FranShares Review: Passive Income Through Franchise Investing

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FranShares

This article is sponsored by FranShares. All opinions are my own.

Investors looking to generate income from their portfolios typically turn to dividend stocks or real estate. FranShares is a new platform that exists to provide another option for generating passive income through investments in franchises.

Traditionally, franchises have not been an investment option for the average person because of the high startup costs. Additionally, most franchises require a hands-on approach from the owner (and not everyone has the skills needed to successfully run a franchise), or the owner must hire a full-time manager to run the business. FranShares eliminates these barriers and makes franchises a realistic and practical investment option for almost anyone.

In this FranShares review, we’ll look at all the important details of the platform so you can decide if it’s an alternative investment you want to add to your portfolio.

Overview of FranShares

Before we get into all the details, here’s a quick summary of the key points of FranShares.

  • FranShares is a new investment platform that currently has a waitlist for interested investors.
  • When it launches, FranShares will allow anyone (not just accredited investors) to invest passively in franchises.
  • By investing as little as $500, you can own a fractional share of a portfolio of franchises.
  • The experts at FranShares hand-pick the specific franchises based on details like profitability, growth, manageability, recession resistance, and executive leadership.
  • The franchises are owned and operated by FranShares.
  • Investors will receive monthly or quarterly distributions from the proceeds of the franchises.

What Is FranShares?

Franchise ownership is an effective way to generate cash, but it typically involves a lot of work and significant upfront investment. FranShares changes that. They aim to provide investors with strong, predictable returns while also minimizing risk. 

Investors are able to purchase fractional ownership in a diversified portfolio of franchises. FranShares is not a crowdfunding platform that matches investors with franchise owners looking for funding. Instead, FranShares handles all aspects of the business including identifying the right franchises, managing and operating the franchises, and eventually selling the franchises at the appropriate time.

FranShares partners with investors throughout the entire process. They will be investing about 20% of the cost for each franchise and holding approximately 20% of the ownership. Investors are able to gain an ownership interest that will produce income through dividends that will be paid monthly or quarterly. In addition to dividends, investors benefit from appreciation (ideally) as the value of the business grows. Of course, investors will be paid their share when franchises are eventually sold.

In an effort to minimize risk, FranShares focuses on recession-resistant industries. Investors don’t need to pick specific franchises or locations. FranShare handles all of those details and investors simply purchase an ownership interest of the overall portfolio. As a result, investors have some built-in diversification instead of being completely reliant on one franchise or one location.

When evaluating potential franchises for the portfolio, FranShares considers the following details:

  • Return On Investment (ROI)
  • Growth
  • Availability
  • Leadership
  • Sustainability
  • Competition and Competitive Advantages
  • Manageability
  • Recession and Pandemic Resistance

When you think of franchises, restaurants may immediately come to mind. However, there are franchises in a wide range of industries, and many of the best opportunities do not involve food or restaurants. Some of FranShares’s favorites include hair care, fitness, kid-related businesses, pet-related businesses, automotive, waste management, home services, B2B, senior care, and food.

Each FranShares fund is registered with the SEC under Regulation A+. A holding company will be formed for each franchise brand, and each holding company will have subsidiaries under it for each location of the brand. These holding companies and subsidiaries will be 100% owned, either directly or indirectly, by the fund. The fund and its subsidiaries will be operated, managed, and controlled by FranShares.

FranShares Leadership

Kenny Rose is the founder and CEO of FranShares. Rose has invaluable experience as a franchise broker, helping individuals identify, evaluate, and buy the right franchise for their own situation. After working for the world’s largest franchise brokerage, he founded his own franchise brokerage, Semfia, which focuses on income-producing and manager-run franchises.

Kenny Rose
Kenny Rose, Founder and CEO

Liquidity

This is a long-term investment with a suggested hold of 5-10 years to see maximum returns. However, FranShares plans to offer a secondary market so investors can exit early if necessary. 

Even though FranShares plans to offer the secondary market, you should only invest if you plan to hold the investment for 5-10 years. View the secondary market as being a convenient feature in the case of an emergency, but don’t go into the investment planning to sell on the secondary market. You’re likely to get better results by holding for the suggested term of 5-10 years.

Investment Fees

FranShares collects no fees from investors. The goals of the company and individual investors are aligned as FranShares will be investing in each franchise as well. When franchises are acquired, FranShares will earn brokerage commissions from the franchisor thats’s selling the franchise, not from investors.

Pros

  • Passive investment. Typically, if you own a franchise, you’ll need to be involved in the running of the business. FranShares allows investors to get the benefits of franchise ownership without the time commitment.
  • Income from dividends. Investors will receive monthly or quarterly dividends from the proceeds of the businesses in the portfolio. 
  • Low $500 minimum. Many alternative investments require a high minimum, which makes them inaccessible to the average person. The $500 minimum for FranShares makes it accessible to most.
  • Open to accredited and non-accredited investors. Many alternative investments are open only to accredited investors. That’s not the case with FranShares as anyone can invest regardless of net worth or annual income.
  • Retirement accounts. You can invest in FranShares using a self-directed IRA or 401(k)
  • Secondary market provides some level of liquidity. Although FranShares is a long-term investment with a 5-10 year recommended term, it’s not completely illiquid. They plan to offer a secondary market so investors can sell early if needed.
  • Industry expertise. FranShares is run by an industry expert, Kenny Rose, who has extensive experience identifying and evaluating franchises.
  • Unique. There’s no other platform like FranShares.

Cons

  • New platform. Any new investment platform lacks a track record, and FranShares is no different.
  • No clear target return. As an investor, there’s a lack of clarity over what you should expect from dividends and overall annual return. FranShares provides some examples of average annual returns from franchises in various industries, but that doesn’t tell investors what to expect when investing with FranShares.
  • Limited liquidity. The secondary market is a nice option in case of emergency, but you may have limited options if you go to sell.

Who Is FranShares For?

Most investors prefer to hold alternative investments for a portion of their portfolio. Real estate is the most common alternative, but with real estate values at an all-time high, investors may want to consider other options. Investing in franchises through FranShares may be a good fit for:

  • Investors looking for passive income
  • Anyone looking to add some diversification to their portfolio
  • Money that will not be needed for 5-10 years
  • Investors looking for the chance to produce strong long-term gains

If you’re interested in learning more about FranShares or joining their waitlist, please visit the FranShares website.



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