More B&B Owners Choose to Cash Out

Many bed-and-breakfasts are closing down as owners realize they can make a bigger profit by selling the home as a private residence than they do operating the business.

Rising interest rates also have made it more difficult for innkeepers to pay the mortgage and still make money. Historically, bed-and-breakfasts have sold for four to six times a year's gross revenues. Under that model, new owners could afford to buy a home, pay the mortgage and expenses, and bank the difference.

But because real estate values have soared so quickly, the formula no longer works. Now, such homes are selling at eight times annual revenues, and often much more. Revenues, meanwhile, are up only slightly: The average bed-and-breakfast room price is $144, up about 5 percent since 2002, according to Professional Association of Innkeepers International.

None of that is a concern for those who have the cash for a private home. The California Association of Bed and Breakfast Inns says seven of its members sold their properties last year, each to buyers planning to convert them into private homes.

In Cape May, N.J., bed-and-breakfast Columns by the Sea has been subdivided into condos that are being sold individually for about $550,000 each.

Meanwhile, Secretary of Defense Donald Rumsfeld bought the former Mount Misery Bed & Breakfast in St. Michaels, Md., for $1.5 million and is using it as a private home.

Source: The Wall Street Journal, Conor Doughergy (08/11/06)