Can I expect to sell from what I paid?
Unfortunately, the value today does not have anything to do with what you paid, unless you just bought it. Some owners have seen good capital growth through the recession but others have not faired so well.  
 
Is gross turnover relevant?
Another popular misconception is that the value is a function of your gross turnover. This is a misnomer and may have had some relevance in the past when costs between motels were relatively consistent. This is not the case today but the method is still being used by some registered public valuers and industry participants, despite its inappropriateness.
 
Will valuers get it right?
In fact many registered valuations are less than accurate except where the valuer has the relevant experience. Many valuers still use the methodology prescribed in a book produced in the 1950’s. In these circumstances the methodology is no longer relevant to the market. A valuation report more than six months old is also of doubtful relevance in these changing times. Value has nothing to do with working out a theoretical business goodwill and adding a chattel value based on depreciated cost.
 
Are accountants able to assist?
Seldom is true value a figure suggested by an accountant as they are unlikely to have the comparable market data to be able to accurately make an assessment and have a tendency to want to deduct a salary for the owner before applying a capitalisation rate. It is hard to remember the last time I heard of an accountant recommending a client buy a motel as their views on worth are generally too negative.
 
Can a residential agent help?
Your local real estate agent is also of little use in establishing value as he or she has no or little experience in motels even though they may bubble with energy, enthusiasm and promises. Some business owners are tempted to appoint a residential agent as their fees are less than what a business brokers will charge.  There is a saying with particular relevance on this issue – “pay peanuts get monkeys”. The fact is most businesses we sell are to people from outside the town/city they buy in and they are specifically looking for a business – not a house.
 
What is the real answer?
So how does it work?  The answer is very simple.
You work hard every day to produce income and you do your best to spend as little as possible to ensure a substantial bottom line profit. It is simply the profit that buyers are purchasing – the ability to take over your bottom line profit and the potential to improve it if they think they can do better. The bottom line profit is a real thing and exists today – it often has no resemblance to past performance or what it might do in the future, if you did this or did that. 
 
Buyers object to having to pay for potential – especially when they have to develop it themselves – they will argue if the potential is as good as the vendors says it is then why did they not do it before selling.  Buyers also do not accept that they should have to pay for any income said to have been taken from the business in cash. Our advice to any business owner looking to sell is to declare all income. Why? Because the buyers will simply apply a factor to your adjusted bottom line profit and nothing else.  

So if your bottom line is $120,000 and the investor/buyer wants a 25% return then the equations is as follows:
$120,000 divided by 0.25 which equals $480,000.  
If the buyer is happy with a 20% return the answer will be $600,000.
 
The good news 
One thing that we can tell you in todays market is that we have exceptional buyer demand. Demand is coming from foreigners looking to get immigration status, although this is getting a bit more difficult, and local business people.
 
On the domestic front buyers are from a wide range of backgrounds and bring with them varying levels of skill. However, simply sitting at the reception waiting form people to come will mean that the business will not thrive. The Internet has eroded the benefits of main road location as many people now simply book online before even leaving home. The good news is that you don’t have to be a computer genius as most programs you will have to use are really easy to learn and use on a day-to-day basis.
 
The increased levels of demand and favourable bank funding have meant that motels are much more liquid in todays market but the valuation rules still apply.
 
Work it out yourself
We have provided a simple calculator in our Research and Reports section of our website for you to use and make your own estimate. You must have Excel on your computer. The reference is: http://www.resortbrokers.co.nz/industry-information/research-and-reports/?researchid=155