Investing in a franchise can reap rewards, but do careful research

What makes your question very interesting, Mandy, is that you are not asking me to contrast passive investment options, but to compare two very different opportunities - a very active investment option in a franchise, which would very much rely on your capital, business skills, effort and labour.

- PAUL'S VERDICT

This is the extreme opposite of a relatively predictable passive investment in a property where you collect rent and let capital growth reward you over time.

The problem for me in answering you as well as I can, is that I have no personal experience of franchising. Sure, I have significant business experience, thanks to starting an investment business with my four partners back in the early 1980s. We grew ipac from a one-room serviced office, with a capital contribution of $20,000 each.

As is so common in your own business, we did not pay ourselves for three years. In terms of unpaid effort, we used to laugh about our 40 hours of work. One lot of 40 hours was Monday to Wednesday. The next 40 hours was Thursday to Saturday!

But the investment and effort paid off. In our case it took about seven years to earn a reasonable salary, but after some 20 years we had built a very large business with offices in several countries.

When we started ipac, we'd heard that well over 50% of 'self-startups' failed by the fifth year. Some claimed that 80% failed. But we were young and knew we could get a salaried job in the investment industry if ipac failed.