Explanation

Analysis of Item 20 data for the last three years (2022-2024) indicates a relatively low franchisee turnover rate. For 2024, the combined number of terminations and cessations was approximately 2.8% of the outlets at the start of the year. While any closure is a concern, this rate does not suggest a systemic problem with franchisee failure or dissatisfaction at this time. Continuous monitoring of this data in future FDDs is prudent.

Potential Mitigations

• Contacting a random sample of current and former franchisees listed in Item 20 is essential to validate the reasons for any departures.
• Ask your attorney to help you frame questions for former franchisees to understand their reasons for leaving the system.
• Discuss the data in Item 20 with your business advisor to compare it against any available industry benchmarks for context.

Explanation

This risk was not identified. The franchisor and its predecessor have been in the property management franchise business since 2005 and have a large system of 447 operating franchises. This indicates a mature, well-established brand and system, not a new or unproven one. Investing in a new franchise system carries higher risk due to the lack of a proven track record, limited brand recognition, and potentially underdeveloped support systems for franchisees.

Potential Mitigations

• When evaluating any franchise, it is prudent to review the system's history and growth trajectory with a business advisor.
• Consulting with an accountant to analyze the financial statements of a new franchisor is critical to assess its capitalization and stability.
• Your attorney should be asked to review the experience of the management team as disclosed in Item 2.

Explanation

This risk was not identified. The business of residential property management is a long-standing industry that serves a fundamental need for housing and investment management. It is not dependent on a short-term trend or fad. A fad business model presents a significant risk because its long-term market demand is uncertain, potentially leaving you with obligations under a long-term contract even after consumer interest has faded, jeopardizing your investment.

Potential Mitigations

• A business advisor can help you conduct independent market research to confirm sustained consumer demand for the franchise's core services.
• Review the franchisor's plans for innovation and adaptation to market changes with a business consultant.
• It is wise to assess the resilience of any business model to economic cycles and shifting consumer preferences with a financial advisor.

Explanation

This risk was not identified. The disclosure in Item 2 shows that the key executives of both RPM LLC and its manager, Neighborly, have extensive experience in franchising and in relevant industries. A lack of management experience, particularly in franchising, can be a major risk, as it may lead to inadequate franchisee support, poor strategic decisions, and underdeveloped operational systems, increasing the potential for business failure.

Potential Mitigations

• It is always a good practice to research the backgrounds of the key executives listed in Item 2 with the help of a business advisor.
• Engaging with current franchisees provides valuable insight into their direct experiences with the management team's competence and support.
• Your attorney can help you understand the roles and responsibilities of the key personnel described.

Explanation

This risk was not identified. The FDD clearly discloses the parent company, Neighborly Assetco LLC, and includes its audited financial statements in Exhibit C as well as a Parent Guarantee in Exhibit D. Full disclosure of a parent company is critical when the franchisor entity itself is a special purpose vehicle, as the parent's financial health and guarantee are essential for assessing the true stability and support structure of the franchise system.

Potential Mitigations

• Your accountant should always verify that if a parent company's financial strength is referenced, its full financial statements are included and audited.
• An attorney should be consulted to confirm that any parent guarantee is properly executed and legally binding.
• In any franchise offering, it is important to understand the complete corporate structure with the help of your legal and financial advisors.

Explanation

This risk was not identified. The FDD discloses that the current franchisor entity was formed in 2020 and acquired the assets from its predecessor, Property Management Business Solutions, LLC, as part of a 2021 securitization transaction. The litigation history of the predecessor is disclosed in Item 3. An incomplete disclosure of a predecessor's history could obscure past issues like high franchisee failure rates or litigation, preventing a full risk assessment.

Potential Mitigations

• Your attorney should always carefully review the disclosed history of any predecessor entities in Items 1, 3, and 4.
• Speaking with long-term franchisees who operated under the predecessor can provide valuable, real-world context.
• A business advisor can assist in researching the public reputation and history of any predecessor entities.