In Why Website Investments Are Better Than Stock Market Investments I mentioned that I bought several websites last year as an investment. When it comes to buying websites, there are always two options: First you can continue running and improving the site to earn monthly revenue from it. That’s great unless it requires to much of your precious time. Passive sites, that is sites that require little to no attention at all are best for this as you can spend your precious time elsewhere without jeopardizing the monthly revenue.
The second option is to buy sites to flip them later which is called site flipping. You buy low, can optionally improve the site to increase its traffic or revenue, to sell it for a profit later on.
My intention with the site that I bought for $23,000 last year was to stabilize its earnings, reap in the rewards for a year to sell it for a profit after 12 months. I’d like to post an update on what happened to that site and where it stands now.
Here is the revenue that the site generated in the last months:
- July: $3471.80
- August: $3384.60
- September: $1957.62
- October: $1774.65
- November: $1804.44
- December: $2209.74
The total is $14602.87 for the last six months of operation. Not all of it is profit though, more about that later. You may have noticed that the revenue dropped considerable in September, this can be attributed to the fact that it is a seasonal product that is more popular in spring and early summer.
You need to subtract your expenses from the revenue. With site hosting and the domain name at about $10 per month, and a monthly SEO campaign for $399, total expenses came down to $2454 in that time. The net revenue therefor was $12148.87 in the last six months.
Since I have paid $23,000 for the site, I made more than half of my investment back at the six month mark. If thinks pick up in the coming months, I may make all the money back in the next five months. Everything is profit afterwards.
The site earns 10% from those sales.
My main intention then is to sell the website again for a higher price than I paid. Why a higher price? Because revenue history pays an important role. Buyers pay more for sites with a larger revenue history. If a site’s earnings have been steady for a year, it is more worth than a site who earned money for just one month. It is a risk factor that needs to be part of any calculation.
My intention is to sell the site for 24 times its monthly profit which would be around $50,000 which would all be profit. I may have to use a website broker for that who usually charge you between 10% and 15% for their service. This leaves me with $42,5000 to $45,000 in profit which is not bad for a year and an initial investment of $23,000.
Risks
Investments always come with certain risks, a stock may tank, a bank may file for bankruptcy, a house may be destroyed by an act of god. You face two core risks when it comes to web investments.
- 1. The seller may have not revealed all the information to you. Let me give you a basic example. A seller not mentioning that part of the site’s traffic was paid for, which for obvious reasons should have been included in the site’s evaluation. You may be able to settle this with the seller directly, but more often than not in court.
- 2. Acts of god, or more precisely Google or other traffic sources the site depends on. Algorithm changes, blackhat attacks against the web property or issues with a script the site depends on can turn revenue from normal levels to zero. While you could try to get those issues resolves, it would mean that you had to spend additional money to do so (Unless you are a do-it-yourself webmaster. Even then you’d have to spend your time fixing the site instead of using it for other projects of yours).
Check out 8 Essential Tips For Web Investors for additional tips and information.
Closing Words
Site flipping can be highly profitable, only comparable in revenue to high risk stock market investments. Most of the risks can be mitigated on the other hand with a careful evaluation.
I plan to re-invest the money into one or two web properties after the purchase.
You may also be wondering why I do not keep the site instead and let it earn the $2000 for me every month. The reason is simple: It would have to earn that amount of money for two years to even the sales price. In those two years, I could try and quadruple the money with two new investment cycles instead, provided I find the right web properties to invest in. Instead of having one site earn $2000, I’d end up with sites earning $8000 per month. after two years.
© Martin Brinkmann for gHacks Technology News | Latest Tech News, Software And Tutorials, 2012. | Permalink |
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