Wow guys, you are really taking on a challenge on this one!

Two contributors have eluded to monies spent improvement/refurbishing a freehold property will 'increase the value of your asset/asset appreciation'. This is not strictly true; you are buying a business not real estate and like any business its value is based off its profitability.

As a freeholder and in the midst of the GFC, after five years hard slog, the value of my property was exactly the same as I paid for it, if not less!

There is a set formula for valuation purposes, which as a going concern, brokers will tell you is based on a return of between 12-17%. In reality, if you spend fifteen minutes and go into one of the Motel Broker websites that show both the purchase price and the net profit, you can work out the return %s. I do this on a regular basis and the last time the average was about 12.5%, which coincidently is the figure the banks will be looking for if you need to borrow. So based on the 12.5% average, if the business is making $200,000 net profit (after add-backs), then the value will be $1.6m.

Liz came closer to the truth when she said that as you improve the standard of your property then you charge higher rates (competition permitting), improved profitability, maybe a higher STAR Rating, improved reviews scores, reputation and occupancy. A freehold property with all the works done is much easier to sell and then a little 'blue sky' can be added to the price.

Obviously with a freehold, you are not beholding to anyone; you are fully in charge of your own destiny, but you still need to make business decisions as to where the money is best spent. If you are going to spend $600k on improvements/refurbishment, then using the 12.5% return basis, that must generate you a further $75k net profit. That is a lot of bums on beds!