The post The Ultimate Guide to Website Investing for Beginners appeared first on Millennial Money.
In the past, real estate investing required going out and purchasing actual properties. Today, we’re in the digital age—and opportunities abound for digital real estate online.
There are roughly 4.5 billion internet users and about 8 billion websites. If you poke around, you could find incredible opportunities to make money online through website investing.
Here is a comprehensive overview of website investing: what it is, how it can potentially make you money, and what to keep in mind before getting started.
or, skip straight to my step-by-step website investing guide
What is Website Investing?
Website investing is a strategy that involves purchasing a website with the intention of producing monthly income from it.
A website can make a great addition to your investment portfolio and brokerage account if you secure one capable of bringing in money. Buying the right website can help you diversify your investments beyond the stock market.
Of course, not all websites offer a lot of value. That being the case, it’s important to do your due diligence and study relevant metrics (e.g., traffic, engagement, and valuation) to avoid making a bad investment.
How Websites Make Money
Of your top considerations when exploring website investing is your return on investment. You have to get a clear understanding of how the website brings in cash and how much. Not all websites make money, and most of them produce very little, if any.
Here are the top ways websites make money.
Advertisements
One of the primary ways websites bring in money is through advertisements.
Some websites use Google AdSense for an automated approach to advertising that pays through click-throughs and traffic.
The more lucrative approach is to form direct partnerships with businesses and post their advertisements on a website. If you build a website that offers clear value and steady traffic, companies may be willing to pay a lot of money to post their own advertisements.
Best of all, you don’t always have to design advertisements. Large organizations typically have in-house design teams who can work with you to provide graphics.
You can achieve further revenue generation by producing custom sponsored content like blog posts or social media posts and sharing them across your email lists, if you have them.
Product sales
Another way websites make money is by selling products.
Suppose you see a lucrative offer for a website that produces physical products like T-shirts. Chances are the bulk of the website’s revenue comes from selling actual merchandise. So, if you buy that website or business, you’ll also have to either maintain production or shift to an alternative revenue model.
Similarly, you might also opt to buy a website with e-commerce capabilities. That way, you might charge a percentage of every sale made through your site.
Content
The third way websites can make money is through digital content. As marketers know all too well, a website may create or host videos, articles, pictures, or any other form of media.
On one hand, buying a website that specializes in producing digital content can be a lot easier than buying one that drives the bulk of its revenue from products. However, you’ll need to consider where the content is coming from and how much it costs to produce and maintain.
You don’t want to skimp on quality content production. Otherwise, your traffic and Google ranking could both plummet.
If you’re investing in a content website, you’ll need to learn the ins and outs of search engine optimization (SEO), backlinks, Google Analytics, and affiliate sites, among others.
Learn More:
- How to Start a Blog
- Best SEO Tips for Bloggers
- Best Affiliate Programs to Make Money
- How Much Money Can You Make Blogging?
Passive vs. Active Website Investing
Any investor’s dream is to acquire an entity that produces recurring revenue with little to no work. This is called passive investing. For example: an investment property may produce passive income—or monthly revenue—from renters who temporarily lease space.
It’s possible to generate passive income and monthly profits from a website, but it’s not easy. Oftentimes, people invest in websites thinking they can produce passive income only to learn just how difficult the process can be.
Here are some things to consider when assessing a website’s capacity for producing passive income.
Website management
Websites require daily maintenance: editorial oversight, product management, payment processing, design, and customer service to name just a bit of the workload.
If you assume ownership of a website, it’ll be your responsibility to ensure core management needs are in place.
Chances are you’ll have to pay a team to manage the website for you, which is going to cost a lot of money. Otherwise, you’ll have to manage everything yourself—which can be a tremendous amount of work depending on the scope of the operation.
Traffic
You’ll also need to determine where the majority of your traffic comes from and work to maintain that ecosystem.
Suppose you buy a website that specializes in providing gluten-free recipes. This means you need to be a subject matter expert in gluten-free food. If you stop posting relevant content for that audience, you’ll risk losing traffic to competitors.
It takes work to maintain website traffic; just ask a company like Yahoo. Don’t assume you can just jump right in and put a website on autopilot.
Learn More:
Advertisers
If the majority of the website’s revenue comes from advertisers, you could be in for a rude awakening once you assume ownership.
Advertising is all about relationships. You may not have the inroads that the previous owner had, making it that much harder to connect with partners and maintain relationships.
If this happens, you could wind up with the challenge of scrambling to find advertisers for your new page.
Long-term outlook
Just because a website is actively producing revenue today doesn’t mean it’ll continue generating money tomorrow.
Market conditions change and new competitors are bound to pop up, which can threaten your website’s presence and overall monetization. Something that seems like a sure bet and easy investment opportunity today could potentially change drastically down the line… and not in a good way. Don’t let that scare you!
Top Website Investing Strategies
Now that you have a basic understanding of what goes into website monetization, let’s take a look at some of the various strategies you can take to start investing.
Creating websites from scratch
This multi-step process involves securing a domain name and building a business from the ground up.
If this interests you, start searching for available domains. You may have to get creative about the name or use an alternative domain (i.e., .io instead of .com)
Learn More:
Buying websites
Another approach is purchasing existing websites for long-term investing or short-term flipping.
If flipping websites is appealing to you, check out Flippa, where people post domains they’re looking to get rid of. You can also contact businesses directly and make an offer.
Buying an existing website can put you in the driver’s seat of a well-oiled machine, leading to instant revenue generation with the right opportunity. It can also get you in over your head if you’re not careful.
Do your research about what you’re getting involved with before you make this type of investment. The last thing you want is to spend a lot of money on a website only to find a few weeks later that you don’t have what it takes to keep the traffic humming along.
Learn More:
Wholesaling
In real estate, wholesaling is the process of contacting a property seller and then arranging a sale as an intermediary. This strategy can work with websites, too.
Wholesaling can be highly lucrative if you’re skilled at connecting with people and negotiating. However, you’ll need to protect yourself, especially when working with strangers over the internet.
When brokering a wholesale agreement, do your research ahead of time to understand with whom you’re negotiating. Make sure they have a legit LinkedIn profile and arrange a virtual or in-person meeting if possible.
How to Invest in Websites
- Identify an opportunity
- Research a website or domain
- Understand your market
- Secure funding if necessary
- Form a business model
- Buy the website
- Conduct a website evaluation
- Make capital improvements
- Flip or create a management plan
1. Identify an opportunity
It’s a lot easier investing in a market you know about, especially if you’re going to play an active part in managing the website or you’re considering keeping it long-term. Investing in something you’re clueless about can require extensive research while exposing you to risk and volatility.
At the same time, be selective about where you invest. Just because you’re passionate about something, doesn’t necessarily mean it’s going to be a money-maker.
You may love sports and want to own a sports content website, but the online sports industry is already highly saturated. Most sports fans already have channels they go to for news and updates about their favorite teams and athletes.
That’s not to say you can’t make money with sports content. Look for ways to turn your knowledge and expertise into a niche offering with unique value that can attract new viewers.
2. Research a website or domain
Once you identify an existing website or domain, the next step is to do some preliminary market research.
Conduct as much groundwork as you can from the resources available online. Identify the potential cost of the website as well as potential competitors. You should also scour the internet for anything related to the website or domain.
The point is to determine a possible return on your investment. You also want to determine the level of risk. You may find a great domain but discover the website had a scandalous past, shady ownership, or a history of data breaches.
Compile everything you can during this stage. If you’re really interested in securing a website, you may even want to hire a digital private investigator to uncover additional data you may otherwise be unable to find on your own.
3. Understand your market
It’s not enough to just look at the website you want to buy. This is a business investment, after all. As such, you need to cast a wider net to determine if it makes financial sense for you.
The most important thing you can do in this case is to trace your money down to its roots. If you’re going to sell advertising space to sponsors on your website, research those organizations and the larger industry as a whole. Determine who’s supporting those organizations and the market’s longevity.
The last thing you want to do is invest in a website and then have the market dry up around you. Read market reports to understand the key drivers in your target space. This can also help you discover new opportunities.
4. Secure funding if necessary
Websites aren’t cheap, especially if you’re looking at purchasing an established business with strong vitals. Depending on your cash reserves, you may need to look into acquiring outside funding.
Be very careful about who you approach for a loan. Unless you secure a traditional business loan, chances are a lender is going to want either an equity stake in your operation or to tack on a hefty interest rate to your loan.
If you accept a loan to start a website, you’ll automatically be on the hook to repay the lender, adding pressure and stress to the process. Depending on how business goes, you may have to surrender control of the operation to the lender, which can change the direction of your investment and force you to make decisions you may not like.
Of course, working with a lender can also expose you to critical growth capital and further your investment opportunities. A lender may also be able to provide additional market research capabilities and resources that you can’t access on your own.
Add it all up, and going in with a team could have major advantages.
5. Form a business model
Before you approach a lender, you’ll want to have a business plan in place to prove you’re serious and ready to hit the ground running.
This is necessary whether you intend on flipping the website immediately after buying it or maintaining control and trying to scale the operation.
If you buy a website without a plan, bad things can happen. You may forget about it and move onto another opportunity or run into unexpected problems.
6. Buy the website
At this point, you should have funding in place to buy the website, confidence that it’s going to produce a strong return, and a business plan to make it all happen.
The next step is to buy the website over an exchange like GoDaddy if it’s a new site or through a private arrangement with the site’s owners.
During this process, you’ll want to be very thorough. Get everything in writing and don’t wire any payments until you’re completely certain the arrangement is legitimate.
If you’re dealing with a significant amount of money or an established business, you’ll probably want to have an attorney present to guide you through the process and make sure everything goes smoothly.
Technical questions to ask when buying a website
Database structure
You should inquire about the website’s database structure. Make sure the database is up to speed and capable of supporting your intended goals. This is important if you hope to scale.
Cloud usage
Not all websites live in the Cloud. Oftentimes, they run on proprietary networks that can be expensive to manage.
So you need to find out where the website’s data lives and how it’s managed. The website may be using Amazon Web Services (AWS), Google Cloud Platform (GCP), or Microsoft Azure to host the website or store information.
Get a sense of how much work you’ll have to do once you assume ownership of the website. If your website is hosted in an on-premises data center, you may need to bring in a technical expert to oversee a cloud migration to future-proof your site.
Cybersecurity
You’ll also need to inquire about the website’s cybersecurity features. Make sure it’s fully encrypted and up to date with the latest security standards. To improve the chances your investment succeeds, ask the owner whether the site has a history of security issues or data breaches.
7. Conduct a website evaluation
If you inherit an existing website with an operational team, you’ll want to round up key decision-makers—designers, developers, sales associates, managers, and content producers—and try to keep them on board.
Get a clear sense of everyone’s responsibilities and inquire about any underlying technical considerations.
You also need to do a gut check and find out who has access to your website. When you solidify your new team, you’ll want to change your passwords so that no unauthorized users can access your account.
8. Make capital improvements
Once you purchase a website, you may be in a position to make capital improvements that can enhance the value of the site and increase its resale value.
How much control you have largely depends on your specific agreement. For example, if you accept money from a lender, chances are you’ll have to run any ideas by them before you execute. If the financier is more hands-off, they may defer to you.
With that in mind, here are some possible capital improvements you can make for a website.
Multi-factor authentication
If your website allows users to create accounts, consider adding multi-factor authentication to protect their private data.
This may include asking security questions or linking their account to a phone number. This is important if you run a website that stores payment information, cash reserves, or other private and sensitive data.
UX
Another way to enhance your investment could be to update the user experience (UX).
Consider consulting a developer and looking for ways to make the site more user-friendly. This may involve rearranging the design of the site, adding buttons, or changing the layout so that it looks high-quality.
Similarly to buying a house, you have to look at the potential of a website. Just because it looks one way today doesn’t mean it needs to stay that way forever. A few small changes may have a major impact on the quality of the UX.
In some cases, a website may be beyond repair, especially if it hasn’t been updated in a decade. If you have the money or expertise, you may consider scrapping it altogether and building a new one from scratch on the domain.
Mobile experience
Take a look at how the website functions on a mobile device. Poor mobile design can negatively impact SEO and deter viewers. Talk to a designer about enhancing and modernizing the mobile look of your site.
You may also want to explore building a mobile app for your website if it aligns with your vision and user needs.
Live chat
Live chat is a relatively painless add-on for a website. This option lets site visitors connect instantly with you or another team member to place orders, resolve issues, or request information. You can also augment live chat services with bots for automated after-hours support.
Further, you might decide to implement live chat to enable your users to talk with one another. It could be a relatively easy way to boost engagement on your site.
Content overhaul
Conduct a site-wide content audit and determine whether it aligns with your brand’s needs.
If not, consider overhauling your web copy and adding a blog if you don’t have one already. Websites require steady content production to rank well and impress visitors. In today’s digital age, this is not something you can overlook.
Sustainability
Behind every website is a server: a piece of hardware or software that provides core computing functions. Larger websites may even use multiple servers. These are massive energy drains.
Consider ways to make your website greener and use that as a selling point on the back end. You may be able to attract an environmentally conscious buyer.
9. Flip the website or create a management plan
Once you make structural and cosmetic changes to your website, the last step is to either keep it and form a long-term management plan or sell it to the next investor.
If you decide to flip it, make sure that whatever capital improvements you make don’t exceed the value of the website. You don’t want to get into a situation where you buy a website for $10,000, put another $10,000 of work into it, and sell it for $10,000.
When it’s time to flip the website, you should consider going to competitors first before you put it on the market. You may be able to get more money selling it privately to a competitor than you can to another random investor.
The Pros and Cons of Website Investing
Pros
- Location doesn’t matter like it does with physical real estate
- Possible source of recurring revenue
- Work from home
- A website investment can diversify your portfolio and introduce you to a new asset class
- You can potentially flip a website for a lot more money
- Increase your net worth
Cons
- Domains and maintenance can be expensive
- Most strong domain names are taken
- Cybersecurity can be a pain
- Websites require a lot of resources
- Long-term outlook can be difficult to predict
Tips for Website Investing
Know your limits
In Magnum Force, Clint Eastwood famously says you have to know your limitations. In other words: just because you can do something doesn’t necessarily mean you should.
You may have the resources to buy a website and a plan for potentially profiting from it. Yet there may be better places to invest your money: stocks, bonds, index funds, exchange-traded funds (ETFs), mutual funds, physical real estate, real estate investment trusts (REITs), or alternative investments like bitcoin.
Running a website can be a massive undertaking and there’s no guarantee you’ll profit from it. So, before you make an investment, you need to decide whether it’s something you really want to move forward with.
Buy from someone you know
It’s a lot easier to buy a website from someone in your personal network, whether it’s a friend or a trusted business connection.
If you buy from someone you know, it’ll be easier to obtain key technical information about the website. They’ll provide you with more comprehensive information about things like database structure, monetization, or traffic patterns.
It’s not always easy to obtain this information when buying from unknown sources. Sometimes, people try to hide key details, leaving you to figure them out after you make a purchase.
You almost certainly want to avoid such a situation.
Don’t go all-in
A website most likely falls under the category of an alternative investment. As such, the amount you put in should be a small fraction of your overall portfolio.
For best results, prioritize diversification and allocate your money appropriately so you can reduce investment risk.
Consult with a financial advisor
If you’re considering making a substantial investment in a website, a financial advisor will be able to walk you through the process and determine if it’s a suitable investment.
Remember: there’s no shame in asking for help or advice when making a business deal. Working with an advisor can reduce your risk and increase your chances of making a successful investment.
Alternative Ways to Make Money from Websites
As you go through the process of investing in websites, you may find it’s not worth the hassle. If so, here are some additional ways to make money from websites.
Content creation
Companies across all industries need content to educate customers and rank with search engines. You can make money producing multimedia content for companies as a freelance writer or video producer.
Auditing and consulting
If you want something less resource-intensive, start a side hustle auditing or consulting for business websites. You can offer advice on content, SEO, social media, and UX (user experience) considerations. Businesses may hire you to provide feedback and help them find cost-effective workarounds.
Peer-to-peer lending
Websites can be very expensive to manage. Oftentimes, business owners seek peer-to-peer (P2P) lending solutions to fund digital growth.
Instead of going through a website purchase, think about offering companies personal capital to upgrade their digital services. This approach can be less risky and just as lucrative if you charge interest.
Frequently Asked Questions
What is website investing?
Website investing involves putting your money into websites or domains. The purpose is to produce a return on investment, just like other asset classes.
When investing in websites, you can either buy an existing site or purchase an unregistered domain and build your own from scratch. It largely depends on your goals and vision.
What are alternative domains?
The vast majority of websites today use either .com, .org, .net, .edu, or .gov. Yet there are alternative domain extensions to explore.
For example, some tech companies use .io and .media. You may also see .work, .me, or similar variations. They can work just as well as a traditional domain extension and potentially grant you access to better website names you can’t otherwise access for affordable prices.
The one caveat is that .com is considered the upper echelon of domains, so you may want to try to secure a .com URL if possible.
Is website investing hard?
Website investing can be very difficult and it’s not recommended for beginners or people without much technical experience. Rushing into a website investment could be a disaster if you’re unprepared.
Consider working with an experienced advisor if you’re looking into website investing for the first time. It also helps to have a developer on your team, or someone you can routinely turn to for technical issues.
Is digital investing better than real estate investing?
One of the top misconceptions about digital investing is that it doesn’t require as many resources. The truth is that maintaining a website can be highly resource-intensive.
One of the top reasons websites fail is because investors don’t factor in the resources it takes to keep it running at a high level.
That said, some digital investments can be absolutely worth the money. The same holds true for physical real estate. Approach each opportunity on a case by case basis.
The Bottom Line
If you’re looking to diversify your income streams and improve your cash flow, then website investing could be a good option.
Here’s a disclaimer, though: If you decide to use any of the above-mentioned monetization methods, take the opportunity seriously. Buying an online business can be a tremendous amount of work, which I can attest to from first-hand experience!
Above all else, you’ll need to educate yourself on what it’s like to run a website. Listen to podcasts, read online forums, and talk to technical experts who can help you understand more about the process.
Don’t make a move unless you’re ready to take on the responsibility. Otherwise, you may end up regretting it sooner than you think.
Here’s to making the best decisions about website investing and working hard to achieve a secure financial future!
The post The Ultimate Guide to Website Investing for Beginners appeared first on Millennial Money.
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June 09, 2021 at 04:35PM
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