5 Reasons Why Buying Websites is a Great Investment Strategy
Hi guys, I build and buy websites to generate passive online income. Website investing is the concept of buying profitable (cash flow positive) websites, fully monetizing them to maximize their monthly profitability and cash flow, and then using that income to do whatever you desire in life. (help pay the bills, travel the world, quit your job, buy a lamborghini – my dream, etc.).
The value of my websites makes up about 60% of my total investment portfolio. The other 40% lies primarily in equities in my eTrade account. However, 90% of the income that my investment portfolio produces comes from my websites.
Websites are some of the most lucrative investment opportunities. Here are 5 reasons why I invest both my time and money into website opportunities:.
1. Websites generate monthly income, regardless of how many hours you work
If you look at my BMW website you’ll notice I haven’t posted a new article since April 1st (which is bad). Outside of generating content for the website, I maybe spend an hour a month on it just making sure the plugins are updated, comments are approved, etc.
So in the past 5 months I’ve probably spent 3-4 hours actually working on the site. But it’s still generated over $2,500 in that time frame.
Most people in the world make money based off of the amount of time they work. This is a perfect example of how passive website investments go to work for you, instead of the other way around.
The majority of websites have extremely low operating costs, usually just a few bucks for hosting, so almost all of the money they generate is profit.
Of course, different online business models have varying operating costs and time requirements. Our goal is to find investment opportunities that are extremely passive and generate stable monthly income. In a later blog post I’ll cover my favorite online business models and the types of investments I look for to achieve this goal.
But can’t you buy ETF’s or stocks and get monthly income too?
Sure. And it’s more passive than buying websites. Any website is going to take at least a little bit of time to maintain on a monthly basis, and even more time if you want to grow it. Buying an ETF takes maybe 30 minutes of research and then you never have to put in any more time. So why buy websites instead of ETF’s?
Bullet two will go a lot more in-depth, but simply, websites generate a lot more income than any ETF or traditional stock/bond investment does.
On my About Me page, I told you how the two websites I purchased generate me 2.2% (of the purchase value) of income on a monthly basis. If you multiple that by 12, that’s 26.4% per year. You might be able to find an ETF that pays 5-6% annually. At those percentages, a $10,000 investment in websites will make you $2,640 in income on a yearly basis vs. $600 of income for the ETF.
However, the caveat is that websites are extremely more risky. Read my article on The Risks of Website Investing to learn the downside risks of buying websites.
2. Valuations are attractive
Websites are valued based off how much money they put in your pocket on a monthly or yearly basis. They typically trade anywhere from 1-3x yearly profits, or 12-36x monthly profits.
A lot of people look at this multiple as a payback period whereas a 2x yearly multiple means a 2-year payback period. Theoretically, that payback period is correct, but it’s a terrible way to look at a website investment.
Why? When you put your money in a bond ETF that pays a 5% annual dividend, do you think “Oh that’s a 20 year payback period”? Probably not, because you know that you can always sell the ETF to get your original cost back (not taking gains/losses into account). You can sign into your trading account and see it’s value, and liquidate it whenever you want.
You might not be able to see the value of your website on a day-to-day basis, but it always has value so long as it is still running. It’s a lot less liquid than traditional investments, but they are also significantly cheaper. If you pay 2x for a website, that means you are getting a 50% return in year 1. So long as the website maintains its profitability over that year long period of time, it is still worth exactly what you paid for it, if not more.
The historical average price/earnings ratio (PE ratio) of the S&P500 is 16x. And corporations don’t pay 100% of their earnings out in dividends. A website will sell for a 1-3x “price/earnings ratio” AND you get every single dollar it generates.
3. Returns can be far better than the stock market
I compare most things on here to the stock market, because we look at websites as investment opportunities. I don’t buy a site for fun, I buy a site because it makes me money – so logically I compare things to the alternative where most people put their money to make money: the stock market.
2017 was a fantastic year, the S&P500 was up 24.1%. A lot of people were probably pretty pissed when they realized 50% of their investment portfolio was in fixed income which was flat, so their overall return was only 12%. As we head further into the longest bull market in the history of the stock market, we are inching closer and closer to a recession.
Websites are generally less volatile and less affected by global economic trends such as recessions. If you run an eCommerce store that sells $10K Rolex’s, this might not be the case. But for most online businesses, this is true. When the market takes a nice 20-30% decline, my BMW website will still get 20,000+ unique hits per month and will more than likely still make $500/month.
So even in 2017 when the markets were up 24%, my website investments outperformed the markets. And when the markets are down 20%, rather than only beating the market by 10%, I will be beating the market by 40-50% because I won’t see any revenue declines.
4. They can give you lifestyle freedom
What is lifestyle freedom? Lifestyle freedom is having the ability to design your life how you want to. Meaning you have the ability plan YOUR 24 hours how YOU want to. Do you want to work from the beach or an office? With running a website, all you need is the access to the internet. For example, one week you could be working out of Bali and the following week you can be in a villa on the beach in Morocco. If you don’t want to travel the world, you don’t have to. If you’re a homebody, owning a website gives you the ability to work whatever hours you want. Don’t want to wake up at 6 to go into the office? Don’t. Work from your bed on your laptop. Don’t want to work weekends? Don’t.
Whether your investment strategy is to generate enough income where you don’t have to work, or to accumulate as much wealth as possible, investing in a website can achieve both. For example, if you need $50,000 to live your ideal lifestyle, if you invest in the stock market you would need $1,000,000 (using a realistic 5% yield). However with investing into websites, you could theoretically achieve that same $50,000 in annual income with just $100,00 – $150,000.
5. They are easier to buy into and sell out of than traditional direct business investments (such as real estate)
One caveat to website investments is that they are generally less liquid than public markets. But, they are still significantly more liquid than other traditional, direct business investments. Real estate is a common investment that we can compare this to.
The acquisition process for real estate is far more cumbersome than it is for websites. Once I find an opportunity I am ready to undertake, I can purchase and be in full-control of the website within a matter of days. With real estate, it is usually a month long process, if not longer. Not to mention needing to be physically present to sign documents, inspect the property, etc.
But it seems like everyone wants to invest in real estate. Why? It is passive and can generate nice passive profits. Websites are exactly the same, but you can operate them from anywhere since since you just need a computer and wifi. And when selling time comes, you can exit them a lost more cost effectively and time efficiently since there is a huge website investing marketplace on the internet. Your buyers aren’t only in the location of your physical real estate, they’re all over the world.