So You Want to Buy a Guest House in Key West

Cypress House - Under Contract - $4,600,000

So You Want to Buy a Guest House in Key West! Join the crowd. There are lots of folks just like you. Folks that dream of leaving their lives up north and moving to Key West where they can live their life their way. I get it. I had the same dream.

Ever since I made my first trip to Key West many years ago I noticed there were always several guest houses for sale. I started looking at the properties for sale and gathered the financial statements so that I could compare income and expenses to see which of the properties looked the most promising. Of course, I always wanted to buy the prettiest property or the one that I thought I could magically transform into the best place in Key West. What an ego I had back then.

Eventually I decided that I wanted to buy the Cypress House at 601 Caroline Street. It is located at the corner of Simonton and Caroline Streets - only a one block walk to Duval Street. The building itself is one of the most beautiful on the island. Hands down. When I made my written offer in 1986 the owner was the estate of "the former owner" who had passed away. The property had been on the market for some time so I was in no rush to submit an offer. However, when I finally made an offer another party made submitted one at the exact same time. The executor of the estate was the brother of the former owner. He called me directly one Saturday (by-passed the real estate agent) to discuss my offer which he told me was higher than the other offer. He was concerned that I had no hotel experience, and that I would not know how to run a guest house. The estate offered to carry a new mortgage on the property. I understood his concern. The estate ultimately sold Cypress House to the lower bidder because that buyer had real life hotel management experience. The next year the new owner passed away himself, and his estate has been running the property since then. I have written about mistakes and regrets I made in Key West real estate. Not getting the Cypress House is one of the Biggies! What a property it is. The asking price back in 1986 was about $565,000 if I remember correctly. I offered $535,000 and the guy who got it paid $525,000.

The Cypress House has been on and off the market several times over the past few years. It was offered for sale at $7.8 million in May 2008. The price was later reduced to $6.9 million. Most recently it was offered at $4.6 million. And this week it went under contract. I have no idea as to the contract price. If it sells at the asking price, the buyer would pay $191,000 per room (for 22 rooms as cited in the mls). Guest house and hotel rooms are normally sold on the number of rooms offered and not a on per sq ft basis. Just as with houses in Old Town, some places are grand and some places are 'dogs'. All command high asking prices. Smart buyers today know they are buying a business first and a lifestyle second.

Long time Readers may recall that I owned Eaton Lodge (511 Eaton Street). I purchased that property at a public auction held on the property in October 1993. The second big mistake I made in Key West real estate was selling it. Guest houses can make a lot of money. I fell prey to my own greed and took a quick profit instead of staying the course and making a bunch of money over a protracted period of time. Owning a guest house can be a lot of work. It can be a lot of fun. It can be rewarding or it can be losing proposition. Owning a guest house in Key West is like life everywhere: it is what you make of it.

There are only a few guest houses on the market at this time. They include Papa's Hideaway ($1,495,000), The Victoria House ($2,295,000), the Curry House ($2,950,000), The Duval Inn ($3,199,000),and Marrero's Guest Mansion ($4,450,000). The very real and very famous Big Ruby's is offered at $5,900,000 and Pearl's Guest House is offered at $9,900,000.

Papa's Hideaway $1,495,000

The Victoria House $2,295,000

The Curry House, $2,950,000

The Duval Inn $3,199,000

Marrero's Guest Mansion $4,450,000

Big Ruby's Guest House $5,900,000

Pearl's Guest House $9,900,000

I think the dead of summer is an excellent time to actually act on fulfilling your dream and buying a guest house. The American economy is still in turmoil and that uncertainty makes buyers reluctant to commit. If you are willing to commit, you may snag the opportunity while others stand on the sidelines. Whether you are a cash buyer or are financing the transaction, you will need a few months time to close the transaction. If you close a transaction in October or November, you will have a couple of easy months to learn the guest house business before season starts the day after Christmas. A well located and properly run guest houses stays packed through Easter and remain busy the rest of the year but at reduced rates.

Having a two to three month get acquainted session with a new business is the best training a new owner can have. You can learn how to make your business plan actually function, how to book rooms to maximize room revenues, and how to manage your staff.

Having a location near Duval Street is very important. Having a web presence is critical. Returning guests like be near the action. First time guests find a place to stay either by the Internet or drive-by. You would me amazed at the number of people who decide to drive to Key West without having a reservation. Knowing your market audience (gays, straights, budget travelers, or high rollers) is the key in getting new business. The lead time will enable you to work out our web presence and other marketing strategies.

If you want to buy a guest house in Key West, please consider working with me, Gary Thomas,305-766-2642 or by email at kw1101v@aol.com. I am a full time Realtor at Preferred Properties Coastal Realty, Inc. in Key West. Believe in your dream. You won't regret it.

Papa's Hideaway and other things...

I think most of us go through a learning process of what works in life and what does not. This process must include who we love (and often learn to hate); how we earn money (and the amount of crap we are willing to put up with from bosses and fellow workers); and what gives us pleasure and makes our lives worth living (and what we hate about where we are in life).

When people come to Key West they see a collective group of locals that appear to live a life less normal than what goes on up north, in America. Or anyplace else. They see a quaint little town with cute little cottages and grand old homes sitting behind white picket fences with yards filled with palm trees and exotic foliage of all types. They walk up and down the streets and take pictures of the commonplace and muse to themselves how wonderful it would be to live in a place like Key West. Except there is no other place like Key West. It is a one-of-a-kind place in life and in the world. Of course there are other quaint towns across this country and elsewhere. I don't deny the obvious. Our wonderful weather and our community make this little town the place that inspire many to dream of moving here to live life wearing a tee shirt, shorts, and flip-flops and saying goodbye to overbearing bosses, insidious co-workers, daily commutes from jobs they can't stand, and weather from hell.

Some think of buying a guest house in Key West and living a life less stressful but more meaningful. If you have dreamed this dream, read on. Papa's Hideway Guest House at 309 Louisa Street is now listed for sale at the asking price of $1,495,000. (This equates to $373,750 per transiently licensed room.) Papa's is located one block east of Duval Street near the Southernmost Point. You may have walked near or driven by the place but you probably did not notice it because it sits behind another property that fronts on Whitehead. The street itself dead-ends at the end of the property which abuts a small city park.

The listing Realtor describes Papa's this way:

"Price Reduced! Seller will carry $1,000,000 1st mortgage. Papa's Hideaway: densely landscaped private guesthouse compound - versatile boutique facility - [4] transiently licensed daily, weekly, units + a large, architecturally ornate 2bdrm/2Bth home with wraparound porch overlooking heated pool. Located on a short,dead-ending Lane means peace & quiet. Street side parking. Short walk to Duval Street's restaurants, shops & a few blocks to South Beach. 80'x118' lot, towering palms, blooming foliage - high privacy fencing. Easily managed guesthouse with a monthly vacation furnished home for large groups -or- live on site in the house with an established income stream from the 4 units. 15 yr track record - advance bookings in place & website."

I would describe Papa's as being more like a compound consisting of a two story house divided into four rooms with private porches, a small cottage to the right (or east) where the office is located, and a large old Florida style house on far left (or west) side. A large pool separates the old Florida house from the two story house. So many places in Key West have a closed-in feeling because buildings are so tightly spaced and the grounds are densely peppered with palms and sometimes gigantic old trees that tower in the sky. The grounds at Papa's Hideway are lush and tall palms and huge blue skies make this place seem immense by comparison to almost all other guest houses and many large private homes in Key West.

Large inviting pool

The main house

Wrap around porch at the main house

The listing Realtor says Ernest Hemingway used to box in the main house. The space is certainly large enough to have had a boxing ring. Today the house looks more like just an old Florida home with four or five rooms with wrap around porch. Don't get me wrong, the architecture is wonderful. I think this wonderful space is under utilized. I found old photos of the main house and the two story building. The two story house appears to have been added onto a couple of times over the years and it no longer looks anything like the old photos. Today each room has a semi-enclosed porch with minimal views of the grounds. A singular staircase bisects that building.

The main house as I call it as it appeared in this 1965 photo

The two story house appears to have doubled in size compared to this old photo

I think a new owner could have a field day redoing this property. A new owner might redo the main house and convert the space into two large luxury suites. (This would require the purchase of two hotel room transient licenses.) I'd redo the stairway to the two story house and create a more Key Westie feel and open the porches so that guests can see the beautiful grounds and pool.

Since this place is so hidden a new owner might develop a different business model to appeal to a different clientele. I'll go out a limb here and suggest this place might appeal to the clothing optional crowd - either gay or straight. Another very popular "all welcome" guest house in Old Town has a very successful business and it is clothing optional. I think a new owner could upgrade the rooms and service and turn Papa's into a real chic boutique hotel. I am not saying the present owner is doing anything wrong because that is not the case. But a new owner is going to have to increase revenue and one way to do that is to change the business model. My suggestion might be one way to do that.

The current owner is willing to carry a mortgage but that may require a new owner to operate the business in a manner approved by the seller. Local banks are lending money to guest house buyers. I suggest that a new owner develop a strong business plan that details exactly what he or she will do with any guest house and demonstrate not only the projected revenues but also the method by which the guest house will be operated. To say "I am going to raise room revenue" won't cut it. A potential new owner must be able to show how the place will really generate the projected revenue.

I used to own a guest house in Key West. It is an easy business and it can be a hard business. You can be a success if you make people feel at home and provide a clean and safe environment. Having toilets that work and cleaning rooms each day pays off. You would be surprised how many places cannot or do not offer even that minimum standard of care. Guests that have a good experience return to the same place year after year because they know they exactly what they can expect. A small place like this would be an ideal property for a buyer that wants a small business operation - a real Mama and Papa place so to speak.

Two Key West guest houses sold in Key West during the past three weeks. Neither is anything like Papa's Hideaway but I offer the sales info for your review.

The former Nassau House at 916 Fleming Street was an nine room guesthouse with 5 transient licenses that became a bank owned property. While I recommended it as a potential buy, the place had a bunch of "issues" to say the least. The place is going to undergo some renovation and will reopen under a new name. (If you read Trip Advisor you will certainly know why.) This property sold for $1,275,000 or or $255,000 per room.

The Paradise Inn with 18 transiently licensed rooms, pool, and off street parking located at 819 Simonton Street sold for $4,400,000 or $244,444 per room. The Paradise Inn is one of those boutique hotels that returning visitors flock to year after year. Don't let the disparity in sales price mislead you as to the quality of either property. The Paradise Inn is a first rate operation. The Fleming Street property had four phantom unlicensed guest rooms that played in the ultimate price paid.

If you are looking to leave your old life behind and buy a guest house in Key West, please consider working with me as your Realtor. I did the same thing. I wish I had done it sooner. Please call me, Gary Thomas, 305-766-2642. I am a full time Realtor at Preferred Properties Coastal Realty, Inc. in Key West, Florida. Don't grow old and gray living a life of unfulfilled dreams.