I must be feeling ballsy today, to title this post as such. But the truth of it, is that I just purchased a Website, and I am feeling pretty good about it.
It’s not just any Website either for me. This is a real asset. An income generating asset.
And as with any outlay of capital, it should make you nervous and excited at the same time. This is where I am at today.
A year in the making
It was during my mini-retirement, that I spent a lot of time brainstorming and trying to really figure our what I’d like to do next. Where I would find purpose?
I landed on creating a blog, writing, and exploring FIRE. And it turned out to be a great choice, because I love writing on AR! It has given me a tremendous amount of purpose and happiness, plus I’ve met some amazing content creators along the way.
Yet there is one big problem. While we are very close to being able to truly FIRE, we are not comfortably there yet.
Sure if the market keeps up at its torrid pace, we’ll be fine. But I am never going to count on that. So even though my retirement was entirely accidental, right now, I can truly only Partial FIRE. I cannot live a Purple Life.
Initially I focused on looking at purchasing a vacation rental. I read up on numerous real estate investing books, built a snazzy real estate evaluation tool, looked at properties, got involved on Bigger Pockets etc. But ultimately, we decided that investing in a vacation rental didn’t make sense for us.
And so I explored purchasing a website, instead.
After looking at real estate investments, and then switching to looking at websites, I was blown away at the differences.
Websites > Real Estate
Now, I am not a real estate expert. I’ve never owned an investment property.
There are obviously a ton of people out there, like Coach Carson, who have built amazing passive income engines and wealth using real estate.
But when I ran the numbers head to head, it was not even close.
Let’s take a look at how $50,000 invested in both Real Estate versus Websites compare:
Investing $50,000 in Real Estate
Here are the numbers I came up with, in my area, using the tools I had at my disposal for investing $50,000.
- An investment of $50,000 in a website, with 20% down nets you a $250,000 property.
- Rent in my area for a property of this value/size is about $1,800 per month or $21,600 per year.
- Debt service with a 2.8% 30-year fixed rate, came out to $822 per month
- Assuming, no immediate repairs, total monthly operating expenses would run around $528, plus insurance for a total of $7,340 per year.
- Net Operating Income: $12,743
- Annual Cash Flow: $2,881
- Cash-on-Cash Return: 5.76%
If we hold for 5 years with normal 2% property value increases, and then sell, our numbers would look like the following:
- Profit from Sale (less fees): $21,042
- 5 Year – Cash Flow: $14,405
- Cash Flow + Profit: $35,447
- 5 Year – Yearly Return: 14.18%
An overall 14.18% investment return is great. This is why so many people invest in real estate. Even if the cash flow is minimal, the additional payments of mortgage principal, and the inevitable rise in property value will provide legitimately great returns.
Investing $50,000 in a Website
Now let’s take a look at what happens when we buy a content Website for $50,000:
- We pay $50,000 outright to own 100% equity in the website.
- Monthly income comes out to around $1,500 a month, or $18,000 for the year ~ this is split between advertising and affiliate revenue, but it depends on the type of website you buy.
- Monthly operating expense will be $565 to start or ~ $6,780 a year. This is because I want to outsource all articles and instead focus on the operations and marketing of the business only.
- Net Operating Income: $11,220
- Annual Cash Flow: $11,220
- Cash-on-Cash Return: 22.44%
So the biggest difference at this point is the lack of needing debt service. No mortgage, exceedingly better Cash-on-Cash returns.
Now, if we hold for the same 5 years, assuming 10% growth (a realistic number for a property of this size), and then sell:
- Profit from Sale (less fees): $11,438*
- 5 Year – Cash Flow: $75,349
- Cash Flow + Profit: $86,787
- 5 Year – Yearly Return: 34.71%
Now, there are obviously a lot of assumptions in both models. Could the website actually go down in value? Sure. But most likely it would not, especially if we continue to create content and actively manage it.
*Seller Fees are estimated at 15% for a Website versus 6% + closing costs for Real Estate
But the results are clear when you put them side by side:
|Profit from Sale (less fees)||$11,483||$21,042||-$9,559|
|5 Year – Cash Flow||$75,349||$14,405||+$60,944|
|Cash Flow + Profit||$86,787||$35,447||+$51,340|
|5 Year – Yearly Return||34.71%||14.18%||+20.53%|
If you were presented with all of the numbers in a blind study, you would choose the website every time. Hands down!
The pros and cons of website ownership
Now, I can’t go raving about website ownership without going into the pros and cons of it. It’s not going to be all sunshine and roses. We’ll start with the negative first.
- Riskier: Investing in a website is much more risky than investing in Real Estate – Real Estate is a safe investment generally because as Franklin D. Roosevelt famously said “Real Estate cannot be lost of stolen, nor can it be carried away.” – they just aren’t making any more land. A website on the other hand, can lose all of its value overnight due to circumstances yet unforeseen. Google changing an algorithm, advertisers drying up, affiliates changing fees, etc.
- Not passive – I specifically shunned running a vacation rental due to my concern about it’s time and lack of ability to truly become passive. A website is a whole different ball game. You need to be actively monitoring it, growing it, giving it love. Much can be outsourced, but it’s not going to ever be as passive as a Real Estate investment.
- Sphere of control – Many digital assets such as social media or reliance on Google, Amazon, Shopify, Etsy, etc .are out of your sphere of control.
- New skills required – You’ll need to learn many new skills, which is both a pro and a con to run a website.
- Cash Flow – I think it was made pretty clear above, but cash flow and cash-on-cash returns can far exceeded any other investment out there. So while you may need to put in more time, learn new skills and ultimately have a lot out of your control, you certainly gain to profit if all goes well.
- Flexibility – Unlike Real Estate, you can run your business from anywhere. I won’t need to be dealing with tenant issues, repairs, vacancies, while on vacation. Nope!
- Payment Collection – You don’t need to worry about tenants not paying, or potential vacancies. Once you get the business humming, while there can certainly be unforeseen changes, you will more steadily be able to rely on payments.
- Upside – There is definitely more upside to running and growing a website. You could take a $50,000 website and turn it into a $500,000 website if you play your cards right. As Financial Samurai says “There is much more upside if you can get things right, but you can also have much larger downswings if things go poorly.”
- Low Maintenance – The nice part about running websites is that after an initial ramp up period, there is not much maintenance. AR for instance, costs me only $4 a month via Amazon Lightsail to run, and I’ve never had it go down. Only once, have I even seen a problem and it appeared to be caused by me uploading too large of an image.
- Alternative Investment – One of things I really like about websites, is that their value will not highly correlate to stock, bond, real estate, or even crypto markets. It makes for a great alternative investment.
- Sphere of Control – Actually, this is a pro as well, in that Real Estate returns will be very much out of your control, whereas the performance of the business is in your control. If you kick butt, you stand to profit even more than I highlighted above.
- New Skills – For me this is big. As part of my retirement, I want to continue learning. While both Real Estate and owning a Website will give me the opportunity, I have already learned a large amount about both in the last year.
For a bit more on how buying websites for passive income works, check out this video from Matt and Liz Raad (I have absolutely no affiliation, but I enjoyed the vid):
More on how and where to buy a website
I started looking for a website rather halfheartedly about a year ago. I signed up for alerts from Flippa, and I rather quickly realized that the quality of the websites weren’t all that up to snuff.
So I put more effort into it, and found more places you can buy and sell online business:
- Digital Exits
- Empire Flippers (a good review from Captain FI here)
- FE International
- Investors Club
- MicroAquire (SaaS)
- Motion Invest
- Private/Niche Email Lists (like this one from J$ for Personal Finance sites)
- QuietLight (majority FBA)
Alternative and more passive online business ownership options:
- BitsForDigits (for buying/selling partial stakes in online businesses)
- Onfolio (pays 12% dividend on websites that Onfolio owns and operates)
The best deals you’ll ever get on any business or property for that matter are on those that aren’t even up for sale. So I also started emailing around to some websites I liked.
Over the last year, I’ve looked at a lot of crappy websites. Buying a website is not easy.
I even got very close to purchasing a couple high quality Personal Finance websites that I thought could pair well with AR.
Finally, after a deal fell through in September, I found a listing that I really liked on Empire Flippers. It was serendipitous how I found it too. Literally the week after having a deal fall through last minute, I logged on and found the website that I now own.
Since I know you are wondering…it is a Travel/Lifestyle website.
Obviously both Real Estate and Websites have merit.
I certainly applaud anyone who invests in Real Estate, and I hope that you are crushing it if you are doing so.
But for me, I’d rather take on a bit more risk to have greater cash flow, and the potential to rake in even bigger returns.
If I regret purchasing a website in a year, I’ll let you know too. We’ll just add it to my growing list of failures.
For now though, Websites > Real Estate, and I look forward to seeing the numbers play out in real-time!