OK, I know that for some of you that returning 300% on your investment in 5 years would not get you too excited, but for me it grabs my attention! Let me explain….
Let’s Aim at 300% ROI!!
One of the areas within which I work is the franchised Estate and Lettings industry. I am passionate about helping people into and out of the industry. I say this not just as a business broker and because I make commission from the deals that go through, but because I also own a thriving agency and I know first-hand the returns that it can offer. What’s that called – the proof is in the pudding, or I practice what I preach, I’m not so hot with metaphors! But I’m in the estate and lettings agency business both as a broker and as an owner. I have first-hand experience of making a lot more than 300% ROI in less than 5 years, and I love helping others get into the same business.
Tripling in 5 years is best explained using an example. Let’s take a resale at £1m. At first glance, it may seem too expensive or out of the reach of most franchise investors, but it’s a business that could pay for itself, so to speak. The key to tripling in 5 lies not only in the strength of the business, but in the way the banks will finance a franchise lettings resale. With some security (or even without…call me!) and to an applicant with a decent CV or track record, lending can be achieved at 30/70 ratios, meaning to buy a £1m resale you need around £350K, give or take a few thousand. The banks will lend you £650K for the right proposal. Now, we’re pricing resales at about 3 to 3.5 times the net profit, meaning that the £1m resale is probably making around £300K – £350k pa (net profit!), i.e. making enough monthly profit to repay the bank loan, pay the corporation tax, invest in the business and give you a reasonable dividend. If we make an assumption that the business remains stable, you will have repaid the bank loan in 5 years and now own the business debt-free. Assuming zero growth or shrinkage over 5 years, you can re-sell it for £1M and you’ll have tripled your investment. Alternatively, don’t sell and keep ownership of the business, which is still generating around £350k pa in profit for you, meaning that you are now returning 100% pa on your initial investment.
This works at more modest levels as well. Buy a £300k resale using £100k of your cash, or a £150k resale using £50k of your own. Generally, the cheaper the business the more effort and hands-on involvement you’ll need to have in the early years. But remember, the beauty of a franchised agency is that systems, processes and support are all in place, meaning that it’s not too complex an affair to get your business running under strong management, thereby freeing up your precious time as the investor.
Let’s put in the statutory health warning…value of your investments can fall, rise, etc. Will you succeed? In my experience, the probability of success is high. The fact that you have £50k, £150K or £350k in the first place means that you’ve either been lucky or have done something right so far in your career to have the investment money available. Assuming the latter, then when you apply yourself to a franchise system that is proven to work then it’s highly likely that you are going to grow the business under your ownership. This means that your £300K purchase should be on the market for much more than that when you decide it’s time to exit. But hey, even if your initial investment has come your way via luck, then we can help you get even luckier and coach you on the journey to business stardom!
Also, remember that franchising is all about creating win-win-win scenarios. Your clients win because they are buying into brand, regulation, safety, track record, etc. The other win-win is between you and the franchisor and they have a vested interest in helping you succeed. You don’t necessarily need property market experience either, because that’s what you’re paying the franchisor to provide.
So, call me if you have money that you’d like to triple! I have some resales that can help you.
