Can I get residential interest rates on a B&B mortgage?

Swapping the city life to run a bed and breakfast (B&B) is a great way to change pace and enjoy an idyllic lifestyle.

Getting finance to purchase this type of property can be difficult because some lenders consider them to be commercial properties.

Luckily, we know lenders that can help you finance your dream!


Commercial Loans

How much can I borrow

  • Standard homes: If the property can be used as a standard residential home and you’re currently employed then you may be able to borrow 90% of the purchase price.
  • Income from the B&B: If you’ll be relying on the B&B income to pay the loan then you can borrow up to 80% of the purchase price.
  • Commercial property: If the property can only be used as a B&B, not a home, then your borrowing power will vary depending on whether the property is a:

    • Freehold purchase: You may be able to borrow up to 70% of the property value.
    • Leasehold purchase: You may be able to borrow up to 50% of the business or going concern value.
    • 100% loans: Available with some of our lenders if you have a guarantor.
    • Interest rate discounts: Available on a case by case basis through one of our lenders.
    • Low doc: Low doc loans are typically not available.

Bed and breakfast properties are assessed on a case by case.

To find out if you qualify for a bed and breakfast loan, please call us on 1300 889 743 or complete our free assessment form.

How can we help?

Thanks to the relationships we have with commercial lenders, we may be able to negotiate the following, depending on your situation:

Our brokers will always endeavour to process your application as a residential property it it’s clear that the B&B can be used for more than just a guesthouse.

If we do go down the business finance route, we can help you get get even more out of your commercial loan than just low fees and a strong interest rate.

We fully assess your financial situation so you can choose the commercial loan features that work best for you.

Our commercial property loans page can provide more information about how the commercial loan process works.


Lending Criteria

Are you buying it as a residential property?

B&Bs or guesthouses usually offer amazing views in idyllic locations away from the city.

It’s little wonder that some people like to buy former B&Bs as their very own holidy home.

Whether you’re buying it to live in or to rent it out during parts of the year, you can actually borrow up to 90-95% of the property value or up to 100% using a guarantor.

The trick to getting approved is largely in the valuation and requesting that the valuer disregard so-called “highest and best use”.

B&Bs naturally have a higher valuation attached to them due to their income-producing capabilities.

If the valuer were to ignore highest and best use, the final valuation would come in lower.

That means you’d have to decide whether coming up with a larger deposit is worth the savings of getting a residential interest rate over a commercial rate.

Speak to your mortgage broker and they can run through some calculations with you.

Call 1300 889 743 or fill in our free assessment form today.

Commercial mortgages for B&Bs

If the bed and breakfast is assessed as a commercial property, what do banks looks for?

Debt Service Coverage Ratio (DSCR): Most lenders will be guided by the business’ DSCR in order to determine your borrowing power.

This ratio should be over 1 meaning that the property is generating enough income to pay its debt obligations.

Land size: If the property is for residential purposes, lenders will generally accept properties that are no more than 50ha. Larger land sizes will require a commercial loan.

Hiring professional staff or DIY: If you’re purchasing the property for commercial purposes, banks will want to see a business plan that shows income projections and cash flow forecasts.

You may decide to hire professional staff such as cleaners or cooks despite the fact that a traditional B&B is operated entirely by the owners.

The bigger your deposit, the more likely you are to get your home loan approved.

Location/Zoning: Bed and breakfast properties tend to be found in rural areas, outside of central business districts (CBDs).

For residential purposes, lenders generally want to see a property that’s zoned as a Category 1 or 2 property.

Category 3 and regional properties may be financed if you have a larger deposit.

Speak to one of our B&B loan specialists by calling 1300 889 743 or complete our free assessment form.

Why are banks so conservative?

Ultimately, banks want to know that they can easily sell your property in the event that you default on your mortgage.

The success of the B&B comes down to you as the borrower, so if the B&B is for income-producing purposes, banks will be concerned that you may be planning to leave your job to run the business full-time.

The chances of you defaulting increases so the banks want to reduce their risk by reducing your LVR.

Will you run the B&B?

Buying a B&B can be a grey area because, technically speaking, it’s not a residential property.

If you’re borrowing more than 80% of the property value, Lenders Mortgage Insurance (LMI) is required and you’d be declined by most lenders.

This is because the LMI provider might consider you reliant on income from the purchase of a business.

In addition to this, fewer people than ever are interested in buying a B&B so they’re harder to sell.

If you’re going to run the B&B yourself and relying on this income to make the repayments then you’ll need to come up with a larger deposit for a commercial loan.

If you’re currently employed then we can get you a lower interest rate with a smaller deposit because we can show the lender that you’re not reliant on business income.

What if I don’t have a deposit?

If you purchase the B&B as a residential property, you’ll need a 10-20% deposit and around 5% of the property value to cover stamp duty and legal costs.

However, we can help you secure your loan with no deposit if you have a guarantor.

In this way, you can borrow up to 105% of the purchase price with some of our lenders.

Call us on 1300 889 743 or fill in our free online assessment form to find out more.


Tips For Buying

What is a bed & breakfast?

In most cases, a B&B business is a principal place of residence (PPR) with fewer than 10 rooms that offers overnight accommodation and breakfast.

Rooms may be allotted for guests to use or the B&B itself may be an established building separate to the main residence.

Usually, the owner of the property prepares all the meals and cleans the guest rooms or they may hire staff to complete such duties.

In most circumstances, hiring professional staff means the property will be considered as specialised and your borrowing power will be reduced.

What do I need to know about running a B&B?

A B&B differs a little from owning a hotel, at least from a business perspective.

The service provided is usually little more than a bed to sleep in and a full breakfast before check-out.

What really sets a B&B apart is that you’re opening up your own home to strangers.

Having a hospitable attitude and being a committed housekeeper are a given if you’re thinking about buying this type of commercial property.

Since the business is owner-occupied, you have to be content with having your work life creep into your home life.

These so-called “lifestyle” businesses are the reason they’re mostly sought after by people in relationships (married) and people nearing retirement.

Like other commercial properties, the earning potential of the business comes down to such factors as:

  • Your location
  • How much you charge for goods and services
  • How many staff you employ
  • How much you put into marketing

Does location matter?

Although it’s easy to picture a B&B in a country setting, there are properties located in urban settings as well.

Each location type offersits own benefits and requires different approaches to marketing.

City or suburban bed and breakfasts, for instance, can be quite lucrative because they tend to attract international travelers and business people.

B&B’s in remote areas are popular for weekend getaways and special occasions, with farm stays attracting longer stays.

The location of the property will often dictate the services you provide, from a luxury retreat experience or simply a place for guests to sleep and eat breakfast.

Running a bed and breakfast in Australia

Hosted Accommodation Australia is the peak body for Australia’s bed and breakfast, farmstay, guesthouse and self-catering accommodation industry.

It sets out certain essential criteria the property and location should meet.

This includes having:

  • A clearly-stated smoking policy.
  • Sufficient lighting at entrances, steps and stairs.
  • A smoke detector.
  • Out buildings, paths, gardens and lawns all well maintained.

Other requirements are more desirable than essential such as:

  • Low noise levels from passing traffic
  • A barbecue for guests to use.
  • Bath robes for guests.
  • Extra personal toiletries such as shampoo and razors.

For the success of the leasehold, it’s important to seek out advice from industry associations and people already operating in the space.

Are there licensing requirements?

B&B operators need to comply with a number of different laws and licensing requirements including food safety, liquor licensing and OH&S for staff.

Businesses that don’t comply with these laws can incur fines and breache which may, in turn, jeopardise any insurance claim.

According to Hosted Accommodation Australia, you should carry insurance suitable to the conduct of your business and consider other professional insurances such as loss of income.

B&B insurance is a specialised field and not all insurance underwriters will provide it.

Do your research!

What you may not know about the B&B industry

Compared to other business models, bed and breakfasts have long had low barriers to entry.

The regulatory requirements are also a lot easier to adhere to compared to a hotel or pub because B&Bs are smaller establishments with far fewer patrons/guests.

However, the threat of online networks of homestay and short-term accommodation listings such as Airbnb and stayz.com.au have made many B&B operators a little hot under the collar.

It’s not so much the increased competition but that fact that it’s been argued that short-term rental providers don’t follow the same rules as bed and breakfast operators.

Apply for bed & breakfast loan

Our mortgage brokers are specialists in financing B&Bs so please call us on 1300 889 743 or complete our free online assessment form today!

We know which lenders will view your new business in a favourable way and which ones will give competitive interest rate discounts!

  • Katherine

    How bed & breakfast loan different from other types of loans?

  • Hi Katherine,

    A bed and breakfast is generally a principal place of residence with less than 10 rooms that offers overnight accommodation and breakfast. The rooms in the home may be allotted for guests to use, or a separate established building may be used as the bed and breakfast itself.

    A bed and breakfast isn’t the same as running a hotel. What really sets a bed and breakfast apart from a hotel is that your own property is the hotel so you’re opening up your home to strangers. Running this type of commercial property will may require you to have a hospitable attitude as well as to be a committed housekeeper.

    Most lenders therefore may not consider a bed and breakfast (B&B) as a standard residential property.

  • Scotty Cyr

    Im looking at a historic hotel that was converted to a bed and breakfast the top floor is living quarters the second is single occupancy rooms and the first floor is a bar and diner what type of loan can i get, i am also a veteran

  • Hi Scotty,

    The property that you are buying would be assessed as commercial rather than residential. The reason for this is that if someone else was to buy it they’d have to spend significant funds on it to convert it into a home.

    What that means is that the amount you can borrow is reduced. Typically you could borrow 50% to 80% of the property value depending on how specialised the property is and the location. The bank may also need to see that you have experience in hospitality. I hope that helps.

  • GP C

    I own a commercial pub and have $250k owing on it. I’d like to use the equity I have on it to buy a B&B. I don’t have full financials but I do have a new accountant who can provide a letter of my finances.

  • Hey GP C,

    Since you have a new accountant, their declaration may not work as lenders may require you to provide recent BAS statements. You can refinance the pub loan against your home for a better rate and cash out to use as a deposit for the next purchase. Please call 1300 889 743 to discuss this with our commercial loan specialists.

  • James Carl

    Our proposed offer for clients in the new year is positive and total commitment, so working with us gives you maximum assurance of getting funded for we have an A+ rating in financing. JCLF over the years has been highly rated as one of the best online companies with a cheaper interest rate. If you are in need of financing, don’t hesitate to contact us through phone (267-405-5404) or email: jamescarlconsults@hotmail.com

  • Sandy

    We own our home and land (100 acres) outright and want to build self contained cottages on the property. We would need to borrow money against what we own to do this. Is there a loan that will do this?

  • Hi Sandy
    Yes we can assist with this. Our minimum loan size is $300,000. As long as your loan is over that we can help. We’ve helped with several projects like this.
    The location of your property is important, some lenders like rural areas and others don’t. There’s more info on this here https://www.homeloanexperts.com.au/property-types/rural-home-loans/

  • Johnson M

    Do you have a calculator or a formula that we can use to estimate the LMI premium that could apply?

  • Hi Johnson.

    You can simply input your loan details into our LMI calculator to get an estimate of the amount of LMI premium that you may have to pay. The instructions as well as some additional info are on the page itself. Here’s the link:
    https://www.homeloanexperts.com.au/lenders-mortgage-insurance/lmi-calculator/

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