Because of incorrect information provided to The Post by brokers, a story in the Real Estate section Dec. 29 incorrectly reported that the Silver Thatch Inn in Charlottesville was sold last month. A letter of intent to buy the property was offered, according to brokers involved in the deal, but the transaction was not completed. The bed and breakfast facility, which was for sale, remains open and is not now on the market. (Published 1/10/91)

Do you have an urge to retire from the rat race and open a charming bed-and-breakfast inn somewhere? In the last decade, lots of folks have given in to that urge and have prospered by catering to upscale couples seeking relaxation and gourmet food amid gracious surroundings. Now many of those innkeepers are looking to cash in and get out.

The number of bed-and-breakfast inns and small country inns for sale has surged recently, say innkeepers, real estate agents and hospitality industry consultants. Real estate markets from the Shenandoah foothills to the Chesapeake shoreline have been inundated with listings for B&Bs, country inns and historic houses touted for their inn potential. According to innkeeper estimates, more than one-quarter of all B&B properties have been up for sale at some point during the past two years.

The reasons for the rush to sell vary. Real estate agents say the number of B&B listings simply reflects the region's sluggish real estate markets, where listings of every type of property have increased.

Innkeepers and hospitality consultants, however, think that the current glut of B&Bs for sale mirrors the aging of its pioneers -- those people who flocked to the business in the late 1970s and early 1980s. These days, they're looking to cash in the equity they built up in their properties in the last decade of booming real estate values.

"Between 1980 and 1990 the B&B field changed from a movement to an industry," said Carl Glassman, a B&B consultant in New Hope, Pa. "The arty people who started the B&B field have been replaced by middle-management types."

Further fueling the rush to sell is the decline in business. B&B occupancy rates have been falling throughout the Washington area, and elsewhere, as the economy has soured.

"Even the finest inns are struggling with lower occupancy rates, although I expect the recession will affect them less than other {B&B properties}," said Sarah Sonke, director of the American Bed & Breakfast Association in Richmond. Her group has 1,000 members (out of a national total of 15,000 B&Bs) and manage an average of eight rooms per property.

Near Charles Town, Martinsburg and Shepherdstown in West Virginia, a half-dozen B&Bs have been on the market in the last year, said innkeeper Gretchen Carol. They are priced from $535,000 to $1.2 million. Instead of buying one of these inns, Carol has her eye on a nearby log cabin, priced at a modest $284,000. She wants to convert the cabin for use as a B&B. It would accommodate overflow guests from Carol's nearby Hillbrook Inn, a five-room B&B just outside Charles Town.

In the Washington area, several large homes for sale are being promoted by real estate agents as possible B&Bs. They include a five-bedroom Victorian in Purcellville, Va., for $265,000; a five-bedroom Federal-style colonial on 53 acres near Berryville, Va., for $495,000; and a three-bedroom farmhouse on four acres near the Sassafras River in Groveville, Md., for $239,000.

"There are a lot of houses on the market that could become B&Bs," said Mary Sleeter, a Leesburg real estate agent. "You just have to be careful with the wording you use on the listing sheet because the property may not be zoned for use as an inn."

"It's also an opportunity for people to preserve historic houses and rural acreage while making a modest income," said Gloria Armfield, a real estate broker in Middleburg.

Innkeepers and consultants say that most of an inn's resale value comes from its value as a real estate investment. Only larger, more established inns can expect to include their value as an ongoing business in the selling price.

"Real estate accounts for 85 to 95 percent of the value of an inn," said Michael Yovino-Young, a B&B appraiser based in Berkeley, Calif., who has consulted with the owners of more than 150 small inns. "The balance is taken up by personal property and goodwill, which is of nebulous value." Goodwill reflects the business acumen of the B&B operator, he said. "It is a function of innkeeper longevity, which means a minimum of five years, stability of the business operation and evidence of repeat business."

Small B&B inns, those with only four or five guest rooms, are of marginal interest to buyers in the current market, said B&B consultants. Some small B&B inns that are for sale will probably revert to private residences or sell as real estate, not as operating inns, they say.

"Small B&Bs are large enough to trap you but not large enough to generate sufficient cash to afford a staff or make money," Glassman said.

Today, most B&B buyers are second-career couples in their forties and fifties. They tap assets from other businesses and sell their empty nests in the suburbs, in which they usually have significant equity, to purchase established B&B inns. "People will pay a little extra money for established inns where they don't have to wait three years to see money come in," said Pat Hardy, director of the Professional Association of Innkeepers, a 750-member trade group in Santa Barbara, Calif.

For example, the Silver Thatch Inn, a seven-room B&B and 80-seat restaurant near Route 29 in Charlottesville, was sold earlier this month for $840,000, or $120,000 per room, which industry consultants say is high. The seller, who had operated the inn for 2 1/2 years, sold it after it had been on the market for only four months. Even though it is currently operating with an average occupancy rate of only 55 percent, its relatively high price was attributed to its income stream as a business, rather than its real estate value, according to local real estate agents familiar with the property.

Savvy B&B buyers are scouring local markets for properties with the zoning capability and physical space for additional sleeping, dining or conference facilities. In the face of intense competition and diminished occupancy rates in the lodging industry, B&B operators need such extras to lure business travelers at midweek and tourists on weekends.

That's the route that Anne and Ray Smith have taken with their venture, the Bailiwick Inn in Fairfax City. The Smiths paid $1.6 million in July 1989 for the 14-room inn, according to city officials, who said the Smiths spent about an additional $1 million to renovate, furnish and decorate every room of the 190-year-old house in early American-period styles. Their room rates range from $95 to $175 a night, and they opened last New Year's Eve.

Seeking to avoid being solely dependent on weekend getaway visitors, the Smiths also cater to the corporate world. They offer discounts to corporate travelers and group rates to corporations that book several rooms. And they have facilities for meetings.

The Smiths say they are a long way from recouping their investment. "With occupancy averaging close to 50 percent, our business is ahead of our projections," said Ray Smith, who runs a commercial development firm in Herndon while his wife manages the daily affairs of the inn. "But we still expect to spend three to four years before we break even on our start-up costs."

Michael and Cynthia Strand gave up their middle-management corporate positions, sold their New Jersey house and paid $385,000 for the Highland Inn, a 20-room country inn with a restaurant and tavern in Monterey, Va., near the West Virginia border. The couple, both in their mid-thirties, inspected more than 50 properties before purchasing the Highland.

The Strands say they're happy with their purchase, but that their romantic notions about innkeeping have been stripped away. "A lot of people get into this business thinking about how they're going to achieve a return on their investment, but you can't get it due to the hours you have to put into it," said Michael Strand. "On a cash-on-cash basis, I could do better with my money in certificates of deposit."

Most B&B buyers are looking for leveraged deals, according to Ron Callari, a B&B booking agent who also brokers property sales. "They're looking for second mortgages from the sellers and cash flow from the inns," he said. Why are B&B owners asking relatively high prices in the current market? "Naivete," said Hardy of the Professional Association of Innkeepers "They have mortgages and renovation loans on the property, and they've invested their own time and energy in the place, so they're more resistant to dropping their prices than other residential property owners," she said.