4 Reasons to NOT Open a Bed & Breakfast, Motel or Airbnb

4 Reasons to NOT Open a Bed & Breakfast, Motel or Airbnb

Running a Bed and Breakfast business, Motel
or Airbnb is a dream for many. Standing behind the counter as happy guests
pour in to your establishment, paying good money while you basically do nothing but greet
guests! Good morning thanks for coming, good morning
thanks for staying that will be $500 please. This is the romantic vision of owning a Bed
and Breakfast which is not quite accurate.Today we’ll look at reasons you may not want to own a B&B I shouldnt have to say it, but for some people
buying a bed and breakfast could be a good business. Everyone is different, has different goals
and operational preferences and all we do in these videos is to provide a few reasons…..
**that nobody else tells you why owning one may not be the best option. Last summer I almost succumbed to the romantic
notion of of owning a Bed and Breakfast and started looking into buying one. At first glance – what a great business, you
buy a beautiful mansion, maybe by the ocean, you rent out rooms, maybe have a restaurant
in it as well, and its an all cash business. Here is how people think – I buy a B&B with
8 rooms, I rent those rooms for $200 a night, at peak capacity that is $1600 a day, $11,200
a week over $44,000 a month. Over half a million dollars just for smiling
and welcoming people. And here is where most people stop researching
because they dont want their dream shattered. So spoiler alert, if you dont want your dream
shattered click the link above. Ok for you redpill people – let’s say we invested
about one million dollars for this bed and breakfast and are grossing $500k annually. We won’t get into ways of valuating a bed
and breakfast but we’ll use this fairly conservative number. So in most cases buyers will need to finance
a portion of the investment which brings us to the first barrier to entry with your hotel
or B&B. Financing. So the loan on your house was pretty easy
right? Signed some papers, bang here is $800,000. Not so easy with a B&B. First, keep in mind if you get a commercial
loan they’ll typically need at least 25% down so you’ll need $250K liquid available to invest. Now you can possibly get a residential mortgage
in situations where your residential use is higher than commercial, but it can be risky. Also loans on commercial property are not
secured by Fannie or Freddie so the banks are not wanting to part with their money quite
as easily. Interest rates are higher than residential,
and they can ask for a balloon payment, which means in a few years you could be on the hook to
pay off the entire amount, be aware of that. The banks will also want to see a complete
business plan, so if you are buying a failing or struggling Bed and Breakfast chances are
you will find it very difficult to find financing. There are a couple of SBA options in the US
that can make things a bit easier but it will still be a challenge. We won’t get much deeper on this topic but
just be prepared to jump through a lot of hoops, and end up paying a lot more in fees
and interest than you envisioned. But let’s say you have money and will be buying
your B&B or Motel cash. How much can you make with a Bed and Breakfast? I’m going to show you some listings in my
own area. These listings are current and are not far
off most listings I looked at across the country. So first we have a 12-14 room motel, asking
$675K, revenue of $185 and cash flow of $100K, Next is a Motel and cottages, asking $650
cash flow of $50-$100k. The Castle Inn, nice place asking just under
a million, 13 rooms and 49 seat restaurant, cash flow between $50-$100k. Here is a hotel, asking 3 million, cash flow
is $250K to $500k. Another one here 3.3 million asking with cash
flow $250k to $500k. So most people never take the time to compare
this industry with others, so they run their motel or B&B for years, never knowing if they
made a good investment decision. So let’s take a look. Here is another listing in that same directory
for a QSR franchise restaurant. $175k investment, with cash flow pretty much
the same as the $700,000 motels we looked at. Here is an Asian food franchise $225 asking
with cash flow of $182,000. So an investment one third the price with
cash flow almost double the amount over the motels. Here is an online business asking $265k cash
flow of $87K. And these are just random examples that are on this directory today. I can tell you there are franchises available
with a $100,000 investment that average 1.5 million annually gross. Now there are some nuances here as your expenses
can tie back to building equity in your asset, but from a purely cash flow perspective, and
you can check listings in your own area, this industry is just not a the top of the scale. Now beyond brick and mortar businesses we
also have online businesses, let’s look at some current listings. So this is a listing right now on empire flippers
– asking 1.4 million with a net monthly profit of almost $60,000. Thats a 720,000 net profit a year. Remember our hotel for over 3 million dollars
was cash flowing under $500k. Heres a technology app asking $500k with a
net profit of almost a quarter of a million a year. And you will see most online businesses selling
for between 20-40 times multiple of their monthly net earnings. So within 20-40 months you would have made
your money back. There are hundreds of online businesses for
sale at any given moment. Of course if you have no idea about the online
world probably not a good fit for you. But in a world where Walmart is closing over
200 retail stores we can see that online commerce is trending right now, and it is highly advisable
to at least learn the basics of the online world. Which brings me to the next reason why to
not buy a B&B – you have no idea how to market online. In order to rent your rooms you need people
to visit. If you look at so many of these bed and breakfast
and motel websites they have a shoddy template from the mid 90’s, tiny, grainy pictures,
useless social media, and they wonder why its so hard to get people to find them. They end up paying a fortune to third party
websites just to fill the rooms. If you buy a motel, B&B, or any business for
that matter, learn online marketing and social media. Within 6 months to a year you could be enjoying
warm leads globally from your optimized website, building your social media tribe, and never
have to pay for leads again. For some reason its like this industry is
the land that the internet forgot – when they have the single greatest opportunity to build
a global presence and attract visitors from around the world. So, if you have no idea about social media
or how to upgrade the horrible website that came with your purchase, be prepared to pay
a fortune for leads, and to lose business to the owners who actually take the time to
market their business and post pictures over 12kb in size. Next up is your personality. Your vision is of happy people shaking your
hand, thanking you for the stay, leaving great reviews, life is good and your getting rich. Reality check – Not all people are like that. So here at franchise city we have a tool that
assesses peoples personality to find strengths and weaknesses and match those to a franchise. Some people are just not a good fit for social
situations. So yes, you’ll have some nice people who leave
good reviews. You’ll also have entitled, unreasonable, and
just mean and nasty people. Now there are some people who are just great
dealing with that. No matter how cranky or unreasonable a guest
gets, no matter how bad the situation, they are always diplomatic and cheerful. They see the bright side. Most people however, myself included, are
not like that. So yes, most stays are uneventful. Guests come, they stay, they leave. But, sometimes they will break things. Adults or kids can and will soil the bed. Are you hiring maids or doing this yourself? If yourself – are you ready for any eventuality? People will bring bed bugs that if you dont
rectify immediately will spread to other rooms. there will be dirty people who leave stuff
everywhere, who clog the toilets and the sinks. There will be smells of people ranging from
heavy perfume, to cigarette smoke from people who ignored the signs. There will be stains that dont come out on
furniture, bedding and towels. You will have awkwardly loud honeymooners,
or loud guests in general that you will have to get up at midnight, knock on the door and
have to ask them to chill. All while knowing if you do ask them to be
quiet you’ll probably get feedback, “we were quietly knitting and praying and the very
rude owner banged on our door and told us to be quiet or he would call the police. zero stars, do not stay here” There will be
phone calls from people who ask 10 million questions, and never book a room. There will be people who book a room for two,
and have 6 people in the room. Is it worth the negative feedback to say anything? There will be people, who think it is reasonable
to call you for extra towels at 2am, and people checking in tipsy and loud, at 2am. You better smile and get up there or be forever
known on Yelp as the one star towel miser or the cranky host. For me this is really the main reason I could
never own a B&B, way too cranky to deal with that.And it can be a bottomless slide where more bad feedback leads to more crankiness. No good. So think very hard not just about the happy people, but also the problem people as well. Because they will visit! So, if you are great with people and impervious
to negativity, your are up on and motivated by the thought of digital marketing your business,
your prepared for some conflict and difficult situations, you are motivated more by lifestyle
than money, and your financing situation is all good – A Bed and Breakfast or Hotel might
be a suitable business for you. But dont hesitate to look at other businesses
as well just to to compare. please like and subscribe and thanks for watching.

14 Comments

  1. I'm always interested in the downsides of running these businesses.
    It's the information they don't want us to know which is why it's nice to have you explain it.

  2. I think it's wise to first work with single home rental properties(owning quite a few of them) before moving into commercial property hotels.

  3. You know you CAN hire people to deal with these type of situations. the owner doesn't have to scrub the toilets or deal with irate customers. I guess it depends on the size of your business.

  4. Thank you for the valuable info, great video. Could you please make a video about online businesses with some potential examples?

  5. You make fair points. I think the counter argument would be stability and longevity. People will always need a place to stay.

  6. You are not being negative, people just don't like their "great" ideal shot down. Only it's the same ideal 100's of others have thought of so it's not only not "great" but it's saturated. What is so special about you that you'll make it work when others have tried or got in early when the market was new/down/not widely in the news.

  7. It would be nice if you did a proper dialogue with someone who is doing well with an Airbnb so we can get a more holistic perspective.

  8. "The Land the Internet forgot", "spoiler alert". There's some great 1-liners in this one! Nice! I wonder what Basil Fawlty would have to say?

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