Real Estate Franchising vs Own Business – Know the Risks

The current market conditions makes a case for buying a real estate franchise vs running your own property business. Here’s why.

The South African economy, like many others, was deeply affected by the 2008 financial crisis. Various subsequent domestic challenges, including the devastating effects of COVID-19, and ongoing political upheaval and socioeconomic unrest, have resulted in a slow recovery and economic flatlining. Business confidence is fragile, and the country is out of favour on the global investment-grade indices.

Against this bleak backdrop, the real estate market has remarkably remained stable. Lightstone reports that “While the prices of both properties and vehicles have risen year-on-year, since 2011], property sales have been flat at around 220 000”.

Lightstone further reports that more than 700 000 new homes have been added to the country’s property stock in the last 10 years and that homes under R700k dominate the market. “This is good news in that first time buyers – particularly previously disadvantaged individuals – are entering the market and will, in time, move to other bands”.

Many young people continue to rent and, as South Africa’s landscape is likely to remain unstable in the run-up to elections, we may see this renting preference extend into older age groups and higher price brackets, observes Just Property CEO, Paul Stevens.

The need for shelter is a basic one, so the demand for property will always be there. What that shelter looks like, where it is and who we share it with may change, but there will always be demand. For savvy entrepreneurs, a real estate business offers an opportunity to leverage that basic need and to make a very good living by meeting the changing needs of clients over their lifetimes. It’s an enduring industry with potentially high margins if managed well.

‘Going it on your own can be scary and lonely’

Starting your own property agency guarantees you autonomy but being a small, independent business owner can be a lonely and scary thing.

On top of that, property is a contract-heavy business, and you’ll need to pay for the legal services necessary to originate the contracts you’ll use for tenants, landlords, buyers, sellers, employees etc. Then there’s marketing – when you should be focusing on doing business, you’ll also need to raise awareness of your new, unknown brand as well as marketing the properties you hope to lease out and sell. If it’s not one of your competencies, you’ll need to hire an agency to help you do that.

Your competitors will know what you’re going through, but you’ll have few allies in the industry to bounce ideas off and get input on problems from. Any new business is bound to experience problems and the current environment may raise even more.

By contrast, joining a franchise system greatly reduces the risk of new-business failure because the process of running that particular franchised business has already been proven; systems are in place, and one does not have to re-invent the proverbial wheel.

Monthly royalty fees, compliance requirements

Of course, franchising also comes with constraints and commitments, including monthly royalty fees, compliance requirements and the restrictions of fixed trading areas. So how do you decide?

Stevens recommends starting with some self-analysis. Unpacking what your talents and passions are, as well as your weaknesses and blind spots, is critical to deciding whether you are best suited to running an independent business or operating within a franchise environment. Then decide what your personal goals are and whether you’re more likely to get there on your own or with the support of a like-minded network.

If you decide that buying a franchise is the way to go, look for a brand that has strengthened rather than been weakened by the challenges of the past year. For example, despite the trying circumstances of the last 12 months, Just Property has shown exceptional growth. It now has 1000+ agents and support staff, 98 offices across South Africa and Namibia, and 14.36% year-on-year growth in group turnover.

What is the key to Just Property’s buoyancy? “We’re not a traditional Real Estate Agency,” Stevens says. “With our roots in property rentals and management, we appreciate the value of long-term relationships and work hard at them. It is this legacy that we bring to the property-sales environment. We have evolved from a specialist letting agency to a business offering a complete property solution.”

Stevens sees many benefits in joining a real estate franchise group instead of operating independently. “The right franchise group will provide much-needed encouragement, guidance and support from a team of experts at its head office, as well as business systems and technology that have been refined over a number of years (in our case, 18 years),” he says.

He adds that franchise owners will have access to the following:

• An instantly recognisable name that gives instant credibility to your new business.
• Structured and formal training and development programmes.
• Turnkey marketing solutions, including digital campaigns, professional branding and in-house graphic design.
• A large national listing inventory, a national referral system and an associated revenue stream.
• Opportunities to network and leverage the knowledge and skills of a team of like-minded business owners.

“You should be looking for these benefits as a minimum,” advises Stevens.

“Then to further narrow your shortlist, look at things like the business model – does it have a backbone of property rentals and management to provide a steady income stream, or does it rely solely or heavily on income derived from property sales?

“Is it a digital-native brand that has the agility and technology to, for example, facilitate switching between in-house and from-home working? Is the franchise model run democratically? In other words, do the franchisees have a say in key decisions, are they regularly consulted on operational matters?

“A company like Just Property will have corporate guidelines to protect the brand and operational integrity, but at the same time franchisees will be given the latitude to bring their own personalities and strengths to the running of their business.”

Finally, evaluate whether your values align with the culture of the group and expect that if the group is worth its weight in salt, it will be doing the same in discussions with you. As Stevens says, “Our collective success depends on the calibre and integrity of our people, so we need to be selective in choosing our franchisees. Our goal is to attract people who will find a match between their talents and passions, and what is needed to run a property franchise business.”

Source: Property24 –

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