You might not realize it or just be blinded by their pervasiveness, but some of the largest companies in the world today began as nothing but a simple website. I’m talking about Amazon, Facebook, Google and the list goes on. While some have dabbled in the real world they get a lot of their value from their online presence.
If some of the largest companies in the world are websites, why isn’t website investing more pervasive and can it make a good investment?
Buying a website is an excellent investment and can yield substantial returns in excess of stock market returns. Their low overhead costs and variable time commitment make them ideal for passive and active investors alike. Flipping websites can even be akin to flipping real estate.
I’m going to break down why website investing is a great investment and how it compares to stock market investing and in particular my own portfolio returns.
The Math Behind Website Investing vs Stock Investing
Websites can sell for pretty large sums of money, or they can sell for pennies on the dollar. That’s the great part about website investing. It’s scalable and has appeal to those with large amounts and small amounts of cash alike.
Websites typically sell for 32 times their monthly revenue. This can vary depending on the quality of the articles and the quality of the traffic being sent to the site. If a website has a large amount of organic traffic, it may command a higher multiple.
Alternatively, if a website has poor quality traffic, that comes from ad clicks or referrals it may not be worth as much.
Now that we know how much websites sell for on average lets take a look at a few examples of how the numbers look and how they can be improved.
Jeremy’s Plants sells for $16,000. At a 32x multiple this means the site is earning on average $500 per month. This means if it produces the same amount of revenue/profits per month it will take 32 months in order to make back the initial investment.
If we calculate the annual return on this investment that is a 33% return annually!
This handily beats many of the best value investors. However, it may come with a bit more work and we have not calculate the costs you may incur.
Annual costs for a cheap host taxes and accounting and some variable expenses will come out to around $50 per month subtracting this from the total we get $450 a negligible amount that will bring our annual returns to about 30%, still good if you ask me.
Of course I didn’t take into account taxes, but on the sale of stocks you get anywhere from 15-30 percentage capital gains taxes and small business taxes tend to be around 20% so they are essentially a wash. Not to mention as a business the website can write off taxes.
Stock Portfolio Example
My current net net stock portfolio is probably less reliable than website 1 in terms of returns. However, on average it should return around 20% annually.
This makes the website a better return on investment than the stocks I own, but does require more work. Although investing properly and reading up on the 10K reports is very important and takes time as well.
If you are buying index funds and investing in large companies your returns will likely be lower and buying a website as an investment looks even more enticing.
Website Value Trends vs Relevancy
The internet as an overall trend is heating up and this may be the best time in history to invest your cash into websites. More advertisers are moving online and that means overall the pool of revenue for websites are increasing.
The time commitment and skills required to run a website are acting as a barrier to entry keeping people out and spreading a larger amount of the revenues to individual website owners.
Overall this means websites are actually increasing in value over time.
But, its important to remember that even if the website value and revenues increase over time, the value of the information may decrease. This is why taking some of the revenues and adding fresh content to the website will help it remain valuable.
Where to Buy and Flip Websites for Profit
There are only a handful of places on the internet that operate as website exchanges. Sadly they are unregulated and can be often rife with scams. That is why its important to verify with the sellers, traffic and revenues.
The below sites range from focusing on expensive websites to cheap ones.
- Flippa: Specializes in cheaper websites and has a higher volume of sites.
- Empire Flippers: Focuses on more expensive websites to mid tier.
- FE International: White glove service for expensive websites.
Alternatively you could join website building groups and forums where people regularly buy and sell websites.
The last way you can buy a site is by essentially cold calling website owners and checking to see if they are interested in selling.
Starting a Website From Scratch
Website building and maintenance not only takes technical skills, but also business skills. Because so many skills are often involved it can be treacherous just going out and buying a website to run with no prior knowledge or skills.
This is often why many website flippers get their start from building their very first websites from scratch. It has the added benefit of being a very cheap way to learn.
After all purchasing a $50,000 website only to have google hurt traffic to the site and no knowledge of how to fix it could be very risky.
Luckily starting a website is easy and involves only a few steps.
- Buy a Domain and get a hosting service.
- Download WordPress or your favorite website builder.
- Begin writing helpful and compelling content.
- Monetize the content.
While this may seem overly simplified its essentially the basis of the whole operation. Many website builders can get caught up in so many unfruitful endeavors that it can be difficult to focus on just writing. But, that’s essentially the basis of the entire operation, writing helpful and compelling content.
Website Revenues and Traffic a Zero Sum Game
It’s interesting to note that website building is sort of a zero sum game. There is a set amount of traffic for the most profitable keywords and the winner takes all since most of the clicks go to the top results in google search.
However, according to google, 16-20% of searches have never been performed before. This means that there is growth outside of just users performing the same searches. Because of this there is ample opportunity for new websites to grow their traffic targeting new searches.
Until this metric decreases or moves to zero website building and search engine optimization is looking less like a zero sum game and more like business development which would put it on par with any stock investment out there. After all not all searches come from Google. Many can come through social media, or word of mouth.
Website Investing vs Stock Investing
Exploitinvesting.com is about informing all who visit about how they can maximize their investment returns. Not only through stock investing but also alternative investments, be it real estate or website investing.
When it comes to stock investing although it has gotten cheaper and the costs per trade have bottomed, the returns still don’t compare on small scales to website investing. But, website investing can be even riskier than stock investing and requires a much greater investment of knowledge and time.
Only you can determine whether the tradeoff is right for you.