In-Depth Guide to Website Investing: Can You Earn Passive Income?

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Website investing is a thing that many people have tried and without much success. Is there a path towards passive income online with investing in websites?

Can You Do Website Investing for Passive Income?

I’ve heard a lot of talk about website investing and the potential for people to make money online completely passively. I did some further research and wanted to show you exactly how some people are making passive income by investing in websites.

I track all of my passive income and side hustle income with Personal Capital. It’s a completely free app that tracks your cash flow, income and net worth over time. It’s helped me track my net worth from negative $60,000 to over $500,000.

Making money online is actually pretty easy and straightforward. The hard part is finding your niche and specialty to have replicable success. You need to do your homework on a few sets of specialties. Once you master those specialties the online world is your oyster.

After selling a website for multiple six-figures, I’ve gone through the cycle of what others look for with digital real estate.

Investing in websites involves risk. But with determination, you might find lucrative passive income success. Click To Tweet

This is my opportunity to jot down the exact steps of what is included in digital real estate investing.

What is website investing?

Website investing is the act of acquiring a website solely for the purpose of earning both income and cash flow. The goal would be to have the website be a form of digital real estate. You can make small sets of improvements over the years to help the underlying niche website to appreciate in value.

There is a complete world of niche ideas out there that you can go off of. Niches are getting created by the day. You just don’t know it.

Niches will always be driven by the people. We want certain things and there will be trends. Some trends stay forever and some grow like a hockey stick then fade away.

Here are some untapped niche ideas to help you spur your brainstorming.

Opportunities with Website Investing

If you’d like to invest in websites, you have a significant opportunity to create capital appreciation and profit. A core component of this is knowing what to look for at the onset of your digital real estate search.

You should think about it in a similar vein to real estate. Are you investing for income or capital appreciation? Or is it a little mix of both?

Buying Websites for Passive Income

When you want to buy a website for passive income, you need to do analysis about the income potential with you putting in very little work.

You are simply acquiring the website solely to let it run on its own and you minimize your work while reaping the cash flow.

If you do your due diligence and realize that the website has a long runway of cash flow with little work, you don’t need to eventually sell the website.

This leads to the next example…

Buying (And Eventually Selling) a Website for Profit

At the end of the day, our goal is to profit. This bucket I will call the capital appreciation play on investing in websites. Here you are ready to do the dirty work. You don’t really care about the cash flow.

You are solely in it to scale the website in a certain time period for eventual sale.

All cash flow that comes off the website is used for growth to further increase the income potential and eventual sale appeal of the website.

Yes, you can do a mix of both. I’d suggest that you focus on one or the other, however.

How to do Website Investing for Profit

Want to start investing in websites? I’ll break down how to look for websites and step-by-step instructions to making money flipping websites for profit.

Step #1: Find Your Specialty

The most important part of all this is finding where you will play in the game of buying and selling websites for profit.

Let me break down a few steps into the two strategies for investing in websites.

This should help you bifurcate the difference and start honing in on a specialty for investing in websites.

These are some of the most important tips to consider in your strategy for investing in a website.

See Related: Do You Need to Register Your Website as an LLC?

If you focus on income…

  1. Look for websites that have solid profit margins.
  2. Find opportunities that already have automation set up or the ability to automate (without additional cost). If we want passive income, we need to minimize our time and maximize profit/cash flow.
  3. Invest in websites with non-trendy niches that have a defensible position organically. Use our ad revenue calculator to ensure that the site will be making money for the next several years.
  4. Conduct an audit of the website to ensure no spammy links, errors or bans.

If you want to focus on the profit from buying and selling…

  1. Look for opportunities that have favorable future trends (i.e., more people will be interested in the niche in the future than the past).
  2. Find your avenue for growth. Do you want to specialize in SEO, paid social media marketing, paid search marketing, lead optimization, adding additional revenue sources, etc.? Find the one area that you specialize in and then attack a website that does not have that yet. Use these free traffic sources to start increasing your audience right after acquisition.
  3. Look for websites that might need some technical improvements. If a website runs too slow, you might be able to extract revenue simply by speeding up the website. Also, the pros and cons of blogging are a lot different than a software website. There are things like moving a site from a crappy hosting provider to Siteground that could instantly boost traffic and revenue overnight.
  4. Do you have preexisting relationships in the industry? If so, you might be able to double revenue simply by working with people you already know.

See Related: List of Companies That Buy Invention Ideas

Step #2: Create an Email for Deal Activity

You’ll likely want to create a temporary deal origination machine so you can make sure you find the most number of opportunities to invest.

Create a temporary email to sign up for as many newsletters as possible. Why temporary? You can use this as your “hub” for new deals. It won’t clog up your personal inbox along the way.

ProtonMail Signup Dashboard

A resource like ProtonMail will do the trick.

Sign #3: Sign up for Deal Activity Newsletters

Next, you should sign up for the relevant buying and selling website newsletters.

Here are some of the best platforms for buying and selling websites.

Flippa

Flippa has gone through quite the transformation since the early days. You can use this website as a source to find domains, websites and established businesses.

Flippa Login
Flippa has done some of the most deal activity for websites since inception.

Empire Flippers

Empire Flippers is the exclusive, vetted website broker that you need to be on. This is a platform for experience website investors. All potential transactions must meet a minimum size mark and that still doesn’t even do the trick. They vet the website to ensure that it is top quality.

Empire Flippers Login
Empire Flippers has some very high quality businesses listed.

Here is a helpful video about the buying process on Empire Flippers.

FE International

Let’s take things up another notch! FE International is one of the best in breed website brokers. They handle much larger transactions up to even the multi-million dollar websites. I’d basically consider them an investment bank that specializes in websites.

Their vast buyer network makes them one of the top choices for people looking to sell at the highest valuation possible. If you are on the buying end, you know you will be getting quality.

FE International Homepage

BizBuySell

BizBuySell is traditionally known as a broker for traditional brick and mortar businesses, but every once in awhile they will list websites for sale. This can be a great way to find something off the beaten path that might be misunderstood or misvalued.

BizBuySell Login

Each of these sites have newsletters and accounts you can sign up for. Use these networks as places to build your deal funnel to screen for new website investment opportunities.

Step #4: If You Like an Opportunity Start Your Due Diligence

Diligence is when the fun comes in. Think of your new potential investment opportunity as a way to turn over all the rocks and really understand how the business operates.

You should consider all the following due diligence processes along the way:

  1. Verify financial statements by asking actual invoices and data.
  2. Dissect the Google Analytics and data of the website.
  3. Inspect social media profiles to understand current reliance and potential opportunities.
  4. Ask for verification of the email list for the newsletter and/or lead generation purposes.
  5. Verify the website is in good standing with key websites such as Reddit, Quora, Google Adsense and more.

You need to look through the P&L at each account and line item for verification. That’s not enough though.

Think about ways you can increase revenue and decrease expenses.

See Related: Can Laundromat Investing Earn Passive Income?

Step #5: Run a Valuation & Present an Offer to the Seller

Okay, you’ve found a site. You’ve done your homework. Now is your time to shine. Do your homework that will help you get to an offer that is appealing but comfortable for you.

What does a valuation look like? Valuations for stable, operating websites typically go for 25-35x monthly profit. That generally equates to about 2-3x annual profit. There are plenty of things that go into the multiple on the valuation.

For example, a website that generates $1,000 of profit per month would yield anywhere in the $20,000 to $35,000 range. Not bad for a nice little side hustle right?

Impressive, Very Nice - Patrick Bateman
Earning a few grand from a side hustle sounds appealing?

Do this a few times over and you might be on your way to independent wealth.

First, you will likely want to compile the Latest-Twelve-Months (LTM) profit. That will help capture growth throughout the year.

Some of the most important factors on multiple when valuing a website include:

  • Size
  • Growth rate
  • Profitability
  • Diversification of revenue
  • Capital structure
  • Volatility in earnings
  • Recurring revenue
  • Dependence on the owner
  • The time required to maintain the website

You can quantify a few of these different factors that influence valuation. You can’t quantify all of them, however. It’s up to you to make the judgment call on what is appropriate and suitable for your liking.

Back to investment strategy, if you want to play on the pure website profit game of acquiring a website then selling it, you will want to do the following:

  1. Buy for a low multiple,
  2. Increase the earnings,
  3. Sell for a higher multiple off of higher earnings than when you purchased the website,
  4. Profit.

If you are investing in websites solely for passive income, you should be okay with paying a premium valuation for a website. So long as it has defensible revenue and profitability.

Do an analysis of what your rate of return for letting the income simply run out into perpetuity.

Step #6: Sign a Purchase Agreement and Close

You might have your work cut out for you at this stage. You should negotiate a signing of the agreement.

Then, include a review and confirmatory period to ensure proper transferring of the associated assets of the websites.

Here are some key things to consider with your purchase agreement:

  • Representations & Warranties
  • Covenants &Indemnifications
  • Working Capital
  • Funding the Close of the Transaction

Working capital will likely come up. The person selling the website likely earns revenue on a net-60-120 day basis. They will want to ensure they get compensated for the revenue they earned prior to your purchase. Establish clear guidelines on when the cutoff for earned revenue and expenses is.

Boom you’ve done it. You bought your first website for profit.

See Related: Do You Need an LLC for Your Blog?

Things to Consider When Investing in Website for Profit

There are a few things that you need to consider when investing in a website for profit or passive income.

  1. Transaction fees will happen. In most cases, the seller will have to pay for the fees with a website. If you are investing in websites for profit, you will likely have to pay 3-10% of the transaction value in fees.
  2. Ups and downs will happen. Things won’t always go as smooth as you think. Stay motivated to extract the best possible outcome.
  3. Determination is the most underrated aspect of investing in digital real estate.
  4. Risk. There is no free lunch here.

About the risk side of the equation. There are a bunch of things that you need to know from a risk standpoint before you get started on your digital real estate journey.

Some of the most important risks include:

  • Not all people are good human beings. Scams will happen. This is where my point on constructive due diligence comes into play. You need to turn over every stone and verify all the information.
  • Things change with traffic sources. At any point in time, Google (or pick your favorite social media site) could change their algorithm or criteria for posting. This could drop your revenue significantly overnight. It’s out of your control. The best you can do is evaluate everything appropriately upfront. If it happens, do your best to solve the issue.
  • Competitors are in every niche. You stand to compete with other people that could target your readers or customers away from the existing source. Evaluate the stickiness of your revenue sources in advance.

Conclusion on Website Investing

Can you earn passive income from website investing? Absolutely. There’s a ton of people doing it right now. More than you’d think.

Are there risks? Yes. That is the big kicker. You can put $1,000,000 to work in real estate that might earn you an 8% cash yield passively.

That equates to $80,000 in passive income. Safer asset class.

You can definitely earn more than that with website investing, but it comes at a premium on the risk scale. You need to evaluate whether you want to invest in a website for growth or simply have it be an income machine.

If you are investing for growth, that is not passive income. You will have your work cut out for you albeit at greater upside for returns.

Website investing can be lucrative, but it comes at a premium from a risk standpoint. Are you willing to take the gamble? Click To Tweet

Have any questions about investing in websites for profit or passive income? Contact me with any questions. I’ll do my best to help.

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