Seller Financing Options for Inns For Sale

Seller financing of Inns, wherein an Inn owner offers a mortgage to an Inn buyer, was rare during the last decade. Money was cheap and lenders were eager to lend. Those conditions have certainly changed and bank financing for Bed and Breakfast Inns is elusive today. Seller financing of Country Inns and Bed and Breakfasts for sale is re-emerging as an option that benefits both parties. One advantage is that the Inn buyer and the Inn seller have control over the terms of the transaction. A seller does not necessarily have to own the B&B outright in order to offer seller financing. Here three ways a seller can participate in financing:

1. Free and Clear Financing – When a seller owns a property “free and clear” there are no liens or mortgages on the property. In this situation the seller and buyer are free to make any terms they want to in order to make a deal successful. An Inn owner typically agrees to transfer title to the Inn in exchange for a note and a security interest in the property. The note is paid off like a conventional mortgage, though to the seller instead of a bank.
2. Second Position Financing – In this scenario, the Inn buyer makes a down payment, obtains new mortgage financing (paying off the seller’s existing mortgage) and the seller finances the remainder of the purchase price. Down Payment + Bank Financing + Seller Financing = Purchase Price.
3. Purchase Option – Any time the Inn buyer gives money to the Inn owner for the right to purchase the property at a given price and within a given time frame the buyer has a “purchase option”. Typically, the buyer simultaneously leases and operates the Inn. This is a form of seller financing because the seller still owns the Inn until the buyer purchases it (exercises their option to purchase) or the option expires.

As the chill on institutional lending persists, and the inventory of available Inns remains high, variations of seller financing will become more commonplace. I would be happy to discuss any of these options for financing the purchase or sale of your Bed and Breakfast for sale - contact me!