Owning a website is better than owning real estate. I’ll prove it.

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.

So when I planned my early retirement withdrawal strategy, it was becoming very clear that a big part of the plan was to start to build up passive income.

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 are by far and away more profitable than real estate. And it’s not even close.

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.

Real estate is a great investment, and I am not downplaying that one bit.

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

Head-to-Head Results

But the results are clear when you put them side by side:

WebsiteReal EstateDifference
Initial Investment$50,000$50,000$0
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 Return34.71%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!

From a cash flow, yearly return, and overall profit standpoint:

Website > Real Estate

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.

Cons

  • 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.

Pros

  • Cash FlowI 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.
  • UpsideThere 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 InvestmentOne 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:

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.

Final Thoughts

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!

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10 comments

  1. I always found Real Estate rental incomes to be a hit and miss prospect with the unexpected maintenance and occupant driven costs, and Capital gains are not always as strong as you might hope. Our experience with websites has been the opposite.

    We have studied with Matt & Liz Raad, through eBusiness Institute. Their courses and support are excellent, even for beginners.

  2. As I get older, I’ve definitely become more a fan of running a website. It helps to have a great web administrator protect and maintain the site.

    The only downside is that if your site grows big enough, you will inevitably attract haters for whatever reason. So you’ve got to grow a thick skin and keep on doing you!

    Keeping low key is the better way to go. But it is also harder to grow. But if you enjoy writing and connecting, it doesn’t really matter.

    Why not do both!

    Sam

    1. Haters gonna hate!

      Thankfully for me, I am the great web administrator. Having a software engineering background (and also WordPress background), has helped immensely.

      Low learning curve to getting this site up and running, and I can focus on the core business of the website I bought as well.

  3. I love it!! The thing that I love about websites is that you don’t pay with money, you pay with sweat equity.

    Real estate, you NEED money but one $300 website can turn into a gigantic success down the road, potentially millions. You can’t make millions in one real estate property with $300, unless your holding period is a century.

    I also know that the skills I learn in building a website is a marketable skill that companies would get value out of. A website I believe is the best business in the entire world.

    1. Spot on about marketable skills. For me that is a non-issue, because I’ll never have a job again (unless things go drastically wrong), but there is so much to be learned in the business world. Running a website is a fast track learning experience that will give you additional skills to bring to whatever career you are in.

  4. The real estate argument gets even worse if you include proper taxes in the cashflow model. also as a leveraged investment you could lose significantly more than the example $50K initially put down online the website where total exposure is $50K.

    I never understood why people like rentals so much. maybe it’s because it’s something they understand or it’s an easy way to get a lot of leverage on money you don’t have.

    Solid article!

    1. Yeah as discussed on Twitter, people like Real Estate so much because of the stability. There isn’t as much upside, but there also isn’t as much downside (though right now plenty recent upside). You know generally what you are going to get, and also how to manage the business.

      Websites on the other hand have near unlimited upside, if you can find the right one that is profitable, growing, etc. – the sky is the limit.

  5. Congrats! Send me the link to your new site! I’d love to click around 🙂

    J$ did this a lot back in the day and made some excellent coin buying/selling sites. I’ve always been curious how it worked so thanks for laying out your research. And good luck with it all!

    Cheers!

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