You might have heard that building an online business can be very rewarding. Pretty much anybody who can build even a small audience can make a profitable online business. There is a reason why there are more than 600 million blogs on the internet today, and that number will only grow. Add commerce sites, info sites, Software as a Service (SAAS) sites, and all offline businesses that go online that are not part of giant corporations, and you quickly realize there are investment opportunities here. Investment opportunities both for active online business owners as well as part-time passive investments. In this article we will explore how to buy a website as an investment and not build one from scratch.
There are a million and one posts on the internet that explain how to start a website. The reality is, building a website from scratch will take time, just like building any business from scratch. It is unlikely to see any profits in the first few years, and even after that, sites fail all the time. We do not want to discourage anybody, but there is a way to speed up the process and not start entirely from scratch.
How to buy a website as an active investor?
One way to do that is to purchase what is called a starter site. Here are a few benefits of starting with a starter site:
- Starter websites are existing online businesses that have established a presence on the search engines and, if chosen correctly, already get traffic.
- You should buy an already profitable starter site and reinvest the profits to grow it.
- Website design and setup are already done for you.
- Ability to secure potentially better domain names than you could on your own.
There are the downsides, of course:
- It costs money upfront to buy a profitable website.
- There is a risk that after purchase, website traffic significantly declines.
- It requires ACTIVE work to scale the website.
Where to buy your first website?
This depends on your budget, but we assume that you want to start with something on the smaller side.
The most accessible starting place would be the biggest marketplace, and that is Flippa.com. The upside is that there are a ton of listings on Flippa. The downside is the same. You will need to spend more time browsing through a lot of potentially low-quality listings.
Quick Tip: Confidential listings that don’t show the domain are typically higher quality, so don’t ignore them.
Flippa Finder: Flippa also has a service that first-time buyers might find helpful. For a $50 and 2.5% fee, a professional broker will find a website that fits your criteria. Depending on your budget, this can be expensive and avoided if you don’t mind doing your own due diligence.
The second popular choice would EmpireFlippers.com. The upside with using EmpireFlippers is that they have a vetting process and only list already vetted online businesses. That means that their professional team has verified everything about a business. From analytics to costs to net monthly profit.
There are downsides, however. With EF, you should expect to pay a premium price already baked into the asking price, and because there aren’t as many websites listed on their platform, it might be challenging to find a starter site with a smaller budget.
What type of websites should I buy?
For beginner investors, we would recommend starting with a Content website. Content websites such as a blog or a review site offer just that, content. They act as small media sites that cover a particular topic. They make money by running ads like any other publication today, associating themselves with relevant partners, promoting products, and earning a commission. These are the most accessible sites to maintain and scale. Because the product is high-quality content, it is easier to create and maintain than an eCommerce business. Costs are also low compared to eCommerce businesses. There are no inventory or shipping costs. The only costs you will incur are marketing costs and costs of creating new content. If you decide to produce content independently, the business can have revenue almost equal profits.
However, keep in mind the downside of content businesses, and that is competition. Because they are relatively easy to make, a lot of people do them in every niche imaginable.
Here is what the filter looks like on Flippa.com:
What price should I pay for a website?
When exploring how to buy a website, first question that comes up is price. Buyers can apply various valuation techniques to online businesses ranging from simple multiples to more complex discounted cash flow analysis. Starter sites, especially content sites, aren’t too difficult to evaluate, so don’t spend too much time. Usually, the multiples approach will work fine. Here is how it works.
Price = Monthly or Yearly Profit x Multiple.
On average, small starter sites sell for a monthly multiple of 30x-50x. 30x for relatively new sites without extensive profit history of 3+ years and up to 50x and above for multi-million dollar sites with a long history of profitability.
Since we are exploring starter sites, you will likely have to pay anywhere from 35x-40x on monthly profits and not more. There is no reason to pay above that because most starter sites are not proven to have such a high valuation.
Therefore, a starter website making $500/month in profit will likely sell for $17,500 on average. Keep in mind that these are just rules of thumb. If you want to learn more about website valuation, check out this post.
What return can you expect?
Websites vs. Stocks and bonds
Good performing, lazy portfolios on our list generate around 7-8% CAGR. Instead of looking at growth, we can also compare the average yield or income that the stock portfolio generates vs. websites. Without taking on massive amounts of risk, we can roughly expect a dividend portfolio that is high yielding to bring in 3.5%-5% annually.
With a 5% yield, the investment of $17,500 will bring in $875 in one year.
The $500/month website you buy for $17,500 will bring in $6000 in one year. That’s a yield of 34% or almost 7x better.
Websites vs. Real Estate
According to Globalpropertyguide.com, the average rental yield in the U.S is 2.91%. If that is the case, investing in an online property will generate 11x more yearly income than a rental property.
Why do online businesses make so much money?
If online businesses were like rental houses, then a $500/month website would sell for $200,000 and not below $20,000. What’s the catch?
The answer, as always, is risk. Online businesses, especially content businesses, are extremely risky. Rental income, as an example, is relatively safe if you vetted your tenants properly. Websites however, are prone to all kinds of external factors that can change at any time.
External risks of owning a website:
– Google updates. When Google updates its search algorithm, your website can almost instantly drop in rankings and lose traffic. Traffic = income.
–Advertising or affiliate partners change their terms. Advertising partners you work with can decide to start paying less or discontinue their programs at any time.
– If you buy any traffic to your site through advertising, the cost of that advertising can go up at any time.
These risks are on top of all the other risks of running a business: customers changing preferences, severe competition, unexpected costs, and so on.
What skills do I need to run a website?
Considering all the risks, if you decide to invest in a website, you will require some skills to run it. Although you can outsource a lot of it, you will save a lot of money if you do a few things on your own.Know the content management system that the website runs on. If it is a content website, it will run on WordPress. WordPress is highly intuitive, but you should still understand its quirks and features.
–Know the basics of website hosting. Basics of cPanel, FTP, databases will be helpful.
–Understand the basics of SEO (Search Engine Optimization). You don’t have to be an expert, but you should familiarize yourself with concepts like keyword density, backlinks, and what quality SEO-friendly content looks like.
–Understand the basics of social media marketing. Again you don’t have to be an expert, but you should know how to share your posts on social channels and the basics of promoting your content.
We look at websites as investments, so a lot of the work you will outsource but understanding what you are buying is crucial. These skills will cover the basics, but luckily for us, almost every question you will have, you can Google.
Final thoughts and next steps
Online businesses provide incredible opportunities for high income with relatively low capital requirements. That is because they are risky compared to many other investments. But if you know the basics of website management, understand how to control where traffic is coming from, produce high-quality content and understand how to mitigate the risks, online businesses can provide extremely high returns.
Once you decide to venture into this fascinating opportunity, here are the following steps:
–Pick a profitable niche: How to find a profitable niche?
–Invest in content production.
–Grow your traffic.
–Diversify your content to mitigate risk.
–Exit your investment.