This is one of the most commonly asked questions from both buyers and sellers of Bed & Breakfast/Boutique Inns.
First off, let’s define terms. For purposes of this discussion, “Bed & Breakfast/Boutique Inns” means hospitality properties that:
- have 15 or fewer rental units
- are co-located (sometimes in the same building, but always on the same land)
- are professionally managed (usually by a resident owner or manager)
- derive most or all of their revenue from room rentals
- are typically owned by individuals or small investment groups (not major chains)
Next, notice how this question is framed: there may be a substantial difference between the standalone value of the business and the value of the RE, which is defined as the building(s) and land upon which it is built. That difference may be quite significant in either direction, depending on when, where, and by whom the question is being asked.
Let’s start with the obvious: a hospitality business cannot exist without the RE. However, the building and/or land could potentially be used for something completely different. Also, one of the fundamental truths in the real estate business is that the amount of money that will actually change hands (the selling price) is “whatever a buyer is willing (and able) to pay to a willing seller.”
If that sounds fuzzy, well…yes, it is. Even a licensed appraiser or a certified valuation expert (typically a CPA with extensive additional training and licensure) will include several paragraphs in their reports that boil down to saying, “This is my best guess…so please don’t sue me if I’m wrong.”
With that out of the way (please don’t sue me either, since I don’t even claim to have that level of expertise!), let’s look at some of the different perspectives people use to assess lodging business value apart from the real estate. I’ll come back to some of the ways business and real estate value are combined to establish a price for the whole package in a minute.
Common hospitality business valuation metrics include:
- Price per room (PPR)
- Revenue per available rental (RevPAR)
- Gross Revenue Multiplier (GRM)
- Capitalization Rate (Cap Rate)
There are some other metrics commonly in use, most notably the earnings-per-key ratio, but these are more measures of potential than of current value. Not only is this presumed value highly speculative, but it is also almost impossible to immediately monetize through either a higher asking price or, most importantly, a third-party loan.
PPR and RevPAR
While these are very common metrics in the hospitality industry as a whole, they’re often not very useful in the boutique niche – particularly for smaller inns. One reason is that small boutique properties don’t average well.
Often each room will have unique features and amenities, and many times those are reflected in different price points, with wide swings in desirability based on specific market conditions. For example, during Valentine’s season, romantic rooms for two tend to do a lot better than the family bunkrooms that sell out during the summer. While both may be very successful products in their own ways, assigning the same overall PPR value to both usually doesn’t make a lot of sense.
RevPAR (and its cousin, ADR) takes this another step further, in that many small inn operators still view “available” as “when I can (or feel like) selling it.” With a ruler, most everybody knows how long an inch (or a centimeter) is, so “dollars per foot” is a useful comparison. Comparing the business value of properties that may have many different—and often unknown—definitions of “available” is much more difficult.
Bottom line: As of this writing (July 2026), the data we have for about 50 inns with 15 rooms or fewer that have sold since 2020 show an average price of $184,125 per room. However, the results range from $50,000 to $353,571 per room. RevPAR statistics are not included in this data set, but the average ADR, based on a standardized 365-day year, is $229.07, with a range of $77 to $364.
GRM
This metric has been widely used across many industries for a long time in the practice of business valuation. While it appears to have fallen out of vogue with some business appraisers recently, it is still a useful tool in establishing the standalone business value (independent of real estate) for a boutique hospitality business as long as it is properly applied.
First off, different businesses have different ranges of GRMs. Overnight room rentals (which also include things like resort and cancellation fees) generally range between 3 and 6. Restaurants, event venues, and gift-shop retail are usually in the 1 to 1.5 range; spa services range between 2 and 2.75. So if an inn has multiple revenue streams, they need to be broken down before the overall GRM can be calculated. Also note that this is after-tax revenue, since sales taxes are treated as a pass-through expense.
Unfortunately, using a GRM is as much an art as it is a science – which is why it’s given as a range, rather than an exact number. Things like occupancy, location, and overall economic conditions all have an impact, but the highest multiples always go to businesses whose earnings are trending upward and have good profit margins. Declining revenue and/or lower profits result in a lower number.
Bottom line: Based on that same set of inn sales statistics since 2020, the average GRM is 4.4.
Cap Rate
This metric is effectively a measurement of Return on Investment (ROI). It’s defined as Net Operating Income (NOI) ÷ Purchase Price.
In the Boutique Hospitality world, NOI is expressed as Earnings (aka “profit”) Before Interest, Taxes, Depreciation, or Amortization (EBITDA). It’s customary to exclude owner’s draw/salary and capital/durable FFE expenses as well from those reports. This is a long-winded way of saying that NOI is intended to show stand-alone business profit, independent of specific owner choices (like their mortgage, lifestyle choices, corporate structure(s), and income tax strategy).
Onsite owner/operators are usually willing to accept a lower target for cap rate (9.5% to 10%) than investors (>12%) because so much of their day-to-day living expenses are covered by literally living at work.
Bottom line: The average Cap Rate for our study group of inns sold since 2020 is 9.5%.
Pulling the Business Metrics Together
Coming up with the standalone value of a business combines each of these metrics but weighs them differently based on location, performance, and current market conditions. Here’s an example based on an inn sale that closed in 2025; the numbers are rounded off a bit to protect privacy.
The Successful Example Inn (let’s call it “SEI“) has 5 rooms in the main building and 5 small rental cabins scattered about the property. It also has an on-site spa facility.
Room rental revenue was just under $586,000; the spa generated about $22,000; other revenue (retail, etc.) streams produced $54,000. NOI was outstanding at $360,000.
Revenue was essentially flat for each of the previous 3 years, but excellent cost controls created very healthy profit margins, so the GRM was set at 5 for room revenue, 2.5 for the spa, and 1.4 for the remainder (almost half consisted of very low-cost, high-profit services and retail).
The profit margin was 54%, which is very high for this type of business (35% to 40% is typical), and it had been sustained over the previous 3 years, so a Cap Rate of 10.5% was quite reasonable.
Combining these two metrics suggested a potential selling price of $3,300,000, resulting in a PPR of $330,000. That figure is quite high, but it seemed reasonable for the location and the business’s excellent performance. This metric was included only for reference and did not affect the final pricing decision.
Back to the Land
Most real estate has significantly appreciated in value, especially in the last 5 years. Establishing the asking price of the “sticks, bricks, and dirt” is usually accomplished by comparing recent sales of similar properties in the area (“comps”). Real estate agents can give a ballpark estimate, but formal appraisals require specialized training and licensure by the state.
If the standalone business value (BV) of an inn is GREATER than the real estate value, setting an asking price of “business value” makes perfect sense – this is clearly the “highest and best use” of the property. However, if the BV is less than or even equal to the value of the land and buildings, what is the fair market value? This is further complicated by the fact that most inn buildings are not well suited for other uses (how many homeowners want to keep all of those bathrooms clean?). The rule of thumb in these cases is to set the asking price at RE value plus one year’s gross revenue.
Now What?
Most buyers of hospitality businesses will have to get a commercial loan in order to pay for their purchase. Here’s the catch: those types of loans require that the NOI from the business can completely cover the mortgage payments…and then some. Debt Service Coverage Ratio (DSCR) is the term most lenders use for this, and most will require that the NOI is at least 1.25 times the principal and interest payments in order to qualify for the loan.
This needs to be taken into account in the pricing decision as well. If the NOI can’t pay the mortgage at the desired selling price, a buyer will have to bring a lot more cash to the table in order to make up the difference. They’re out there, but can be much harder to find.
Finishing the Example
Finding comps for SEI was particularly difficult, given its large amount of land (around 40 acres) and the variety of buildings, but we were able to estimate the real estate value at just under $3,000,000. After taking all the various metrics into account, the property was put on the market at $3.3M and sold just a few months later to an investor for $3.2M.
