I've noticed an increase in new real estate investor pitches utilizing franchise style real estate programs: flipping franchises; wholesaling franchises; HomeVestors type models. When something is sold as a franchise, by law the company has to provide you with a Franchise Disclosure Document (FDD) prior to your signing any agreements.

Worth knowing: a lot of these programs are sold as "coaching" or a "license" instead of a franchise, and then there's no FDD at all. If they won't give you one, ask why.

Most of us will glance over it or ignore it entirely. However, there are 4 parts of this document that will help answer questions from the sales call that may have been avoided:

Item #7: Estimated Initial Investment. This item includes the total cost to begin a business using the franchise model, not just the "franchise fee," including additional funds such as working capital.

Item #6: Other Fees. All other recurring fees associated with the franchise including but not limited to Royalties, Marketing/Ad Fund Contributions, Technology Fees, Lead/Territory Fees. Add them up and compare them to what your actual deals would net.

Item #19: Financial Performance Representations. This section is the only section in the entire FDD where a franchisor can provide you with some level of financial performance data. Many do not include any data in this section. If during the sales call a representative of the franchise company provides you with any financial performance projections, then take note that Item #19 should be reviewed to confirm whether or not those projections match their claims.

Item #20: Outlets & Franchisee Information. Lists three years of outlet openings, closures, transfers or departures of franchisees. Also lists previous franchisees. They are typically some of the best contacts to talk to when looking for advice about the franchise.

Many states post copies of FDDs online for free (Wisconsin DFI and Minnesota CARDS). Keep in mind that FDDs often run 300+ pages, so knowing which sections to review first is helpful.

Has anyone here bought into one of these programs? How did Item 20 compare with what you were told on the sales call?