Real Estate and Franchising

It is often discussed in Business Management Program or MBA School history books that Ray Kroc’s McDonalds was successful due to the fact that they controlled the real estate underneath every store, and the appreciation was their true asset. There is some truth to this, but that is not the only thing that made Ray Kroc successful.

Nevertheless, a business-person who can control their costs through owning the real estate and their business location, has a huge advantage and franchisors know the value of being able to control the real estate. Most franchisors, which sell franchised outlets that include locations, at minimum want to have a master lease, which allows them to terminate a franchisee, kick them out and control the location, until they put in a new franchisee.

Franchisors often have site selection teams, and now there are tools used by Commercial Real Estate people, along with ESRI software, can give location intelligence in a heartbeat. Smaller Franchisors just starting out use all sorts of strategies, some use very simple solutions, as all you need is someone who knows how to run it, in a room with a computer, online, even a stay at home mom, former Real Estate person. Then quick overview of the area or territory from locals. Large franchisors of course, have large real-estate departments.

Not all Franchised businesses need locations, those that do, well their franchisees can use help in securing funding, but owning the real estate does not “Always” make sense. When it does, it pays to have a real-estate person to be a go-between with franchisees, franchisors and locals who understand the market. Real Estate is a big part of modern day franchising for many franchised companies.

International Real Estate – Buying A Home In The U.S If You Are Not A U.S. Citizen

I have mentioned it many times before. Often, my newsletter topics come from real-life situations and clients.

A few weeks ago, an agent who reads my newsletter came to me with a challenge. He represented a man from Japan, who didn’t speak English. This man is buying a non-warrantable condo, as a second home, with stated income, and his lender had just turned him down on the day of closing. He came to me and we got his loan closed.

He was very happy and he said, “Aaron, you should write a newsletter about Foreign National homebuyers, because not many people understand it.” He was right!

The American dollar is weak today compared to many other foreign currencies. In addition, American banks offer very creative loan financing and low interest rates. As a result, many foreigners are looking to invest their money in American real estate and Las Vegas is one of the most popular markets for them.

People who are not American or who are not legal resident aliens are classified as Foreign Nationals.

In Las Vegas, experts say the high-rise condo industry would not be able to survive without the Foreign National buyer. According to a recent article in Fortune Magazine, foreign buyers have purchased as many as 30 percent of the condo units in the new Mandarin Oriental, part of MGM CityCenter, that is supposed open in late 2009. The entire Mandarin Oriental building is nearly sold out.

Some people estimate that close to 10% of all purchases in Southern Nevada are Foreign National buyers. When you are talking about Florida, some say this number is as high as 15-20%.

These clients come to the States to purchase both Second Homes and Investment Properties. However, the recent challenges in the lending guidelines have made investment loans difficult for Foreign Nationals. However, primary resident and second home purchases are very easy for the borrower to obtain.

There is a real marketing opportunity for real estate agents who can promote themselves to this niche and you don’t have to be from their country to do so. It’s important to understand how they will secure financing however.

Although many loan programs have different requirements, here is a pretty standard list of what they will need:

o A credit score helps. Many companies now can offer foreign credit reports but if they have one domestically that will work too.

o If they don’t have a credit score, they will likely be asked to provide three letters of reference from financial institutions in their home country that shows they are in good standing. Or they can sometimes show one credit reference letter from a large internationally known banking institution that also attests they are a good client.

o A valid unexpired passport or visa. If the visa will expire within six months from the date of the loan application, they will likely have to provide a copy of their extension.

o Many banks want the borrower to have opened an account in a U.S. based bank and have at least a two month history there.

o Employment verification. This can be a very short, simple letter from a CPA or other third party in the borrower’s home country verifying the employment and line of work.

o If the property is being purchased as a second home, plan on a down payment of 20-25%. If it’s a primary residence, and he has lived here less than two years, plan on 20% down. If the he has already been living in the U.S. for at least two years, he may be able to qualify for up to 95% financing, regardless of country of origin. If he has lived in the U.S. less than two years and he is a citizen of Canada, UK or Mexico, he may be able to qualify for 90% financing.

It’s important to note that when a non-U.S. real estate owner sells the real estate he has bought here, the IRS requires that 10% of the sales price be withheld at closing for an estimate tax payment.

There are exceptions to this. If the non-U.S. real estate owner sells the property to someone who plans on using the property as his primary residence, and the sales price is $300,000 or less, the seller is exempt from the withhold. You can also request that less be withheld if you believe the tax liability at the end of the year will be less.

According to many experts, there are 10 things you will want to consider when working with foreign real estate buyers.

1) You need to be able to overcome the language barriers, if they exist. If you are marketing to European buyers or Canadian buyers, this won’t be as big a challenge however if you choose to market to other areas like Asia, the buyers may not speak fluent English. Plan on having an assistant who can speak the language of the area of the world you want to try and market or securing the services of a company like translators.com.

2) You should have a great understanding of the local market conditions and legal issues. These buyers are usually very well educated and successful in their country. However, they may not understand our market. They will look to you for your expertise.

3) Be very respectful, even when there are communication challenges, and be very careful not to demean or talk down to anyone.

4) Focus on a single country you want to market to when you first get started. It’s important that you become familiar with the culture in order to start to build a network of contacts and referrals.

5) Be patient. There are many cultures that believe that some important decisions require more time and thought.

6) Develop a networking group of resources for them to deal with on any of their questions like a group of tax experts, attorneys, lenders, escrow agents and others who understand the laws and intricacies of foreign ownership.

7) Understand the foreign currency conversion tables. Be able to tell the client that 300,000 U.S. dollars is 223,441 euro. And if you need help, use this website. http://www.xe.com/ucc/

8) Understand there could be challenges and delays. Not many lenders have experience in dealing with Foreign Nationals. Due to the nature of the documentation the borrowers are asked to provide, you can expect there to be more requests from the lender than normal. Because the client is sometimes out of the country and not readily available, this can create untimely delays.

9) Communicate the process. It’s important that you clearly communicate the entire real estate purchase process from start to finish. Its likely that our process here differs from that in their country and you want them to understand ours as well.

10) Stay on top of foreign currency exchange rates and market conditions. Let’s say you had a buyer from the U.K. who thought the $300,000 home you showed him last month was “a bit too pricey.” But let’s say that next month, the dollar drops further compared to the Euro and now this $300,000 is actually costing him $292,000 compared to the Euro, you may be able to make a sale without the market moving at all.

The National Association of Realtors even has a certified designation for international property specialists through their International Division. In today’s tighter market, it may make sense to expand your niche marketing and Foreign Nationals provide an area where there is not as much competition. How do you begin to find these buyers? Developing a presence in the international market can often start with local contacts.

In addition, the largest ethnic groups have a local Chamber of Commerce.

Finally, your Internet sites should definitely and prominently market your expertise in understanding and assisting the Foreign National.

How to Sell Your Real Estate and Mortgage Notes on eBay

Marketing your real estate to your end buyer is as important as finding a motivated seller. It is true that you make money in real estate when you buy and not when you sell. As long as you buy low enough you can always resell it and make a profit. During recession and unavailability of credit new marketing strategies need to be implemented to get more exposure to cash buyers. eBay is one of the best ways not only to create exposure for your property but also to increase traffic to your web site and build buyer’s list. eBay is particularly popular for those selling unique homes, vacation homes, or investment properties. eBay has over 147 million active buyers and is opened 24/7! According to eBay, there are over 370,000 page views in real estate section daily!

If you are not familiar with eBay, you would need to register, create seller’s account, link your PayPal account to eBay and add all billing information… it might take a few days. You also want to build positive rating as it gives credibility to you as a seller and you can do that by simply buying items on eBay first. You can also obtain eBay SquareTrade seal and even open and eBay store to look more professional.

SEARCH ENGINE OPTIMIZATION: TITLE & LISTING DESCRIPTION

eBay search is based on key words you put in the TITLE of the auction. There are 80 characters allowed so make sure to include keywords that not only best describe your property but also include important listing details: location, condo, single family, oceanfront, land, investment, seller financing, owner will carry, FSBO (For Sale By Owner), renovated, turn key, rental, etc. Omit unimportant details such as color, year built, garden, fireplace; words like “wow”, “look”; omit punctuation marks and asterisks. Think in terms of common sense: if you wanted to buy a property what would you put in search box? Include exactly that in your title and make it specific. Your title does not necessarily have to make perfect sense but rather include as many keywords as possible. I usually use all capital letters as it is easier to read and see. It does not make any difference in the search engine optimization. Use simple words and do not overcomplicate things. eBay is international auction based web site and many people with limited knowledge of English will come across your listing. Make it accessible and understandable for your international buyers as well, especially for vacation homes and investment properties.

If you want more listing visibility, include keywords that could be misspelled in your description. These words can be included in white color so they become invisible inside the listing but are still searchable by search engines. Because bids in real estate section on eBay are non-binding it is necessary to include as much information as possible about the settlement, deposits, inspections, financing and any other contingencies. Full disclosure is always a plus. You can also include a video about your property if you have one. It is allowed as long as you don’t include links to other web sites.

CROSSCOMPARISON

Before you list your property look for similar listings on eBay. When listing item on eBay, eBay makes it very easy to compare your item (not real estate) as it provides you with the summary of similar items sold and the price range. This feature is not available for real estate so try to figure it out on your own.

PICTURES

Pictures are worth a million words…so so true. Use as many pictures as possible in your listing. There are other free services available that can save you tons of money. Auctiva is one of them, it allows you to include as many images as possible, use professionally looking template and even schedule a listing for FREE!

DRIVING TRAFFIC AND BUILDING YOUR BUYER’S LIST

In “About Me” page you can include information about your company and links to your web site. eBay does NOT allow to include links to your web site within a listing and this policy is strictly enforced. Not only eBay can remove the listing due to policy violation but your account can be temporarily blocked and even suspended. Take your time to research eBay policies first if you are not sure. However, you CAN include your phone number in your listing and I highly recommend it. I usually include my personal cell phone number or 1-800 number that gets forwarded to my cell. They key is that if you have a serious cash buyer, you want to talk to them first before they call another seller. You want to be available and be able to answer their questions and also get their contact information. Put them on your buyer’s list and sell them your next property if they don’t buy this one.

DETERMINE YOUR PRICE & eBay FEES

Determine the price you want your real estate to be auctioned off. Your price would need to attract attention. If you plan on reselling your real estate at a retail price the chances of success are very low unless it is a unique property and being marketed as one. eBay shoppers are savvy and are looking for a great deal. Listing real estate on eBay is not cheap, it costs from $150-450 to list your item whether it is auction style or ad format (as of 1.10.12). If you have more than one property to sell and they are similar, list only one of them and either refer all interested buyers to your web site or have it ready to be e-mailed. If your properties are in different markets it will make sense to list each property that can potentially represent each market or certain search criteria for the best exposure.

TYPES OF LISTINGS

There are 3 types: “Auction style” format, “Classified Ad” Listings, and “Other Real Estate”.

Auction Style can be used to list real estate and also great for seller financed properties. Auction can have a minimum opening bid and can not only be for real estate but also for downpayment only. There is a possibility of “Notice Fee” when the auction type listing ends and it applies whether or not the sale was finalized.

When you list the item in “Classified Ad” format, there are no bids. Interested buyers are asked to fill out contact form and their information is sent to you. Duration for this type of auction is between 30 to 90 days. If you want to avoid the hassle of relisting your property, take advantage of the 90 day ad format listing. Because there is no bidding, neither buyer nor seller can leave feedback.

SELLING PAPER (MORTGAGE NOTES) ON EBAY

Within eBay’s “Other Real Estate” pages, eBay sellers are permitted to advertise for sale certain purchase money notes and mortgages (referred to in these rules as “mortgage notes”). These mortgage notes are created when, in a real estate transaction preceding the offer of the mortgage note on the eBay site, a purchaser of certain real estate obtains financing for all or a portion of a property from the seller, and executes a note in favor of the seller secured by a mortgage on the real property being purchased. A mortgage note created in this manner may be advertised for sale on eBay (in either the Auction format or Classified Ad format) if the following requirements are satisfied:

• the mortgage note must have arisen in connection with a bona fide real estate transaction;
• the interest offered constitutes the entire indebtedness under the note;
• the purchaser will receive the mortgage note by unconditional endorsement, without recourse, together with a full assignment of the mortgage securing the note, both of which the purchaser will hold until satisfaction of the note;
• the mortgage note is offered without any interposed services or other enhancements to be provided by the seller; and,
• the sale of the mortgage note complies with all applicable law.

All mortgage notes are required to be offered only in the “Other Real Estate” category.

BIDS IN REAL ESTATE SECTION ARE NON BINDING!

One of the reasons why there is only a listing fee and no final value fee (when the item sells) is that buyers who place bids on eBay are not legally obligated to purchase it. Bids are considered binding on ALL other items except for real estate and motor vehicles. For a contract to be legally binding in real estate, the buyer will need to sign (or in some cases e-sign) a contract and have a consideration (earnest money deposit). So in other words even when you list real estate in auction format and people bid on it, they are not legally obligated to buy it. It allows you to create a buyer’s list and advertise your property. The actual “sales” part will take place at settlement or when you convey the deed over to your buyer for agreed upon price.