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 yes. 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, ask a professional is to save you time, money... and the aggravation of having to reinvent the wheel!
The Yellow Room at the Grady House in High Springs, Florida