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

A popular dream of many, opening a Bed and Breakfast is (supposedly) the greatest lifestyle business you can choose. But is it really? And how much can you even make owning a B&B or Motel?

Last summer I almost succumbed to the romantic notion of of owning a Bed and Breakfast and started exploring the possibility of ownership. At first glance - what a great business, you buy a beautiful mansion, maybe by the ocean, you rent out rooms, maybe have a swanky restaurant as well, and its an all cash business. Here is how buyers 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 buyers stop researching because they dont want their dream shattered. So spoiler alert, if you dont want your dream shattered click away now.

For you red-pill 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 B&B 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 and 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 are 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?

Let's explore listings in my 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, 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 list. 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. That's 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.

So strictly from a revenue perspective, B&B's are often not the best bet. (Continued in video)

#franchisecity #B&B

[rogerdodger]

I owned a bed and breakfast. Over the course of eight years, I never once had a problem with guests. We made it so expensive that the rif raf stayed away. We hired a teen to help with cleaning, and we used the income to pay off the mortgage seven years early. The only downside was living like groundhog day, over and over. We were a small business that netted about $4000 a month. We spent about one hour per day on average working the business. We could have expanded, but chose to cash in the chips and move. We were landlords for years, and would say that the B&B was much easier, and much more profitable.

[dabajabaza]

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.

[Michaelangie]

Thank you for these warnings! I’ve dreamed of running the most romantic b&b for honeymooners and anniversaries and I needed to know the worst that could happen before moving forward with my dream.

[jeffreyrwilliams]

It's all fun and games until somebody brings bedbugs with them

[Swelly_K]

That personality point is such an overlooked thing but it matters alot, I was a salesman once and me and a coworker once competed on who would get the most sales monthly, I was about average but she would beat me every time but the difference was she was a very happy and optimistic social butterfly and I'm a very cranky and serious individual, so who would you think could better persuade random people to buy? surely not the guy with a frown and short patience.

[codyswartz]

We bought a house to use for Airbnb in 2016. It got worse every year and 2020 was the absolute worst due to covid restrictions. Bars were closed so people would try to party in our house. Underage parties, unruly people, marijuana smoke all the time. I’d have to go over at midnight on a weekend to call the police and break up parties. We finally said enough and sold the house in 2021. Oh and Airbnb was the worst to handle. A guest could be setting the house on fire and they would expect you to “honor” the reservation.

[chrislemaster]

The customers you talk about always complain just to get a free night and are mainly douse bags that want their way I know I work at a Marriott.

[Neilly]

150k Airbnb
Mortgage: 600/month
Condo fees & Utiliites: $400/month
Revenue: $2000/month
Profit: $1000/month

[griffen]

First thing I would buy in my hotel is a trash compactor .
I would need a reason not to throw some of those people out the window with the rest of the trash. The only downside would be the heavier bill I would have to pay for frequent use

[Brenda]

Quietly knitting and praying lol 😂 that was so funny . Thanks for great advice.

[duallylicensed]

Man Robert. Your truth is always golden! Thank u. I appreciate your straightforward responses and information

[djmonie]

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.

[waynewayne]

Great video and I really value your knowledge/opinions. I am still ‘in love’ with the idea of opening a B&B in Europe. Maybe a 3-4 bedroom villa.

[lourdesrodriguez]

Don’t use your funds in a franchise. Start off with a tiny house which can average $5000 a month and then grow from there.

[kenrose]

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.

[donaldwycoff]

"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?

[chazsmith]

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.

[mhenderson]

Very insightful information! Thanks for showing the other side of things!

[garfield]

I would be hesitant if for no other reason a hotel or BnB that plays by the rules, pays business taxes (that includes charging the usurious hotel taxes that many cities and counties have come up with, commercial real estate taxes and payroll taxes if you have any employees) will be competing against people who are renting out residential properties on Air BnB.

[alexandracasados]

I grew up working w my parents motel and bars/restaurants. I have to say: it’s constant work, and women complain about everything and make even transactions they aren’t “complaining about” complicated. Men are easier, I wouldn’t want a business that attracted many women. I just wouldn’t. And it’s true, you learn to be very “good with ppl”. Despite this negative comment I’m one of those ppl now because of growing up in these mentally and emotionally draining environments. But I’d still leave hospitality and service industry a one star review. Lol. It sucks.