You know you should invest.
Usually, whenever people start thinking about investing their money they typically think about traditional investing strategies, like the stock market or real estate.
Most people want to retire early, build a passive income portfolio by putting up their cash and time up front, and get rich fast.
It’s understandable. Those plans sound great, right?
Too bad that when it comes to investing, nothing is really that straightforward.
For most people dabbling in investing, using the buy low and sell high model simply won’t work.
If you want to invest in something, why not focus on investing in something that you can buy low, generate maximum profits, and then give yourself even more options: sell it to increase your profit margins, or keep the asset earning from month-to-month.
If that strategy sounds too good to be true, it’s not. This is the reality of investing in websites.
Whenever you’re investing in websites, there are quite a few different strategies you can use, whether you want to build a website from scratch or you want to purchase a website that’s already successful.
In this article, I’m going to break down both the advantages of investing in websites, and the disadvantages to help you understand exactly what goes into flipping digital real estate.
Building the website yourself, and growing it from the ground up gives you a couple different options.
You can keep the website in your portfolio and collect the monthly earnings. Or, you can sell the website to another investor for a multiple of its monthly net profits.
Let’s assume that you have built the website from the ground up and have started receiving consistent traffic. The website grows to the point it is making $200 per month.
You could let the site continue on from month, to month, without growing it anymore, and collect the $2,400 a year in earnings. This is assuming that the website doesn’t continue growing. An extra $2,400 per year is a great supplemental income that happens on autopilot. You could also keep working on the site and grow it past that $2,400 per year mark.
Advantages: You can focus on new projects while this website is continuing to earn.
Disadvantages: You are banking on the notion that the website’s earnings will stay consistent and stable on their own.
Another strategy is to build the website and then sell it to an investor once it has hit a certain earnings milestone.
This is the slower, more long-term strategy where you are planning on building websites up to the point where they are profitable, and then flipping them to investors. With this strategy, you can easily sell a website that’s generating $200 per month for upwards of $4,000, or more.
The $4,000 valuation is based on investors being willing to pay a 20-month multiple of the website’s earnings.
Advantages: Quick cash influx, assuming that you sell the website through a broker, and that your website is earning a healthy income each month. This is a repeatable process that you can reinvest in over, and over again.
Disadvantages: You’re giving up the long-term potential to build the website and earn even more money if you simply held onto the website. Your investor is going to want to take the website to the next level, where the website’s earnings will help justify the initial cost of buying it.
If you have already set aside cash from your job or other investments, you can spend it on a website that is already generating revenue, and save yourself the time it takes to build a site up from nothing.
Building a website to the point that it’s earning consistent revenue can take anywhere from months to years, while purchasing a website that has already hit that point can significantly reduce the amount of time it takes.
There are two different strategies you can use when it comes to buying established, profitable websites.
You can hold on to the website after you buy it, collecting the monthly profits and reinvesting them to grow the business even further.
Advantages: Assuming that you have purchased a legitimate website that is going to continue earning from month to month, you can sit back and collect the earnings. This will help you earn more than what you’ve paid to purchase the website. You also have the option of putting additional effort into the business and generating more revenue, helping you recoup your investment much quicker.
Disadvantages: You’re going to be required to invest time and wait for the work to pay off. It could potentially be years before you see a payoff, which some investors aren’t willing to wait for.
Another strategy is to continue growing the business until it hits a certain revenue goal and then flip it for a profit.
Advantages: This strategy makes it easy to scale. You can put together a small team of people, or even outsource the process of growing the business, and then start flipping multiple websites at the same time. You’ll start earning your money back through the website’s revenue, as well as through flipping the website to another investor.
Disadvantages: In an ideal world, you’re going to want to flip the website for a high earnings-multiple. Finding the right investor, though, can be challenging, especially if you’re using a website like Flippa. This is why it’s always recommended to work with a broker that can help you get the higher earnings-multiple. Also, if you are working to keep growing the site from month, to month, your investment is no longer passive.
As a beginner, if you’re looking into investing in websites, you’re going to want to purchase websites through a reputable broker that vets each of the businesses they list for sale. Then, you will need to focus on learning the basics of growing a website.
You’re going to be dealing with a website that is already established and profitable, which helps reduce the chances of the website tanking.
A broker will do most of the heavy lifting, and verify that the website isn’t going to lose traffic or have the earnings become unstable from things like search engine penalties.
Of course, like other investment strategies, there are no guarantees. However, the odds of finding a successful website when you’re working with a broker are substantially higher than trying to find one by yourself through a marketplace like Flippa.
If you work on a marketplace like Flippa, you are going to have to weed through each of the listings to find diamonds in the rough, and then perform due diligence by yourself to verify that the website isn’t going to tank shortly after you buy it.
Many investors utilize Flippa because it is a well-known marketplace. However, those same investors can agree that it’s not always the best place to find trustworthy websites.
The sheer number of websites listed on Flippa means it can be nearly impossible for them to maintain a high-quality set of listings. You’re going to need to spend more time sifting through less-than-desirable websites to find one that’s worth investing in.
When it comes to buying vs building, there are great debates happening, arguing for both sides.
On one side of the equation, investing in websites require relatively low investments. This is, of course, assuming that most people don’t have massive stacks of cash piled away. In these cases, building websites from the ground up is actually a very inexpensive strategy, especially if you do the work and write the content yourself.
Even if you outsource the writing process to someone else, have a graphic designer put together a logo for you, and use a premium WordPress theme on the website, you still may only have a few hundred dollars invested into the website.
When you compare that to the thousands of dollars people devote to starting a “real” business, like a restaurant for instance, the investments are miniscule.
However, buying a website helps you bypass all of the work, and dramatically reduce your learning curve, especially if you’re not necessarily tech savvy. As an investor, you are able to take an established website and offer a multiple of its monthly net profits.
In the end, it is up to you to figure out which side of the equation you want to be on and the flipping path that you want to go down.
About the author: Originally from Australia but now enjoying life in the U.S, Jock Purtle is an internet entrepreneur and business broker. He is an expert in buying and selling websites and digital businesses, and is the founder of Digital Exits.
Glenn Carter is a sharing economy expert and is sharing his passion for side income through new digital platforms with his readers.