Buying a Guest House - Financial Advice Needed!!

AnnaWalker

If there is any financial wizard out there who can give me some advice I would be really grateful.

I am looking to buy a guest house with my sister on the south coast. I have found one which has an asking price of just under £400k. It has six letting bedrooms and offers B&B. They claim to have 75% year round occupancy with a turnover of around the £58k mark. (although I believe it is more than that as the currenbt owners take a fair amount of cash and squirrel it away). My gues is that in reality the turnover is around the £65k mark. The average pp rate is £30 per night and there are 3 single rooms and 3 doubles.

The hotel is in fairly good nick and as a residential house on its own it would probably market (refurbished) for around the £450k mark.

I intend to take something like this on with my sister who is a teacher and taking early retirement this December (nice pension!). Financially, we are in this position: I have amy own house which is valued at £250k with a £58k morgage still left. My sister and I have another mortgage free house which was our mother's who died last year. We are renting this out for £1,000 per month but the tenant wants to buy it - value is £280k. My sister has a house which is worth around £300k - morgage free but she need to live in it until the end of this year so this cannot be sold just yet.

So, bearing in mind we are selling my mothers house for £275k and I have my house which I could rent out for around £800 per month, what is the best way of raising the cash to buy the Guest House. Re-mortgage my own home? Take out a mortgage on the Guest house? Interest only or repayment? Sell my house and repay the morgage leaving a cash surplus for any refurbishment on the Guest House.

My head is going in circles as I don't know what is the best and most secure rout bearing in mind we will be investing our inheritance.....

I am currently working 4 days a week as a director of a company and bring in an income of around £2500 per month net but I hate it need a change.

I am 55 and my sister is 56. HELP.......:cool:

PasturesNew

Have you ever worked in the hospitality trade before? I've lived in an area where most people do this and the stories I've heard aren't good. Here are a few things:
- one of you always has to be there, you can't leave the house at the same time
- you can't go out for daytrips in case somebody turns up and wants a room, or if the phone rings and you miss a booking.
- you can't ever holiday together.
- you have to know how to market the business, does the purchase also include the marketing plan, complete with statistics/artwork and details for where adverts are placed; do they have a mailing/newsletter list; how much of the business is repeat business (it's the repeat business that makes a business like this worth it)
- you have to be up early to cook the breakfasts, you have to stay up late until the last guest has decided to go to bed (possibly serving in your bar area)
- you have to go shopping for the food for breakfast, and other supplies
- you have to change the sheets, wash/dry them, store them. Vaccum the rooms, empty the bins, comply with waste removal regulations
- you have to be able to fix problems straight away, e.g. if a guest rips the sink off the wall (I have known this happen) or wees the bed and the mattress needs replacing (a lot of drunk men do this). Sometimes you literally have 2 hours to clean/change the rooms AND get these problems fixed before the next person arrives
- you need to be able to deal swiftly with any problem guests (e.g. 2 smart business men roll in drunk at 3am shouting, with two hookers in tow, expecting to sneak them into their room for what will be a noisy sex session)... you need to evict the tarts, calm the men down and decide immediately if it's under control or if you need to evict them right there and then.

It's not all perfectly cooked breakfasts delivered with a smile...

Fire_Fox

Do either of you any experience in the hospitality industry? Have you written a business plan and have you seen the current owners accounts and business plan? When are you hoping to have the renovations completed by and be open for business? Decide this and work backwards, when do you need all the finance by?

Have you looked at land registry sold prices (not for sale) for the street where the guest house, your mothers house and each of your houses are located? Seems to me it would be madness to own four houses, if you end up with non-paying tenants you could come unstuck with paying the mortgage(s). Are any of your three houses up for sale? Your mothers will not be worth as much as you expect whilst you have sitting tenants.

Is your sister not willing to move into rented accommodation over the summer months in order to achieve her dream? It's a buyers market at present, it could take months to get an offer on each house, and many more months to get a sale to complete. It's crazy to take on additional mortgages when your sister won't have a proper income after the end of the year, and you won't have a proper income once you move to the guest house. You have the funds to buy the guest house outright, which gives you breathing space as I am guessing you could both survive on your pensions?

getmore4less

£58k 365days 9beds 0.75 occupancy is £23.54pppn average


Check the local market carefully,
Ask the local tourist office if they have touble finding beds.

Read the blackpool hotel thread.

PasturesNew

Top tip: Get a good shed in the garden, it'd be a shame to turn away paying guests when your room's available .... in Cornwall most people owning a B&B will sleep in sheds in their garden during the peak weeks.

martindow

getmore4less wrote: »

£58k 365days 9beds 0.75 occupancy is £23.54pppn average

Or at a price is £30/night those figures represent 0.59 occupancy

AnnaWalker

wE HAve a buyer for my mother's house (£275k), my house I could sell for £250k or rent for £800 per month and sell my sister's house for £300 in December. The proceeds from my sister's house would pay off any loan so we would only need it for around a year. Also the rent from my house could pay for any loan on the guest house.

The guest house was sold in 2006 for £366,500 to the current owners. He has cancer so that is the main reason they want to sell.#
I have worked in PR & Marketing for 15 years anbd also worked in hotels, pubs and as a receptionist in a country club so I am a good communicator.

AnnaWalker

Iam really looking o advice on how to purchase it bearing in mind the properties we have - should we take out a loan and pay it back quickly or buy it outright by selling my house as well as my mother's?

BitterAndTwisted

The least risky proposition would be to sell both properties and buy outright, obviously. Every other possible scenario entails risk and some compounded by other risks. Being dependent on rental-income is especially risky in the current climate

Blacksheep1979

you think you'll get £65k from it per year?

3 rooms at £30 each and 3 at £60 is £270 a day, multiplied by 365 days in a year is a little over £98k. Now factor in low season, maintenance periods, slow times when people have no money or when they do have money and are going abroad.

Even if you achieve anywhere near £65k have you factored in overheads such as staffing, laundry costs, feeding, insurance, the magical reserve for something breaking, accountants etc etc etc. All of a sudden this £65k is going to become £35k which isn't that healthy a wage to split two ways...

SouthCoast

Can you compete with Travelodge offering rooms at £19 a night in premier locations?

http://www.businesslink.gov.uk/bdotg/action/home?domain=www.businesslink.gov.uk&target=http://www.businesslink.gov.uk/