Motel Mingle Forums Motel Valuations How do we value a Motel Freehold?

  • Creator

    Topic

  • #1762

    Motel MingleMotel Mingle

    Keymaster

      What is the current  valuation method to determine what a motel freehold is worth?

      Finding answers.        Sharing ideas.        Solving problems.

    Viewing 3 reply threads
    • Author

      Replies

      • #7995

        MVM

        Participant
        • Topics Started 10
        • Replies 58

          Hi,

          We own a leasehold and are interested in purchasing the freehold. How would we work out the value of the freehold?
          We asked the owners and they said the rule of thumb is 11 to 12 times the annual rent? Does this sound correct? If so, the owners would make a fortune off this property from what they bought it for.

          Advice would be appreciated.

        • #1820

          imageBallina Colonial Motel

          Participant
          • Topics Started 10
          • Replies 87

            How remiss of me not to have continued the conversation and imparted the details of the ‘add-backs’!
            The only add-backs’ now being allowed are: Depreciation, Borrowing Costs (Rent/Interest) and Owners Wages/Superannuation.
            Once upon a time, Accounting and Legal Fees, Bank Charges, Motor Vehicle Expenses (net of FBT), were deemed to be ‘add-backs’, but not anymore.

          • #1785

            imageBallina Colonial Motel

            Participant
            • Topics Started 10
            • Replies 87

              This a very intersting topic and one that many do not understand properly. The value of a freehold motel has nothing to do with the gold taps you put in the bathrooms or how much you have spent refurbishing your property! It is about the Return on Equity (ROE). Return on what? Return on the Net Profit + addbacks.

              With the reduced occupancy we have experienced over the last few years, the net profit has slowly been eroded and anyone that bought in this period is probabley sitting on negative equity and anyone that bought eight/nine years ago might just be breaking even.

              There has been NO capitol growth. I can’t even buy back the house I sold ten years ago to buy this motel in the first pace!

              I refinanced last year, so have seen how harsh the banks can be. They are looking for about 12.5% ROE minimum, but are also not allowing some of the ‘addbacks’ that had traditionally been included.

              I will expand on this in a seperate forum response.

            • #1766

              CVM

              Participant
              • Topics Started 13
              • Replies 32

                I have spoken to a few motel owners and asked for their rules to determine the ROI and value of a freehold motel.
                The results:
                *Coastal freehold motels sell for returns on investment between 9% and 14%
                *Inland freehold motels sell for returns on investment between 10% and 16% (I would hate to be selling at the 16%)

                Of course this is opinions of a few motel owners and there are a lot of other factors to consider when valuing a motel freehold.

                Well this is a starting point and hope you guys can add more info to help get this forum pumping and help others to make informed decisions before they sell or buy their motel.

                Has anyone had any experience with a motel valuation by a professional valuer? If you have, it would be great if you could share any info they use to value the motel freehold.

            Viewing 3 reply threads
            • You must be logged in to reply to this topic.