Many business owners would love to find a personal investment that yields double-digit returns without requiring much time to manage. Manjit Gauba found one when he went out for pizza.
Gauba was seeking returns better than those from his stagnant real estate portfolio. Yet, running his Edmonton chiropractic firm left him little time to spend on a new investment. Gauba found an option right up his alley when—after being impressed by the food and service at a nearby Famoso Neapolitan Pizzeria—he contacted the fast-growing chain's head office in Richmond, B.C., about franchise opportunities.
This type of investment can yield a hefty, long-term income stream—and a tidy capital gain when you eventually sell your stake
Since 2009, Gauba has bought 50% to 80% stakes in each of four Famoso stores in Alberta, two of them about to open. But he doesn't run any of them. Rather, Gauba is a passive investor who leaves the daily slog to a manager in each restaurant who owns 20%. Gauba's annual ROI on his first location now is in the 15% to 20% range—up from zilch in the first eight months. And, he says, "I've managed to avoid any role in day-to-day management. I get a monthly update and weekly sales reports, which I spend about one hour per week reviewing."
A franchise is a riskier investment than many others. But, says entrepreneur Grant Kosowan, it makes sense "if a conservative forecast allows you to put 12% to 15% per year in your pocket." Other passive investors and franchisors cite similar thresholds. That's a sweet return.
Kosowan—whose primary business, Orange National Retail Group, advises com- mercial tenants on matters such as leases—bought minority stakes in four Original Joe's Restaurant & Bar franchises after souring on other asset classes. "Real estate is over-valued, driving down returns to 5% or 6%, with high interest-rate risk," he says. "And stock-market multiples are ridiculous." Kosowan says his happy experience with Original Joe's led him to buy a majority stake in another franchise system.