Buying a MB

I have a friend who wants to buy a mortgage broker franchise and asked me if I knew anything about them.
I just replied "ain't gotta a clue, I just ring'em and ask what rates & conditions".
But maybe someone here has some experience in what questions to ask that are specific to that industry, which a noob may not know about.
thnx

Hi pb

Some of the brands are Franchises and some are Licences.

Which brand is your friend thinking of buying into, and what type of arrangement is it?

Not sure which franchise, he's just decided to be an MB and buy an established business.
I been trying to find out info like franchise fees & percentages of sales.
And if the trails are generally quoted as nett or anything else.

thnx, I now know I need to find out the difference between Franchisees and Licencees.
Not much info online that I can see, maybe I'll have to ring & ask.

Also is there a ball park "attrition rate" for the trails as a percentage?

Hiya

Very Much a ball of string.

The quality of the business is determined by the quality of the client base, which in turn has a direct effect on what someone will value a business at.

Warm handover, cold handover, age of the business etc will all determine a business value, as does the amount of money you pay to the franchise owner on an ongoing basis. With many frans, the dollars paid out often dont come back in leads, but the brand name an be good for a noob to get started

I have seen decent independent go for between 1.5 times annual trail to as much as 2.5 times annual net income. MB businesses arent worth what they used to be though so your mate would be well advised to do LOTS of homework

ta
rolf

If a franchise, I wonder if it's Refund HomeLoans....

If so, curiosity got to me and I made a general enquiry some time ago.

Regards JO

Your friend should obviously ask to see copies of the franchise agreement, but he should also request copies of the introducer agreements with the lenders.

Run-off rates vary from one business to another, even within the same franchise. It all comes down the the quality of the client base and the business itself.

thnx for shedding some light.
I'm sure he's looking at an existing business and not a startup.
I did'nt know they pay ongoing fees to the franchisor either.
I thought they made their money from the loan providors.
Warm handover, cold handover...
Surely it don;t mean if the vendor is dead or alive lol.

As for the client base, I assume that a buyer would ask how many loans expire each year for the next ten yrs.
But how do you tell the "quality"?
Do they have numbers on how many left each year?
I would assume that they don't leave, they just refinance thru someone else, payoff all loans, or get repoed.
This would hint that the "quality" is actually of the MB and not the client though.
Maybe I should get him to pay an experienced broker a couple hundred $ to go through it with him for an hour or so.

Hiya Piston

When u sell a service related business, there are 2 ways u can hand over to the new owners

Warm Handover
One on one sit down with your client base where at all possible to introduce the new owner, preferably with the old owner being on to help the new person for 90 days or so.

Cold Handover
Existing owner walks away, new owner walks in and the clients are advised by letter.

Obviously there are combinations of the above.

A warm handover works best where the clients have some form of emotional attachment to the owner. If sold properly to a new owner this aspect combined with proper transition can provide a much more valuable business.

In the end, the client quality is a direct reflection of the owner. Show me the business and client make up, let me speak with 5 random service users and I suspect one can tell what style of broker is working that business.


ta
rolf

Thnx for the replies Rolf, I should call & ask you and pay for ya time
A while ago the thought also passed my mind (not because I did'nt like my brokers though, they did well for me), which is why I'm following this with interest.
My theory though is that when a service business is for sale (and has been for some time) the owners have long ago stopped working it the way it should be, if they ever did at all.
And in an MB biz, not had much contact since the original signup.
So what your paying for is a customer list to call on and introduce yourself as the new guy hungry for any further business, and of course some of the trails.
And maybe I see this as the easy part because I have no trouble talking to customers.

the key is in the listening, not the talking, but then u already knew that.

ta
rolf

lol, I mean dealing with, doing business with.
It surprises me how many people have real hangups dealing with customers/people.
And out of those that do, many just sound like used car sales people or real estate agents. They ask the wrong questions and don't listen to the answers and can't stand a moment of silence feeling the instant urge to fill it with their own voice.
And others feel they are annoying people just by saying hello to someone who walks into the store they work in.

Made many calls, found out lots of info, and my m8 don't seem all that interested atm, me on the other hand is starting to think it may do me for my semi-retirement and keep me busy during the next 20yrs.
Have not found any franchise that is as good as being inpedendent, and it seems I would make an ok PT income with my own loans planned for the next 2yrs, and if were to keep refinancing all my loans once a year it would be >200wk
This certainly requires a little more research...

Hiya PB

Interesting business model, I reckon youd run into strife with the annual refis somewhere.

Churning is frowned upon, and I suspect finally with the new legislation,those brokers that move borrowers around on an annual or 18 mths basis may finally have to justify why ? To waht benefit to the client, in your case obvious, but in many cases none.

My call is that you can not be a "good broker" on a partime basis. You can start that way sure, but the exposure of deals that you need to get to the good level .............will take a looooooooooooong time on 20 hrs a week input. Shes a pretty fluid environment out there.

In terms of franchise and independent..............as a PT broker youd possibly get more value from a good fran than you would if you are a 2x Full timer.
ta
rolf

Rolf thnx again for you comments, was really just an observation not necessarily a biz model, the actual calc being 329wk.
But if the banks want the business and are willing to pay fees for it, and the customer is happy with that, it's what's called a market.
There's is no point churning a customer if the customers has nothing to gain and loses time doing it.
It has also been suggested many times here that once an IP is renovated, you revalue & refinance within 12 mths.
I've posted here before that banks are willing to give new customers better deals than loyal ones and that many times I have to remind them. So why would they not expect churn?
I already been doing my own churning for 20 yrs.
Only one of my loans lasted 13.5yrs, the others were all refinanced for and at my convenience. 2 of my current ones are about to be churned as well.
Interesting stat is the longest lasting ones (i did most myself) were those I negotiated myself. Only one broker loan lasted a refinance, which I did myself at a better rate.
Of course if a broker wanted to move my loans around, I'd want a pretty detailed calculation of what my gain from the process would be.
Now you'd think a broker would've called me up and said:
"Hey, if you refinance this loan your gonna be saving 5K yr because of blah blah blah", but they did'nt.
I had to do it myself. Maybe he was afraid of "churning", but saving me 5k a yr for filling out a few forms was a good deal to me.

"My call is that you can not be a "good broker" on a partime basis."
That is a good point indeed.
My situation is a little different to most people out there though (i'm sure you noticed by now) and I'm looking at >10 new IP loans next few yrs.
This means I have much more interest & financial gain at stake in doing the homework than 95% of my "would be" clients. Since I do the work anyway, enjoy the number crunching planning etc, I thought many yrs ago that it would be a job I'd maybe get a kick out of.
The level of customer service would depend on the amount of customers.
I doubt many brokers would have my long term knowledge & experience when it comes to dealing with RE & running a business, but I do admit they'd be better form fillers. Good experienced brokers like yourself don't have much competition out there I'm discovering as many are PTers doing it for a few extra $$ with limited experience and less customer service values.
The PT aspect really comes from the idea of being a "full time" investor, which is anything but full time and hardly part time imo. I'm not interested in owning the world (not anymore lol), but enjoying it. And that's not by sitting idle but by doing work you enjoy (most of the time). But it would be a problem having to many customers and not having the time to deal with them.

"In terms of franchise and independent"
That is still "research in progress" atm, but I'm not to keen on the rules that they impose, which may change as well. As the industry gets tight, they start imposing higher targets and stricter rules so that the only people left would be those desperate to work 80hrs a week. And some of them told me if you leave, then so do the trails. I may be delirious, but I reckon I have enough experience & contacts to find my way around without a franchisor. And I can pay an independent party for the training.

But I'm still not sure it's worth going through the hassle when I can pickup the phone and just say "I need a loan for $XXX can you find the best deal atm pls", and then just say "Fill in the forms and let me know when they're ready". And negotiating directly only when I think I have something to gain.

So the research continues and gets more interesting....

All good points

If one can save 100 a week as in your example of 5000 a year, that is NOT churning,and I dont believe anyone would have any concenrs with such a commercial arrangement.

The most basic costs to hold a small independent business are at least 10 000 pa, and thats whith the current compliance models. As time progresses, BOTH the lenders and the legislators are looking hard at forcing smaller operators out for various reasons. Both Comm and WBC have just introduced min levels of business to stay accredited with them, and NAB have been playing the game in another way for a while. Meanwhile the ACCC stands by and says it wont hurt competition

If you buy into an established business, there would be some buffer there to ensure that the minimum pegs are being met.

ta
rolf

Thnx Rolf, that's why I keep posting as you (and the others) keep giving me something else to think about.
Compliance (of whateva type) is fast becoming the bane of any business.

Rolf Latham said:

. As time progresses, BOTH the lenders and the legislators are looking hard at forcing smaller operators out for various reasons. Both Comm and WBC have just introduced min levels of business to stay accredited with them, and NAB have been playing the game in another way for a while. Meanwhile the ACCC stands by and says it wont hurt competition

If you buy into an established business, there would be some buffer there to ensure that the minimum pegs are being met.

ta
rolf

Click to expand...

How have the NAB been playing it may I ask? Just curious.

NAB have a 'star' rating where brokers are assign stars based on several criteria, including how many loans you lodged in the last 6 months and the application:settlement ratio.

Brokers can only lodge new lending with the NAB if they have 3 stars. Brokers with 4 stars can lodge certain types of applications that the others can't.

The problem is, the 4 star applications are the really tricky to get approved - most are declined after 3-4 weeks work frustration on the part of the broker. This results in a drop in the conversion ratio which means they loose a star.

A little more complicated, but with the same end result really. Use us 'properly' or dont use us at all. To retain a decent level of accreditation you need to write some business and actually settle it.

NAB give you a jelly bean rating based out of 5. if you dont do much with them you can have a 2 jellybean or max 3 bean rating

Brokers with 4 jelly beans get access to products that mere 3 jelly bean brokers do not.

Moot point for the last 4 months though. After 7 weeks for a "simple" no lmi PAYG investment purchase,they finally got the docs out today. Problem is the loan settled yesterday with another lender..........................there goes another one of my gold stars

ta
rolf

Rolf Latham said:

Moot point for the last 4 months though. After 7 weeks for a "simple" no lmi PAYG investment purchase,they finally got the docs out today. Problem is the loan settled yesterday with another lender..........................there goes another one of my gold stars

Click to expand...

Hang on Rolf, here's some little stickers with smiley face on them instead of a gold star

There service levels are so bad at the moment that there's just no point to having more than 3 stars. You simply can't get away with a 7 week finance clause. I sent them a deal 6 weeks ago and haven't heard anything yet. We got it done elsewhere with better terms.

Whilst I'm morally against any volume requirements, I'm not too fussed about Westpac. They do have a few reasonable points of difference that sending them at least one application every 6 months is a reasonable expectation.

I'm fairly sure I'll meet the CBA criteria by Christmas, but unless they get their act together, there's going to be a lot of very p!55ed of brokers out there.

I imagine that ANZ and ING are rubbing their hands together in glee over this.