5 Steps to Adding a Profitable Website to Your Investment Portfolio

Experts say he was the greatest hockey player ever.

A magician on the ice, the “Great Gretzky” had a knack at being at the right place at the right time. Not the fastest skater, nor the most athletic player on the ice, Wayne Gretzky’s strategy was simple, direct and oh, so effective.

Gretzky’s secret? “I skate to where the puck is going to be, not where it has been, and not where it is now.”

Imagine that. Heading to where you need to be so you’re in prime position to leverage opportunity. That’s a great way of looking at your financial future.

In these tough economic times, it’s high time to talk about your plans for the financial future of your hard-earned assets.

More specifically, how you can position your assets to ensure that you’re ahead of the puck when the financial game gets tricky?

Why not think about the future of your assets? Why not. After all, considering your financial future isn’t a luxury – it’s a necessity.

Fortunately, there’s a way to look into the future and protect the wealth you’ve worked all your life to obtain and keep it away from financial predators who stand between you and your family’s future – investing in profit-making web sites.

Back to The Great One.

We know Gretzky’s secret weapon was his ability to visualize where the puck was going to be before it got there. And the tools in his arsenal that allowed him to out-maneuver other players were his skates and his smarts that he utilized to get where he was going.

It’s the same idea in the Internet web site investment and acquisition game.

Web site investing provides the assets you need to solidify and ensure your financial future. Like the Great One, only instead of using skates, you need a solid, dependable, perfectly web site acquisition and investment strategy that gives you.

  • Exposure to a high-quality, growth-oriented investment
  • A dependable, steady source of income
  • Protection against economic volatility
  • A relatively low-tax rate investment
  • Leverage in gaining quick cash liquidity

A Blueprint For Web Site Acquisition

There is abundant opportunity in the web site acquisition market. The landscape is wide open, as most investors stick to the traditional – and highly populated – stocks, bonds and real estate markets.

To break into the lucrative web site acquisition market, and to maximize each investment opportunity, though, you’re going to need a blueprint:

Start with these key “5 Steps” to get you on the best – and fastest path – to web site investment profits:

1) Why Web Sites As An Investment?

Not many people realize it, but well-run web sites are the Internet’s version of an ATM machine.

For example, LinkedIn earns $1.30 per hour visitors spend on the site.

Others do much, much better. Amazon, for example, is a veritable license to print money, at $1,084 per second. Google, eBay and Yahoo all earn more than $200 per second (Source).

Obviously, those are supernova sites, and the odds of making anything close to that are remote for web site investors. That said, there is plenty of paths to profit for web site owners, even for owners of small sites (See #2 and #3 for more detail on profit potential.)

But dollar signs aren’t the only reasons to get into the website investment market.

For example, there’s the “time value of money” benefit of investing in websites. In other words, a good site acquisition enables you to capitalize on the time and effort the site’s founder put into the operation. That enables you to leap frog over the traditional start-up time that small business owners routinely face.

As a website acquisition specialist, you’ll also gain the advantage of grabbing a good customer base in the purchase. That also helps you hike your market share in a given market, as you’ll absorb more consumers, more eyeballs, and more revenues in tour corner of the World Wide Web, without having to absorb pricey start-up costs. Plus, purchasing your own site means one less competitor in your market to compete against.

Also, intellectual capital is a big advantage in your website acquisition strategy. After all, creating a profitable and viable idea for a commercial venture is difficult. When your purchase a web site, you parachute in with a proven online operation that is generating cash with existing customers and existing systems and processes.

2) Types Of Web Sites That Can Turn A Profit

When you’re out there kicking tires on a potential web site acquisition, know in advance the types of web sites that can actually turn a profit:

  • Blogs – Information-based based sites that provide a regular stream of new articles
  • Content – Content-based web sites sites that have established an appropriate level of traffic.
  • Product/Service Sites – These sites built are designed to buy or sell a product or service.

Mark Faris, an entrepreneur and experienced web site investor, helpfully points out that you before you start making any bids on web sites, know what you really want from a site first.

He categorizes the most common reasons to acquire websites as follows:

1. Website acquisition solely for the purpose of quick flipping – “Possibly the riskiest website acquisition strategy, you must adopt this only if you’re confident about your skill of picking up underperforming properties having huge post-renovation and/or post-marketing return potential,” Faris states.

2. Buying a website only for its domain name – Here you’re not focused on a website’s existing content and would pick it up only for its URL. As Faris puts it, imagine if you had bought blogger.com or MP3.com a few years ago. The profit value there is enormous.

3. Buying community-based websites – Many websites were primarily built with a nonprofit intent and only for niche audiences, Faris adds. “Such websites are normally the creation of hobbyists and fans whose sole aim is to get people with the same mindset on a single platform,” he says. “Their websites may have grown so much that they may be finding it difficult to meet the bandwidth costs. Such owners are normally not good at website monetization. Here, you can step in and bank on the eyeballs their websites are getting.”

4. Buying a website only for its advertising revenue potential – There’s also an abundance of websites that have built core, affluent site visitors that regularly attract investors. That’s why acquiring sites that offer good, solid, dependable ad revenues is a viable option for website investors. As Faris notes, you’ll need to roll up your sleeves and work to keep those advertisers happy, and the ad revenue rolling in. The key is identifying sites that have good content, but that don’t have solid advertising practices. With great content, you can close the gap by leveraging that content into steady advertising dollars.

5. Buying a website and tying it to your own business – Another good avenue to website profit growth is to purchase websites where, as Faris notes, you

can steer existing traffic to your own product/service via a sales page, email list or aggressive advertising. “It’s easily one of the quickest ways to increase your customer base, provided you’re confident about the traffic’s quality,” he says.

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Where Can You Buy A Website?

Finding reputable website purchase portals isn’t exactly guaranteed. Unfortunately, there are some fly-by-night operators out there who won’t give the service you need, at best, and may try to fleece you outright with high fees and management costs, at worst.

Conversely, there are some good, quality website acquisition portals, brokers and marketplaces where you can kick some tires, trust the process, and make a good deal (as follows):

  1. Website brokers(FEInternational.com, QuietLightBrokerage.com, EmpireFlippers.com, AcquisitionStation, Flippa Deal Flow)
  2. Website marketplaces(Flippa.com, EmpireFlippers.com)
  3. Forum marketplaces(Experienced-People.net, Warriorforum.com “websites for sale” section, Digital Point forums)
  4. Directly from buyer(Google search and email contact or business and family contacts)

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3) What You Can Expect To Pay For A Website

By and large, there’s a big “landing area” in terms of web site acquisition costs, according to CloudIncome.com.

Expect to see the cost of a good, profit-potential website at about 15-20 times its monthly revenue.

Translated into a real world, initial web site purchase cost, that would mean buying a website for up to twice its annual revenues. Consider a website that earns $3,000 per month to sell for between $36,000 and $72,000. Split the difference, and investors can expect to pay $48,000 for the site.

A quick calculation reveals that, at a $48,000 purchase price, your annual return on your site acquisition clocks in at about 66% – light years ahead of traditional stock market investments (about 8% annually, according to S&P 500 historical figures; and 5% for bond market investments.

Plus, there’s an added bonus with web site acquisitions – your pay back period is significantly shorter than a real estate investment (about eight years) and between three-to-five years with a small business.

On the downside, web sites aren’t static enterprises. They do need upkeep, like fresh content, keyword search optimization strategies, and possibly the hiring of technical support to keep the “lights on” and the site up and running. Marketing and sales costs to attract advertisers can be added to the list.

There’s no hard and fast number that pins down your monthly costs in running a site, as most sites are unique and require various levels of ongoing financial investment. That’s why it’s imperative you do your due diligence, pick a site that doesn’t require a huge financial allotment, and keep costs down (and profits high) in your initial foray into the website investment marketplace.

Investment Comparison: Websites, Stocks & Real Estate

Across the board, websites rank higher in key investment categories and benchmarks that traditional investments

Investment Benchmark       Websites       Real Estate    Stocks

ROI                                         High                Low                 Medium

Operational Control                High                Medium          Low

Investment Risk                      Low                 Medium          High

Technical Management           Medium          Medium          Medium

Barriers To Entry                   Medium          High                Low

Upkeep                                   Medium          High                Low

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4) Negotiating (and Closing) A Deal

In one regard, buying an existing web site has a few items in common with purchasing a piece of real estate, or a small business.

For instance, there is plenty of due diligence to apply to the web site acquisition process. Just like choosing a new mutual fund, or a rental property, you need to knock on some doors and make a few inquiries to select the optimal web site for you.

When you target a potential web site for purchase, email or call the owner and open a line of dialogue. Ask if he or she is open to a potential investment or partnership. Once the ice is broken, you can open up another conversation on the potential of a web site sale, and begin negotiating from that point. If the owner wants you to sign a non-disclosure agreement, sign in it. An NDA shows you’re serious about an acquisition, and that you’re a trusted buyer.

When you begin negotiating, strive to be open and honest. Ask direct, open-ended questions like “how did you start your site””, “why did you start your site?”, and “what has been the experience been like?”

Open-ended questions also open a dialogue, where you can steer the conversation where you need it to go – to gauge the owner’s interest in selling, and to begin negotiating a price.

When you begin negotiating a price, establish broad terms for an agreement. That means including an agreed upon price, method and timeline of payment, and closing terms.

Once you’ve reached that point, offer a letter of agreement (LOA) that includes terms of the sale, and asks the seller to list any potential problems before a sale is closed.

5) Financing the Purchase

There is no shortage of dependable ways to finance a web site acquisition. Choose among the following options and see what works best for you:

  • Cash – In making a purchase, cash really is king. Ask any web site seller, and he or she will tell you 100% cash deals are preferred. Use that as leverage, and ask for a lower price for an all-cash deal.
  • Seller Financing – Here, you’ll pay a nominal amount upfront and set a payment schedule over an agreed upon timetable. For example, offer $100,000 for a website, with $50,000 upfront and then the remaining $50,000 paid $5,000 per month over 10 months. That gives you some protection that the web site is legitimate and performs as the seller attests in the letter of agreement.
  • Borrow from a bank or other commercial lender – If you don’t have the money on hand to complete a purchase yourself target a bank or other lender. Smaller, community banks and credit unions are usually open to what amounts to a small business loan, at agreeable terms.

After you agree to a deal, circle back and revisit your letter of agreement to ensure the seller has fulfilled every obligation laid out in the LOA.

The Takeaway

Just like the Great Gretzky, go where the opportunity is going to be to earn big profits and right now that opportunity lies in the web site acquisition market.

Certainly, the future is now in the web site acquisition market. But as more buyers enter the market, the best opportunities may become limited, so the takeaway is this: act now, because investing in web sites isn’t a luxury – it’s a necessity.

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Brian O’Connell is a former Wall Street bond trader turned freelance writer with 15 years experience covering financial news and trends. He is the lead consumer finance writer at TheStreet.com as well as a contributor to Bloomberg, Time, MSN Money, The Wall Street Journal, CNBC, Yahoo Finance, CBS Marketwatch and others.