I’m looking for finance to buy a small B&B, what do you recommend?
Small B&Bs tend to be problematic to finance. This is usually because the owners have a narrow view (encouraged by their accountant) of the property’s value based on keeping the taxable profits of the business down to a minimal level.
Of course they benefit by pocketing almost all of the turnover for a number of years, but it bites them in the bum when they come to sell it!
First thing any lender we/you approach wants to see the latest three year’s accounts and, of course, they are rubbish showing the business hardly makes a profit (on paper). Thus you either get declined for a mortgage completely or get offered a ridiculously low loan-to-value. As a result purchasing this type of business tends to require all or mostly all cash because banks won’t lend on them.
It is possible that you have found one of the minority of savvy B&B owners that works out 3 years before they sell it that they need to start showing decent profits in the accounts and pay more tax.
The reason these businesses sit on the market for years is the owner’s inability to understand they need to accept a drastically lower price for a business/property that can only be bought for cash, coupled with a stubborn resistance to paying the true level of tax on the profits.
The silver lining in these deals for the investor, even if you don’t have a pile of cash, is that you can quite easily use bridging finance to purchase, knock the business into shape and pay the right amount of tax on decent profits, duly uplifting the value of the business/property then remortgaging it to get most/all of your cash out.