The model needs to be as detailed as possible; it is not something that you can just dash off in a few minutes. For couples, one of the most interesting exercises is to do this separately and then compare models. Often, there are clear differences that need to be ironed out before commencing to search. Start the process with a very exhaustive list of exactly what you want in an Inn. You may never find your “ideal” Inn, but at least you now have an objective list of what you are looking for. Put it down in a spreadsheet, so that you can compare all of these factors against each of the Inns that you look at.

Inns for Sale? Looking at Inns for sale all over any region, like New England or the Southeast, or any broad location can be an exercise in frustration. Again, it is not like buying a house. The more you see does not necessarily expand your knowledge of Inns, only of Inns that may be overpriced or have problems. The simple answer is that most very good Inns sell without the general buying public ever being aware that they are for sale. This is a confidential process. Most Innkeepers understand that being for sale may be a “four letter” word. It has an impact on the staff and clearly on the guests coming to visit. If the average life of an innkeeper is about 8 to 10 years, this means that about 10-12 percent of all Inns are for sale at any one time. Not all of these are publicly on the “market” with a broker.

Another very important factor in Inns for Sale is how the offering price may be set. What is the justification for the high asking prices we now routinely see in Inns? Does the Innkeeper decide the price based on anecdotal evidence of what other Inns in the area have sold for, or is it based on some kind of simple rule of thumb like a gross revenue multiplier? Can the Inn support normal commercial financing or does it require more equity in order to cash flow? Does the Inn’s business model have potential for growth, or is it stagnant or are revenues/occupancy falling? All of these are important questions in the process of setting the right price. Searching for an Inn which is ready to be sold, but not yet on the open market, may be the real answer to finding your ideal Inn.

The Tell-tale Signs. The Inn is for sale, but only the Innkeepers may know it. There are always clues. Perhaps it is the chipped paint on the stair treads, or the landscaping that just is not as manicured as it should be. The website has not been updated for a while. The Innkeepers are a bit tired, or you only see them occasionally; the staff is running the Inn. They have been keepers of the Inn for 8 or 9 years, and perhaps they are ready to move on. If the Inn meets your ideal model, or is close to it, why isn’t this situation the perfect solution to your Inn search? Approach them before the Inn goes on the market, and you may be able to get a much more reasonable price. The worst thing that can happen is that you are told that the Inn is not for sale. But even then, you may be able to get a first bite when they are ready to sell.

Create a Search Plan. Take your model, and visit your location. You should have a back-up location which you are keeping an eye on, but not actively searching. Visit your location as often as possible, in different seasons, staying at Inns which are high on your list as meeting your model. Network with the Innkeepers, tell them that you are searching and what is your model. Even if they are not really for sale, they can help you with knowledge of who might be thinking about selling. This is the best way to get first hand facts of what is going on in that location. The Innkeepers may not tell you financial information about their Inns (occupancy rate or average daily rate), but most are quite free with giving you everything they may know about other Inns in town. This networking is really the key to success.

Confidentiality. Remember one thing. If an Inn is not actively on the market, whether it is for sale or not, telling other Innkeepers or people in the community that you are trying to buy a particular Inn is the fastest way to lose a deal. You need to get knowledge, but not by breaching the confidentiality of the Innkeepers. Word spreads quickly in small communities and this can impact the business of the Inn that you may be trying to buy. There will be plenty of time to accomplish the due diligence that you need between the time an offer is accepted and the dates set in the purchase and sales agreement. You need to respect this!

Final Thoughts. This is all about taking control of the process. We have taught hundreds of prospective Innkeepers these lessons, and they work. Create a model, create a search plan, and then find your Ideal Inn.