Tips on Buying a Franchise

 

On the surface it might seem that buying a franchise could be quite straightforward: Choose a franchise, pay the franchise fee, sign the contract and open up shop! However, there are some things you might want to think about which might make buying a franchise a little smoother and avoid some pitfalls.

Choose your franchise carefully

Choosing the right franchise for you isn’t like picking numbers out of hat. In theory, a franchise simply requires you to follow the proven system to succeed but there maybe some things you might want to keep in mind such as: How much do I need in the way of finance to start up the franchise business? Can I see myself still being happily running this business in 10 years time?

Take your time

Theres nothing worse than rushing headlong into something and regretting it later. Careful consideration and research will be important to ensure you make a good choice. However, there will come a point where you simply have to make a decision and run with it. Running a business is not without some element of risk and a franchise business is no different.

Take advice

There are plenty of sources of advice available for anyone considering starting up a franchise. You can speak to the franchise section of one of the major banks that specialise in funding franchise startups; they can look at your situation and will be able to give you an idea of what they might be able to lend you to start up a franchise business.

You can also speak to the British Franchise Association which helps to promote ethical franchising within the UK. Other countries have similar franchise associations. You can also enlist the help of a franchise consultant if you wish that specialise in helping you through the process of selecting the right franchise opportunity for you through to getting up and running.

Do you have the support of family/friends?

Starting up your own business will be a major life change and will require a huge investment of time especially in the early days. Make sure you spend some time talking it through with your partner/family/friends to ensure they know what you are doing and can support you in your venture.

Finally

Bear in mind that a franchise business, like any other business, will require a great deal of hard work, investment of your time and a ton of determination. If you think you have those qualities then you are well prepared to begin your franchise search.

Some Headline Stats:...

Q4 2010 Figures compiled by Paragon.

3.2 million private rented properties in the UK

Yields 6.1% average
Portfolio: £1.51 million average
Void Periods: 2.9 weeks average

Landlord confidence remained healthy, with void periods falling again, aveage of 2.9 weeks a year.  Yields had stabalised.

It always has and always will be about supply and demand.  The reduction in supply of property in the private rented sector alongside the increase in demand for rented property lead to rent increases at the end of 2010 - rents are at their highest since 2007 across the private rented sector.

The good news is that fewer landlords are choosing to sell their properties at the end of tenancies.  Jeremy Leaf of the RICS recently said "The lettings sector has become increasingly strong over the past nine months, in contrast to the housing market which continues to slow.  Many have turned to the rental market because they fear further price reductions in the housing market, or because they cannot obtain the necessary finance to buy.  As a result, we will continue to see rents rising with supply failing to keep up with demand".

Recognising this, encouragingly more landlords are seeing the benefits to be enjoyed and are looking to increase their property portfolios - a decision made easier with the increase in Buy to Let mortgage offers coming to the market recently.

For impartial advice on growing your property portfolio, speak to you Medics on the Move Consultant.

It is going to be a great year for buy-to let landlords but choosing the right location will be the key to success. With significant regional variations in house prices, landlords must not be tempted to simply buy a property close to where they live for convenience.

Stagnant house prices and increasing demand from tenants could provide a good opportunity for landlords. Many potential first-time buyers are unable to get into the housing market, meaning demand for rented properties is high, so would-be landlords with plenty of capital have the chance to snap up a bargain.

Potential landlords need to understand the risks. The last housing boom saw more than a million people become landlords as they sought to cash in on rising prices. Many lost substantial sums when house prices slumped.

Bath and north-east Somerset have seen an increase of house prices of more than 8 per cent over the last 12 months, while west Devon, Chiltern, south Cambridge-shire and south Bucks saw increases of more than 5 per cent. London, Islington, Camden, Kensington and Chelsea have seen increases of more than 10 per cent, according to Savills/Land Registry figures.

Prices in some areas are close to 2007 peaks while others have fallen sharply.

Landlords need to focus on the regular income they receive from their property rather than the gains of house-price rises but if both benefits can be achieved by smart landlords who buy in the right areas, a real killing can be made.

House prices have now fallen five times in seven months, according to Nationwide Building Society. This, coupled with the uncertain economic outlook, will keep many buyers on the sidelines. These factors should make property increasingly attractive and could signal a move towards BTL by cash-rich investors.

However, I suspect regional variations will continue and there will still be some horror stories from landlords who put all their eggs in one basket and suffer from a depressed local property market. Professional landlords are increasingly spreading their risk and focusing on key areas that look promising in the medium term.

The availability of attractive BTL deals will play a key role in an investor’s decision as to whether to expand their portfolio, as will a potential increase in interest rates. My view is that interest rates will rise and it is a case of when, so investors need to factor this in.

Those brokers who have taken their businesses up market and focused on high net-worth investors are weathering the storm better. This is not surprising as the wealthier have a much higher pain threshold and can cope with a drop in income in percentage terms much better than an average earner.

Let’s not forget that house prices doubled over the last decade, even after taking recent falls and the illusory uplift of inflation into account, according to Halifax research. I dare say we will enjoy similar growth over the next 10 years. The key difference is that only braver investors will act on this likely outcome now.

Those investors with cash in the bank who can put down the necessary deposits should be reaching for their chequebooks - but only after they have done their geography homework.

Sally Laker is managing director of Mortgage Intelligence and Mortgage Next