Starting a Real Estate Investing Company: Should you Go it Alone or With a Franchise?
Five years ago, my wife and I decided to start a real estate investing company. We figured that we’d make a great team. I had a background in business analytics and she was a great manager with fantastic people skills. Our biggest decision, after simply deciding to start a real estate investing company, was whether or not we should go with a franchise. So I hopped online to see if anyone else had experiences to share. It seems that absolutely everyone had an opinion and many of the investor-focused bulletin boards actually got pretty heated in their discussions.
That’s when I decided to look at the pros and cons of franchising with a more impartial eye. Fundamentally, a real estate investing franchise provides four main benefits: training, marketing, valuation tools, and mentorship. Of course, there are many ways to learn these things yourself, but let’s take a look at whether that franchise fee is actually worth it in comparison.
Off to the Right Start: Real Estate Investment Training
There are many ways to learn the ropes of real estate investing on your own for little or even no cost. Some people advocate for a head-first dive into the industry, urging others to simply buy investment properties, learning as you go. You know what they say, after all, “Experience is the best teacher.” I imagine that there are a handful of new investors who got lucky trying this, but it seems risky at best. You can also find lots of free information online. Blogs, bulletin boards, and even ‘how-to’ guides cover every possible real estate investing topic imaginable. But, how can you determine if you’re getting quality information? And who’s behind the writing?
Of course, you can spend a little cash and buy books—the motive behind the written training is clear: the author wants to sell more books. These authors often tout themselves as an authority on the subject, but we often don’t get much information about how successful their method is except that they say, “I’ve been amazingly successful!” It’s a dirty secret that some of these authors have a history of bad business dealings, but that fact won’t be mentioned on the book’s website or in the promotional materials. Overall, however, self-education is a low-cost way to learn about real estate investing.
If you want to spend lots of money on training, sign up for a seminar or conference. Be prepared for sticker shock though! Many self-professed real estate investing “gurus” travel the country, offering their expertise to beginners. But once they get you in the door, it’s one upsell after another. Sure, you will probably glean some useful information at one of the better quality seminars, but it will not be comprehensive. That’s how they make their money—by prompting you to return for more seminars.
So, that brings us to the idea of a real estate investing franchise. Well, there’s only one really and that’s HomeVestors. Let me tell you what they offer. Over the course of five days, new franchisees hear from 20 different representatives, including the company’s officers, regional business developers, and seasoned franchisees who run independently-owned and operated offices. You can expect to learn the real nuts and bolts of what works and what doesn’t work in real estate investing. The comprehensive curriculum covers many topics, including lead generation, marketing, evaluating deals, buying and selling houses, business strategizing, and, of course, financing for qualified properties. In addition to the five day initial training session, franchisees have access to a HomeVestors® Development Agent mentor who can answer questions and point to resources.
Marketing is Mission-critical for Lead Generation
Finding a great investment property can require a lot of work. The old fashioned lead generation methods of knocking on doors in your target investment area may be the cheapest way to go. You just need a script and a reasonable outfit for the occasion. Some say that presenting yourself to the homeowner allows you to create a more personal relationship, so you can show that you are a stand-up guy or gal. However, buying a lead list (or five!) allows you to do some cold calling, along with email or direct mail campaigns. All of these methods are pretty cheap, but you pay dearly in terms of time commitment. And, at the end of the day, these methods tend to have a low conversion rate.
Paid marketing can be a better lead generation option for creating brand awareness for your real estate investment company. You’ll need to spend some serious time, money, and effort to create marketing collateral that conveys your company’s personality, expertise, and services. Then, you’ll have to decide where potential home sellers are most likely to encounter your marketing. It’s also vital that you identify which marketing channels are worth the cost. Social media and paid online ads are the least expensive methods of paid marketing, but you could consider radio and television as well. Of course, you’ll pay more for outlets that provide broader coverage.
What’s the cost-to-conversion ratio for each of these paid marketing strategies? It’s hard to tell, but there’s one thing that’s obvious: If you’re going to have an impact, you must launch a campaign on a grand scale with a reputable brand image.
In fact, this is one of the strengths associated with HomeVestors. Everybody is familiar with their “We Buy Ugly Houses”® marketing because they’ve seen it on billboards nationwide, on television, online, or perhaps they’ve heard about it on the radio. HomeVestors is a household name nationwide because their franchisees have been putting their money into marketing since 1996. Regional franchisees pool their marketing money to leverage the national brand with local advertising and the resulting leads are distributed accordingly. We know it works because franchisees have already bought over 95,000 houses since 1996.
Property Valuation Tools for the Best ROI
Every real estate investor needs to have some tools under their belt if they’re going to get the best return-on-investment. The most important tool could be your property valuation system. Of course, you should know about local market trends, but you’ll also need to be able to calculate a house’s after repaired value. After accounting for any necessary rehab costs, you should still have a healthy margin.
You’ll still see a handful of old-school investors who get out their pencil and paper to make notes and run the figures by hand. Most often these days, they will at least have a form downloaded from the internet to ensure they’ve covered all the bases. Then, they use an Excel spreadsheet or online calculator to determine their offer. In my opinion, this comes across to the home seller as unprofessional. In addition, it simply takes too much time.
There are software tools available for calculating the value of an investment property. You can buy some valuation software for at a pretty low price but others cost a few hundred dollars. The downside to buying software, however, is that it becomes outdated pretty quickly and you may have to spend more money in the future for updates. You can also access valuation software for a monthly fee. With the latter model, you’ll typically get software updates automatically. Each software product, however, allows you to consider different variables and each uses different calculation methods—and often, they try to do too many things at once, which gets confusing. You will need to be sure that any software you choose is in alignment with your specific investing strategy.
Whether your strategy is to flip a house or buy-and-hold, HomeVestors® proprietary valuation software, ValueChek®, is a streamlined and straightforward valuation tool. Franchisees can enter in the basic information of a property, such as the square footage and number of bedrooms, as well as comparables and estimates for repairs—automatically adjusted to local market prices—to efficiently determine a prospective property’s value. If they have any hesitation or questions, the software also enables a franchisee to share the data and communicate with other franchisees or their HomeVestors® Development Agent. That’s what sets ValueChek® apart: A HomeVestors® franchisee can quickly and confidently provide an on-the-spot offer to the homeowner.
Mentorship Can Make All the Difference
You might find some mentors who are willing take you under their wing, but it’s difficult. New investors often start out by attending local investing clubs or networking groups to try to meet more experienced investors and learn what they can. Some clubs and groups even host free or low-cost talks on a variety of subjects, usually by one of the more experienced members. You’ll likely have the opportunity to speak with them after the talk. They may offer some insights, but don’t expect to receive “insider knowledge.” Remember, you are their competitor. That’s why it can be so challenging to find a truly good mentor as a new investor.
In comparison, I think the value proposition for HomeVestors’ mentorship is clear. Simply put, the franchisor is invested in seeing all of its franchisees succeed. So they established a long-term support system. After the initial training, each franchisee is assigned a dedicated Development Agent who acts as a mentor as you begin to invest in real estate. In addition, the franchisee is welcomed into a ready-made network of other HomeVestors® franchisees who are motivated to share their knowledge and strategies which helps to place the franchisee in a position to remain on top of the market.
HomeVestors’ Value Proposition
There are numerous options for training, marketing resources, valuation tools, and mentors when starting your own real estate investing company. But an evaluation of all of these fundamental categories shows that HomeVestors’ franchising delivers the most bang for your buck. Yes, you can do everything yourself, forming a patchwork of resources and tools to run your business. But even if these tools and resources are cheap or free, it will cost you in time. You may end up not realizing that you’ve overspent because it was all nickels and dimes. Conversely, you can choose to become an independently owned and operated HomeVestors® franchisee and access all of the resources and tools they have available for a modest initial fee..
If you are ready to streamline your real estate investing operations, make better investment decisions, and gain ongoing support to achieve more, it’s time to get in touch with HomeVestors.
Each franchise office is independently owned and operated.