How do you sell an inn or lodging property?

Before the first step, separate what a buyer of a working inn is actually paying for. The Comptroller of the Currency's lending handbook names three parts when it describes how hotel properties are appraised for a lender.

Traditionally, the three components are described as (1) market value of the real estate, (2) personal property value, and (3) value of intangibles.

Office of the Comptroller of the Currency, Comptroller's Handbook, Commercial Real Estate Lending

The real estate is the land and the buildings. The personal property is the furniture, fixtures and equipment, often shortened to FF&E: the beds, the dressers, the kitchen equipment, whatever sits in the rooms and cabins. The intangibles are things like goodwill. The handbook says the sum of the three is sometimes called the going concern value, and it adds a plain warning: "Hotel operations can be complex and may have a sizable non-real estate component."

Virginia's hotel rules reach further than the word hotel suggests. Va. Code 35.1-1 defines a hotel as any place offering the public transitory lodging or sleeping accommodations for compensation, and names motels, travel lodges, tourist homes and hostels among them. The health department's regulation, 12VAC5-431-10, defines a hotel as such a place with two or more lodging units and separately defines a bed and breakfast facility. Which definition a particular operation is permitted under is the local health department's answer.

One lodging property on this site is the Inn and Cabins at Volunteer Gap listing in Carroll County. What a buyer asks for before offering on that particular inn is set out on its own page; what follows is the seller's sequence for any lodging property.

Lodging is income property, and income property is read through its income. The handbook describes the income approach as converting expected future net operating income into present value, either by direct capitalization or by discounted cash flow analysis.

Direct capitalization suits a stabilized income expected to stay stable. Discounted cash flow suits a property that has not reached stabilized occupancy or whose income is expected to swing materially. Which one a buyer's appraiser uses is the appraiser's decision; how the first method works is explained in what a cap rate is and how it turns income into value.

The records a buyer asks for are the seller's, and they carry business information. Whether they are released, when, and under what confidentiality terms is a matter for the contract, drafted with an attorney.

A separate set of income records can come from the other direction. Under Va. Code 58.1-3294 a local assessor may require confidential income and expense statements tied to each parcel of real estate, a statute the cap rate answer also takes up. How a locality uses them is a question for its assessor or commissioner of the revenue.

A lodging business collects taxes for others, and a sale has to close out that duty cleanly. Virginia's sales tax statute puts a deadline on the seller and a risk on the buyer.

If any dealer liable for any tax, penalty, or interest levied hereunder sells out his business or stock of goods or quits the business, he shall make a final return and payment within fifteen days after the date of selling or quitting the business.

Va. Code 58.1-629

The same section tells the buyer to withhold enough of the purchase money to cover taxes, penalties and interest due and unpaid until the former owner produces a receipt from the Tax Commissioner showing they are paid, or a certificate that none is due. A buyer who fails to withhold becomes personally liable for them. How the holdback is held at closing is a question for the settlement attorney.

Local lodging taxes run alongside. Va. Code 58.1-3819 lets a county levy a transient occupancy tax on facilities renting guest rooms for continuous occupancy of fewer than 30 consecutive days, and treats the collections as held in trust for the locality.

Carroll County's short-term rental page says any person or business renting room or space suitable or intended for occupancy for dwelling, sleeping or lodging purposes registers annually with the Commissioner of the Revenue. The county imposes a lodging tax of 5 percent of the charge for each room, remitted to the Treasurer before the 20th day of the month after collection. The same page says Virginia sales and use tax on accommodations is 5.3 percent, and it gives the county meals tax as 4 percent. In the other counties, the registration and rate questions go to that county's commissioner of the revenue.