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INNKEEPING NEWS
CONTACTING ME: If you cannot find the information you are
looking for please request more info on B&B’s with our convenient
Request for more info, call or fax 800926-INNS (4667) or 269649-5556
anytime,
Email, by mail at 11368 E. Indian Lake Dr., Vicksburg, MI 49097. I'm usually in during the P.M. Regardless of your communication mode; I am committed to respond within 24
hours of the request!
INNKEEPER TAX ISSUES: Innkeepers face a variety of federal, state & local tax issues. For a summary of these issues, please scroll down to the end of this page. NEW INNKEEPERS:
In February, 2010, I assisted John & Nicole Tomaszewski in the purchase of the former Birds of a Feather Inn, Saugatuck, MI http://www.innbroker.com/birds-of-feather.htm
In July, 2009, I assisted Dana Underwood in the purchase of The Stuart Ave Inn...Kalamazoo, MI http://www.stuartavenueinn.com/
In October, 2008, David
Langley & June Spriggs (2007
Innkeeping Consultants Seminar Graduates) ...purchased http://serendipitybandbsaugatuck.com/
In June, 2007, I assisted Chris Green, 2006 Innkeeping Consultants
seminar graduate, in the purchase of
the Colonial House Inn...St. Ignace, MI
INN
SALES: The following inns have sold: Mendon Country Inn- Mendon (Closed); River's Edge B&B- Union Pier; The Sandpiper Inn- Union Pier (house); Deer Creek- Douglas (house); The Hexagon House - Pentwater; The Landings
of Saugatuck ; SEMINARS?- After 20 years of innkeeping seminars, Bob & Lynda have "retired" from the innkeeping seminar scene. We appreciated the opportunity to train over 1,000 aspiring innkeepers & we're very proud of the 100+ graduate teams who realized their innkeeping dream! Here are some other innkeeping seminar resources:
BBonline: http://www.bbonline.com/innkeeper/consult.html
Wisconsin B&B Assn.: http://www.yestobliss.com/mem_seminar.html
NEW & ASPIRING INNKEEPER WEEKEND: The Ludington Historic B&B Association is offering a weekend for new & aspiring innkeepers to learn more about innkeeping from existing innkeepers as well as touring the area B&Bs. The 2012 weekends are April 13-15 & Nov. 2-4. The program begins with a complimentary wine & cheese reception (sponsored by the Inn Broker, Inc.) on Friday night followed by a tour of the 7 area Association B&Bs on Saturday. There is no additional cost for the program! Just select your favorite room for two nights at the regular rate, make your reservations in advance, and you are all set. For more information and to make your reservation, go to: The Historic Ludington B&B Association.
B&B CONFERENCE: The 25th Annual Michigan Lake To Lake
B&B Association 2011 Conference is scheduled for Oct. 29-30 (Mon-Tues) McGuire's Resort in Cadillac, MI . Non-members are welcome to attend at a slightly higher registration fee.
As L2L Afffiliate Member
#1, I will be attending
& exhibiting at the Conference. More info is available at: Michigan Lake To
LOCATING INNS FOR SALE: The Inn Broker, Inc is the premier B&B broker between the Rockies and Appalachian Mtns. I can refer inquiries to fellow B&B brokers in other areas. If you're searching for inns in an area not covered by a B&B broker, your best bet is to email the inns in the areas you are searching. You can usually find a directory of an area's inns & emails at their state travel site or state B&B association. Once you have located your property, I can consult with you for $80 per hour (4 hour minimum in advance) plus expenses via the mail, etc. Of course, there are never any fees charged to those buyers who will enable me to earn a sales commission from a Michigan inn seller!
ACQUISITION PROTOCOL: While buying a B&B is a lot like buying a house, there are some differences. If you’re more than 6 mos. from making your move, you should be reading the B&B books and magazines, attending a B&B seminar, visiting B&B’s as a guest, vacationing in your area of interest, and volunteering your time at a local B&B to experience the "feel" of innkeeping. Once you’re within 6 mos. of moving, you should put your house up for sale and begin looking at B&B’s for sale. If you slightly over list your house, the worse that happen can to you is that someone may pay you more than you thought it was worth and you may move twice. We’ve had a number of B&B dreams crushed when the buyers couldn’t sell their house during the time they needed to. Why let the past control your future?! If you’re thinking about relocating to an unfamiliar area, you should consider renting in that area for a year or so that you experience a full cycle of your dream spot- not just a 1 week vacation. It’s much easier as a B&B broker to find an inn for a buyer than finding a buyer for an inn. If you’re only available to see B&B’s for sale on the weekends, visit Sunday not Saturday and stay as a guest and have the broker meet you there. An unscheduled and secret shopper visit to for sale inns does not demonstrate much consideration for the seller and will not enhance their perception of you as buyers. Touring unfocused B&B buyers through for sale inns is not productive for any of the parties. By following these steps, you will impress B&B sellers that have prepared for this next big step and are not on a lark. The most difficult part of my job is finding a couple who can agree on how, when, and what they want; and that goes for both buyers and sellers! I thoroughly enjoy introducing aspiring innkeepers into the greatest job in the world, but we need to prepare together for it. This is the largest purchase you’ll ever make in your life and it must make financial and lifestyle sense to you before you plunge in! Happy Hunting!
SUPPLEMENTAL INCOME NEEDS: Most innkeepers have some type of supplemental income in addition to their B&B income. Since many inns average 20-40% occupancy, there are many low season opportunities to have outside commitments. In an average setting, most inns won't cash-flow if they are less than 5 or 6 rooms. However, bear in mind that a large portion of your daily overhead expenses such as mortgage, insurance, utilities, phone, etc. can be paid for by pretax income from the inn which results in a lower taxable income. Aspiring innkeepers should determine their lifestyle needs first, then their financial needs. What other occupation affords you a nicer house than you otherwise could afford, a desirable location and hosting the cream of the crop for travelers? None!!
DO I NEED A BUYER’S AGENT? Bob Fuehr, The Inn Broker, Inc. works exclusively in Michigan as a Seller’s agent, should I, as a buyer, be represented? Yes, you should be represented by expert counsel- such as an attorney, appraiser, accountant and home inspector. These professionals should be providing professional advice from which should assist you in making a business decision on the purchase of an inn. Real estate agents should not offering advice in those areas unless they have some specialized training or experience in those areas. Since I knew most of the innkeepers first, it would be very confusing for sellers for me to be changing roles with different buyers. Like most brokers, I don’t get paid until the deal works for both parties. I’m usually bringing together as many as four different parties to create win-win situations. Inn transactions are more complicated than a regular house sale but there not as complex as a commercial transaction. Since I spend much more time with buyers than I do sellers, just don’t pass on any confidential information (such as your willingness to pay more than you offered) to me if you don’t want it passed on to the seller. Unless you’re working with a buyer broker who has working knowledge of comparative values of inns for sale, understands the financials of innkeeping and has a working relationship with the sellers, your prospects of getting a "better deal" are slim. A broker’s job is to bring buyer and seller together-period. Anything beyond that is of questionable value. By signing a buyer broker agreement, you could be obligating yourself to pay the buyer broker a commission if the listing broker does not offer compensation to a buyer broker. Like many commercial brokers, I don't offer commissions to buyer broker agents. Bear in mind that if a seller is involved in the loan, they have a vested interest in enabling the buyer to be successful. I work in a very small market; I can’t afford to be associated with bad deals. As a seller’s agent I am paid by the seller. As I buyer, I only ask that you be a loyal customer to me so that when I provide proprietary information and service to you, that you allow me an opportunity to earn a commission from the seller. I'll be happy to share my valuation techniques, budget guidelines and negotiating advice (including contract language) all from the buyer’s perspective. These are the materials that we used during our 20 years of innkeeping seminars. Plus I will happily reimburse any of our book and seminar expenses if you will use my services in the purchase of an inn!
INNKEEPING BOOKS & DVD: The Inn Broker offers a selection of 3 innkeeping books & a DVD for sale at: http://www.innbroker.com/books.html. A variety of other innkeeping info (including the Lake to Lake B&B Association Directory) is included with each order. Bob Fuehr, The Inn Broker, will cheerfully reimburse any of our book/DVD purchases and seminar tuition for anyone who purchases an inn through me!
B&B COLLEGE CURRICULUM: Oakton Community College, Des Plaines, IL has established a core curriculum for persons who anticipate operating a B&B. Contact Ron Thomas, Assoc. Professor, at 847/635-1949, Fax 847/6305-1987 or Email.; http://www.oakton.edu/online/samples/hfm103/welcome.html
MICHIGAN LAKE TO LAKE B&B ASSOCIATION DIRECTORY: A free copy of the current directory is available at any member inn. View the online Directory at www.laketolake.com for the member inn closest to you or for a $5 postage/handling fee call 888/575-1610, Fax 616/575-0270 or visit: http://laketolake.com/services-free-directory.htm. A FREE copy of the Lake To Lake Directory is included with any book or DVD order from The Inn Broker, Inc. ...............................................................................................................................................................................
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MI Innkeeper Tax Issues
Presented at The Michigan Lake to Lake B&B Association Conference– 10/24/11
Bob Fuehr The Inn Broker, Inc.
Disclaimer: Mr. Fuehr is a licensed, Michigan real estate broker. He is not an appraiser, attorney, accountant or other licensed professional. You should use the information presented as topics for discussion with your appropriate licensed adviser.
I. Property Taxes; Michigan Taxpayer’s Guide: http://www.legislature.mi.gov/documents/Publications/TaxpayersGuide2011.pdf
A. Property Tax assessment is based on the real estate; not the furnishings or biz.
B. Taxable vs. State Equalized Value (S.E.V.) 1. Taxable Assessment can only increase the lower of the rate of inflation or 5%; 1.7% in 2011. 2. Adjustments to the taxable assessment can be made for changes to the bldg. or to correct errors. 3. Assessments cannot exceed 50% of true cash value.
C. B&B Principal Residence Exemption– http://www.michigan.gov/documents/treasury/IPD2006-10_175263_7.pdf
1. Determination of % of 18 mills exemption: a. Property exclusively used for personal purposes (property not available to guests) – 100% exempt b. Property exclusively used for business purposes (property dedicated to guests)– 0% exempt c. Common areas - 50% exempt/ 50% nonexempt d. Unlike Federal guideline, no consideration of % of year open for business. e. The application of these guidelines, adopted in 2006, varies greatly by area.
D. Pop-up Tax 1. When a property is sold, the property tax assessment “pop-ups” to the S.E.V. for the new owner. Some new B&B owner’s property tax bills have quadrupled over the previous tax bill!
E. Changes in Homestead Property Tax Credit: http://www.michigan.gov/documents/taxes/Tax_Change_Summaries_-_Individual_Income_Tax_359807_7.pdf II. I.R.S. Tax issues
A. Personal vs Business use of bldg. http://www.unclefed.com/SurviveIRS/MSSP/b&b.pdf 1. Only the % of bldg. area used exclusively for the business (not common areas) may be deducted as a business expense. That amount may be further reduced by the % of days of the year that the B&B is open for business.
B. Sale of the B&B: 1. Per Internal Revenue Code Section #121, the portion of the B&B bldg. that was allocated as personal space, may be excluded from capital gain tax for up to $250K individual or $500K/couple.
2. Allocation of Value: Both seller and buyer will submit a Form #8594 after the sale. Both parties should agree on these values prior to closing. Be reasonable; a tax audit is usually more expensive than any tax benefit that may be incurred by an aggressive accounting approach. http://www.irs.gov/pub/irs-pdf/i8594.pdf
a. This will incl. an allocation of sale price: 1. Land- Obtain from appraisal 2. Land Improvements- Gazebo, storage bldgs.; insured value 3. Bldgs.- Obtain from appraisal 4. Personal Property- Insured value of furnishings & eqmt. 5. Non-Compete Covenant- Minimal value; usually $5-$10K 6. Goodwill- Is the difference between the sum of the hard assets listed above and the sale price.
b. Example of a B&B allocation of value: Land 28K Land Improvements 5K Buildings 365K Personal Property 50K Non-Compete Agmt. 15K Goodwill 5K
Total $468K
5. Depreciation Recapture a. All those years that innkeepers took a depreciation deduction most of which will be paid back at the earned income tax rate; not at the 15% capital gains rate. .
C. Payroll Issues 1. The I.R.S. is targeting L.L.C.’s & Sub S Corps. for owners who are taking most of their profit as distribution and not paying a “reasonable wage” & withholding. 2. Most regular B&B staff are employees and are covered under the Wage & Hour Act (& withholding) regardless of how much of an “independent contractor” that they may appear to be. .......................................................................................................................................
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