How to Start a Bed and Breakfast
After years of hosting friends and family at their Maryland beach house, Ron and Shelby Mitchell saw a business opportunity in their hospitality. They decided to start their own bed and breakfast, opening the Inn at 202 Dover in Easton, Md., in 2006.
The Mitchells restored a historic building in Easton after scoping out — and ruling out — several cities along the East Coast, Ron Mitchell said. They wanted to establish their business in an area where they also felt comfortable living and being active in the local community. “Make a determination as to who you really want to socialize with, who you want staying in your house,” he said.
The U.S. bed and breakfast industry, which includes hostels, has grown more than 5% in the last five years, reaching $3 billion in revenue. There are more than 8,000 businesses in the industry, which are currently employing more than 28,000 people.
B&B owners have traditionally entered the industry late in their working lives or after they’ve retired, said Heather Turner, marketing director for the Professional Association of Innkeepers International. For instance, the Mitchells’ bed and breakfast came after long careers in unrelated industries. But in recent years, younger owners have become more common, she said.
“We’re seeing so many more young people getting into it and treating it as a profession,” Turner said. “It’s really converting the industry.”
If you’re thinking about starting your own B&B, either in retirement, as a full-time job or as a side hustle while you’re still working a 9-to-5, here are some pros, cons and tips on how to prepare for it. In this guide, we’ll help you understand the ins and outs of running a bed and breakfast and help you determine if the industry is a good fit for you.
What is a bed and breakfast?
A bed and breakfast is typically a private residence where guests are provided with a bed or individual room for lodging, as well as breakfast. Bed and breakfast owners are considered hosts and are expected to be hospitable to guests, although owners could hire hosts to interact with guests and manage the business.
Standard breakfast service is expected at most bed and breakfasts and should be included in the cost of a room. The host or a hired chef usually prepares breakfast, which is often served at a set time each day.
When guests choose to stay at a bed and breakfast, they typically are looking for a more personal experience than they would get at a hotel or even an Airbnb. Bed and breakfasts are also more regulated than Airbnbs and have to follow strict safety codes. Some bed and breakfasts have a restaurant, café or gift shop on site for guests to enjoy. Additional bed and breakfast accommodations could include hot tubs, private outdoor decks or vehicle rentals.
When deciding what perks to offer, bed and breakfast owners should check out nearby competitors, said Susan Poole, a bed and breakfast consultant who calls herself The B&B Coach. Your bed and breakfast should offer something that guests can’t get elsewhere. Adding more value would also allow you to charge higher prices, Poole said. Though Airbnb brings competition to the bed and breakfast industry, B&B owners could find a way to benefit from the platform, Poole said. Airbnb charges a 3% service fee to list a location, which is less expensive than advertising on booking sites like Expedia.
A typical bed and breakfast has between four and 11 rooms to house guests. The average size of a bed and breakfast is about 5,700 square feet.
Many bed and breakfasts have historical designation from a local, state or national historic preservation organization. When renovating The Inn at 202 Dover, Mitchell took advantage of state and federal tax incentives encouraging the rehabilitation of historic buildings, he said. The Inn at 202 Dover is a member of the Historic Hotels of America.
B&Bs vs. inns. Local governments often treat bed and breakfasts differently than inns. Owners of a bed and breakfast may not be required to live on the property, whereas owners of an inn may have to live on the premises. Inns also do not usually serve food to the public, while a bed and breakfast could have a public restaurant on site. Inns could also be restricted to serving only breakfast. What makes both of these different from hotels is the number of rooms — governments may restrict the number of rooms or guests to a relatively low number, typically well under 50.
Costs of starting a bed and breakfast
The biggest cost of opening a bed and breakfast could be the building itself, said Richard Widman, chairman of Charming Inns, which owns several inns and restaurants in downtown Charleston, S.C. While there are financing options available, you would likely have to put at least 25% to 30% equity into the project yourself, he said.
“Financing has always been difficult in the hotel business,” Widman said. “It’s very difficult to convince banks of your success.”
However, it is possible to secure bank financing for your bed and breakfast, which we’ll discuss more in a later section.
Other costs of running a bed and breakfast would include:
- Online travel agencies: OTAs like Expedia or Booking.com take a percentage of your room rate for listing your bed and breakfast. It may be helpful to get a marketing boost from these large companies but be prepared to pay them 15% to 25% of your rate, Poole said.
- Food: Because you’ll be serving breakfast every day, and possibly additional meals, you may spend a large amount on food and possibly staff to prepare and serve it. We’ll talk more in a minute about staff. To avoid food waste, consider asking guests if they have any meal preferences and avoid serving portions that are too big.
- Linens: Your linens must remain in good condition and may need to be replaced often. Using all white linens would make it easier to replace one piece at a time.
- Website: The website for your bed and breakfast should be well-designed and kept up to date. You should invest time and money in building and monitoring your website.
- Insurance: Coverage for a bed and breakfast can be expensive, depending on the value of the building and its contents. Business property insurance can cover structure damage, while business liability insurance can protect you against responsibility for an incident on your property.
How to open a bed and breakfast
1. Find a location.
When searching for a location for your bed and breakfast, think about the type of guests you would like to host, Mitchell said. He and his wife chose Easton, named one of Bloomberg BusinessWeek’s wealthiest small towns in America, because they wanted to create a bed and breakfast for elite clientele. If you don’t want to start from scratch, you could purchase an existing bed and breakfast in the location of your choice, Mitchell said.
“It’s crucial to do research for anyone considering starting one or purchasing an ongoing one,” Mitchell said. He advised that prospective bed and breakfast owners spend some time in the area they’re considering. “They’re going to be living there and becoming proactive in town.”
2. Check local zoning requirements.
Not all properties are eligible to become a bed and breakfast, said Poole, The B&B Coach. A bed and breakfast is a business and must operate in an area that permits commercial use. Zoning requirements can vary at the state, city and county level, and changing the zoning for your property could take time and money.
3. Finance your bed and breakfast.
Finding small business financing can be the most difficult part of starting a bed and breakfast. Although you should expect to cover 25% to 30% of the cost yourself, Widman of Charming Inns said, you’ll probably need to finance the rest.
You would likely need a commercial loan rather than a home mortgage to finance the property, Widman said. Like a mortgage, the property acts as collateral on the commercial loan but generally has repayment terms between five and 20 years, a shorter range than terms for a residential mortgage. You would need to make monthly payments with the possibility of a large balloon payment at the end of your term.
Down payments may be significantly higher, too, since commercial mortgages typically cover between 55% to 70% of the value of the property. When applying for a commercial mortgage, you would need to show proof of revenue and a business plan to be approved for financing.
Additional required documents could include:
- Business income tax returns
- Balance sheet
- Profit and loss statement
- Photos of the property
For their bed and breakfast in Maryland, the Mitchells relied on bank loans and a U.S. Small Business Administration loan. They also received federal and state tax credits for restoring a historic building. You may have a better chance of getting approved for financing at a bank that’s near your prospective bed and breakfast, Mitchell said. Local bankers would know more about the area than larger banks and may not consider your business too risky, he said.
“Local banks seem to be most attuned to considering bed and breakfasts, especially in a small town,” Mitchell said.
Applying for a loan from the Small Business Administration may be another way to finance your bed and breakfast. The SBA’s popular 504 loan program can be used to purchase or renovate commercial real estate. Advantages include a low down payment, fixed terms and low rates, but, in general, the process of applying for an SBA loan can be labor intensive.
4. Hire staff if you need to.
It’s not uncommon for bed and breakfast owners to handle all responsibilities themselves, Turner said. About 70% of bed and breakfast owners are couples. Two people running the business could probably handle up to six rooms without hiring outside help, she said. More than that and you would likely need to hire cleaning staff, at least.
If your number of rooms is in the double digits, you may want to consider hiring a manager to assist you with business operations, Widman said.
5. Set your prices.
Your room rates should be close to what competitors who have a similar level of service are offering, Poole said. That could include other bed and breakfasts or commercial hotels. As you add services and perks that set you apart, you could increase your prices, she said.
Don’t expect to get rich running a bed and breakfast unless it’s a large, well-established property with a high, year-round occupancy rate, Poole said. Instead, your main financial benefit would be preserving your capital by owning prime real estate, as well as the return on investment when you sell the property or business, she said.
6. Market your business.
You’ll need to get the word out about your bed and breakfast to build your customer base. Any local or national press about your business opening would provide a boost, Widman said. If you have restored a building in a historic or up and coming area, you have a better chance of getting coverage, he said.
A bed and breakfast also needs an up-to-date website where guests can find information and see photos of the establishment, Poole said. Social media is crucial as well, and you should spend time building a brand presence across social media platforms, she said.
Pros and cons of owning a bed and breakfast
- Your bed and breakfast doubles as your home. You don’t have to pay another expense for a roof over your head or food to eat.
- You constantly meet new people.
- You have autonomy over your business.
- You may be eligible for tax deductions based on rental activity.
- It’s difficult to step away from the business or take a vacation.
- It could be challenging to compete with hotels and other lodging establishments in the area.
- You would be responsible for most or all duties.
- Must report income to the IRS.
Is the bed and breakfast industry right for you?
Before starting a bed and breakfast, make sure you’re comfortable with the basic aspects of the industry.
You would need to be sociable with guests.
Unless you hire a manager to run your bed and breakfast, you’ll need to be the face of the establishment. You would be responsible for creating a comfortable, pleasant atmosphere for guests, Turner said.
“If you really like people, it’s a fantastic business to get into,” she said.
It could take a while to gain traction.
It may take a few years for your new bed and breakfast to gain traction in your area, Widman said. Your income may fluctuate as well for the first two or three years until you have a steady stream of guests.
“It’s going to take you a few years to gain the market occupancy at an average rate,” Widman said.
Be prepared for slow seasons.
Most bed and breakfasts are cyclical businesses with peak seasons and slow seasons, Poole said. That means your personal income would be seasonal as well. However, if you’re in an urban area where you could potentially get guests year round rather than a seasonal tourist spot, you could make a steady income, she said.
You may feel overwhelmed when you start your own bed and breakfast, Turner said. But if you do enough research and preparation, running your own operation can be rewarding.
“It is a lot of work,” Turner said. “But that work can have a lot of self-satisfaction to it.”