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Beware of Turnkey Freight Transportation Businesses for E-2 Visa

There are few companies in the USA that offer a turnkey freight transportation business. Some of them promote those business opportunities as a qualifying investment vehicle for E-2 Visa applicants.

They frequently post on groups on diverse social media platforms and their posts generate a lot of interest from the group members that are lured to believe this is the best investment option for their E-2 Visa application. This is a reason for concern, and it has motivated me to write this article and provide you another perspective for your consideration.

At a glance the offer seems very attractive but there are some fundamental aspects and market trends that should not be overlooked.

The Offer

The offer typically calls for low investment ($150K – $200K), high-margins (up to 20%), you invest in your own company (freight carrier), the turnkey seller will assist you with the implementation of the business including the acquisition of the truck and will provide you with freight contracts (freight brokerage).

The turnkey seller highlights how important the freight transportation industry is for the US economy and informs that the demand for transportation services is greater than the offer.

From the E-2 Visa investment perspective, there is nothing wrong with investing in your own company and buying a productive asset (truck) but this business model, as proposed, has some fundamental problems you should be aware of.

You do not control the customer acquisition process.

Your newly formed company heavily relies on contracts flown down by a freight broker (very often the turnkey seller, or an affiliated company).

Your company does not have its own marketing and sales capabilities, resulting in inability to attract new customers on its own. It is like having only one customer: the freight brokerage firm.

How do you like a business that only has only one customer? Sounds risky, right?

By the way this is the same type of risk of those local UPS route businesses that you may see listed in the “business for sale” websites. Yes, essentially you would be putting all the eggs in one basket and voluntarily becoming hostage of one single customer. If they change the way they want to do business, that would directly affect your operation.

For an E-2 Visa investor, who moved his/her family to the USA with the sole intent of managing that business, a risk of that nature could mean to pack the bags and go back to home-country, in case the business does not make sense anymore.

Having to rely on 3rd parties to get freight contracts creates an unnecessary risk that a regular business that has its own marketing and sales capabilities would not incur and it may be subject of scrutiny by immigration officials reviewing your E-2 Visa application.

Small Margins

The freight transportation segment is highly competitive in the USA, which puts pressure on the profit margins.

Even though there are multiple subcategories of freight transportation including some specialties (i.e. reefer trucks), you should think of freight transportation as commodity service. Is it so commoditized that there are innumerous freight bidding platforms out there, so yes, it is a price war! Not much room for differentiation.

Back to the freight transportation turnkey offer abovementioned, if your business setup heavily relies on contracts flown down by freight brokers, your margins should be even smaller, since the broker must make a profit.

Owner-operated business

By investing in the freight transportation turnkey business, you will be buying yourself a job, not a business. The economics could work for an owner-operator but with small margins it will be somewhat challenging to scale up that operation into an Executive business model.

The Executive business model is the ideal business model for an E-2 Visa application because the investor retains the administrative functions (very often marketing and sales as well) and hires the employees that will perform the services that are being offered and/or produce the products that are being sold. Using the freight transportation industry segment as an example, the investor should be able to hire the drivers (configuring an Executive Model), instead of being the sole driver (configuring an Owner-Operator Model).

Beware of businesses that look like “self-employment” as they run greater risk of being considered “marginal enterprises” by the immigration, which would result in E-2 visa denial.

Industry trends that should not be overlooked

The freight industry is going through market consolidation (merges & acquisitions). Large players benefit from economies of scale, which is key in a market segment with small margins.

Disruptive technologies such as driverless trucks and electrical trucks are up and coming and they aim for cost efficiency.

Apps that match shippers with carriers such as “Uber Freight” are here to stay. It allows independent (owner-operator) truck owners to get freight jobs but again, the same challenge as relying primarily on contracts flown down by freight brokers apply. The app will bite your margins.

There are increased regulations in the freight industry. Here are some examples:

Reclassification of Independent Contractors

A good example is the “Dynamex Operations West, Inc.  v. Superior Court of Los Angeles” ruling has made it harder for companies to misclassify workers as independent contractors going “against the grain” of an industry trend that since the 70s has been shifting from “employment model” to “independent contractor model”. Assembly Bill 5 (AB 5) is a new California state law that redefines and limits the way businesses classify workers as independent contractors. Great chances are that other states will soon establish their own versions of California AB 5.

Federal Motor Carrier Safety Administration Drug & Alcohol Clearinghouse

FMCSA Drug & Alcohol Clearinghouse will serve as an online database that will allow relevant parties to identify whether a Commercial Driver’s License (CDL) holder has violated any federal drug and alcohol testing program requirements within the past five years. Safety always comes first! Even though the initiative is welcome, it will increase the complexity of running a freight transportation business.

Proposed changes to hours of service

While having commercial drivers electronically tracking their hours of service in a digital recording device synced up with the trucks’ engines has increased compliance to maximum hours of service (again, increasing safety!), it has also created some secondary challenges and there are proposed changes to those regulations, again, adding complexity to running a freight transportation business.

If you are seriously considering investing in a business or gain knowledge about franchising so you can later decide if this is the right type of investment for you, we can definitively help you. Prospective E-2 Visa investors are welcome, and we have a lot of experience with investment visas.

Who We Are

Franchise Wizards is a franchise consulting business located in Carlsbad, CA and we work with 530+ franchisors in multiple industry categories with various investment levels. The location where the desired business is to be operated can be anywhere in the USA or Canada.

By understanding your objectives and your business preferences, we can present to you a tailored selection of franchises that meet your requirements and present the qualities you are looking for in the ideal business opportunity.

We can also educate you on how to make the most out of the discovery process offered by the franchisors and the best practices to evaluate and compare franchise opportunities.

Click bellow to schedule a free consultation. There is absolutely no obligation to invest in any of the franchises we suggest for your consideration.

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Can real estate investment qualify you for E-2 Visa?

In most countries, real estate is perceived as a solid investment vehicle and uninformed E-2 Visa prospective investors believe that investing in real estate in the USA would qualify them for the E-2 Visa: It will not!

Many real estate business models fail to demonstrate that the company is a real, operating business and not just a passive investment.

This article will not only explain the reasons why diverse types of real estate investment will not qualify you for the E-2 Visa, but will also present you some E-2 Visa compliant franchise business opportunities that can put you in the real estate industry segment.

Buy & Hold

In this form of real estate investment, the investor acquires a property (or gain control over a real estate property) that will later be rented to a tenant. The whole idea is that the monthly installments paid by the tenant will exceed the operating expenses of holding that property, resulting in positive cashflow while investor builds equity on the property over time (in case of financed purchase).

The passive nature of this type of investment is detrimental to your E-2 Visa application. Not a real, operating business. No employment generation.

House-Flipping

Buying properties under market value, remodeling it and reselling for top-market value while holding it for the least amount of time possible is a type of real estate investment commonly known as “house-flipping”.

This form of real estate investment has become very popular due to TV shows, notably the ones on the HGTV channel.

This type of business only makes sense if the property is acquired at significant discount. This is not the typical real estate transaction. The “supply” side of your business is scarce and uncertain, which makes this type of business extremely speculative, which is detrimental to your E-2 Visa case and your business will not be interpreted as a real operation by the immigration.

The speculative nature of these transactions, by the way, is the same reason why stock market investment will not qualify you for the E-2 Visa.

Notes Investment

In real estate, whenever someone finances the acquisition of the property, the borrower typically signs a “promissory note” that documents the intent to repay the lender. In real estate, it is very common for those notes to have the real estate property itself as the collateral, so if the borrower defaults the repayment, whoever holds the note (a bank or an investor) can foreclose the property and take it back as guarantee.

Again, very speculative nature, passive investment and no employment generation. It will not serve as an investment vehicle for your E-2 Visa.

Alternative Businesses in the Real Estate Industry

If you are passionate about real estate and wants to be in this industry, here are some business categories that present E-2 Visa compliant franchise models and E-2 Visa friendly franchisors.

Property Management Franchises

Property Management is a real business. The property manager acts on behalf of the property owner and manages the relationship with the tenants while preserving the value of the properties.

There are diverse classes of assets that can be managed by a property management company: residential short-term rentals, residential long-term rentals, associations management and commercial properties.

This line of business present multiple streams of income, including transactional and recurring revenues. The business can be grown organically or by acquisition of property management contracts. Some franchisors assist franchisees in identifying and negotiating those contracts when they become available in the market.

Initial investment typically falls between $70,000 and $115,000, not including acquisition of property management contracts.

There are several property management franchises in the USA but only a few are E-2 Visa friendly.

If you are interested in this segment, we can definitively connect you with the franchisors who are E-2 Visa friendly and have extensive track record of E-2 Visa approvals.

Property Inspection Franchises

According to the American Society of Home Inspectors (ASHI), more than 90 percent of home sales involve a house inspection. These inspections are typically conducted after the purchase offer has been accepted and before the deal is considered closed. This timeframe is known as contingency period and depending on the findings, buyer may back out of the deal or renegotiate the deal if something major comes up.

Generally, a home inspection will report on the condition of roof, installations, HVAC, finishing (floors, walls and ceilings), structure, foundations, basements and may include other specialty inspections such as termites, asbestos, radon and lead, to name a few.

Initial investment typically falls between $70,000 and $100,000 and, even though there are several franchises in this segment operating in the USA, most are either not E-2 Visa friendly or they offer an “owner-operated” business model, which is not ideal for the E-2 Visa.

If you are interested in this segment, we can definitively connect you with the franchisors who are E-2 Visa friendly and offer an Executive business model, allowing the franchisee to hire the property inspectors instead of being the only inspector. Remember: any business that looks like self-employment will likely not qualify you for the E-2 Visa.

Conclusion

Property Management and Property Inspection franchises present E-2 Visa complaint business opportunities that can get you inside the real estate industry. Being an insider in the real estate industry creates the perfect condition to have a side-business in real estate investment, if this is your end goal.

Make sure to consult a competent immigration attorney on how to setup the legal entities in such way to allow you to stack up diverse business opportunities without jeopardizing your E-2 Visa.

If you are seriously considering investing in a business or gain knowledge about franchising so you can later decide if this is the right type of investment for you, we can definitively help you. Prospective E-2 Visa investors are welcome, and we have a lot of experience with investment visas.

Who We Are

Franchise Wizards is a franchise consulting business located in Carlsbad, CA and we work with 530+ franchisors in multiple industry categories with various investment levels. The location where the desired business is to be operated can be anywhere in the USA or Canada.

By understanding your objectives and your business preferences, we can present to you a tailored selection of franchises that meet your requirements and present the qualities you are looking for in the ideal business opportunity.

We can also educate you on how to make the most out of the discovery process offered by the franchisors and the best practices to evaluate and compare franchise opportunities.

Click below to schedule a free consultation. There is absolutely no obligation to invest in any of the franchises we suggest for your consideration.