How to Invest in Websites With Jeff Hunt

Today, we are going to talk about the topic of website investing.  That is, buying into cash-producing websites and the market that has developed around these online properties, and exactly why you should be interested in that.  And then, we’ll get into how you do that, in pretty good detail during this short conversation.

I would guess that most people listening to this today have a website or are planning to have a website.  Those are assets.  They really are assets that have value, and whether it’s your own or someone else’s that you’re looking to buy into. There’s a lot of value there, in terms of the net worth of the traffic that you’ve generated, of the process that you have in delivering that product to a customer. There can be value in selling what you've developed or looking for things that compliment what you're already doing. Click To TweetWe’ll talk later about how you can actually pick up and acquire audiences.  You don’t have to always build things up from scratch.  That’s just one of the key components of why you would want to do this.

Educating Yourself About the Market

The first step was one that I didn’t do my first time around, and that’s educating yourself a bit about the process.  Anytime you make any kind of sizable purchase, whether it’s a cell phone, or a car, or a house, you really need to know something about the market.  That’s important.  At the time, when I started doing this, seven or eight years ago, there was really almost no information available about how to buy a website, and do it safely, and choose the right one.  How do you build a business, even if you’re not looking to be an angel investor and go out and acquire things?  How do you go about finding something that can complement what you already have?

I mean, content marketing is one of the big topics today, and it’s all about sharing audiences.  I don’t care what your topic is. Say it’s about travel, or poetry, or whatever, I guarantee that somewhere out there is a website where someone has already developed an audience around a website that’s very complimentary to what you do.  I’ve known a lot of internet marketers who have bought websites for nothing more than the list that comes with them or the traffic to the website that’s already there. Then they can actually sell their own service on a website that already has that traffic and audience.

So, the first step is education, and we can get more into how we do that, but essentially, one of the key parts of education is actually getting on the list of brokerages and marketplaces that sell websites and beginning to look at the listings.  Educate yourself by reading about:

• What does the website do?
• What is its product?
• How does it attract its traffic?

And, you just really want to understand a lot of the business models that are used by a large variety of websites for making money.  There are a lot of fascinating, different stories out there about how people do that.  I could tell you a whole lot of stories that I could tell you about with websites that are for sale.  But, that’s kind of… That’s the first step.

Search and Collect Listings

The next step, as I alluded to, is the search.  What that means is getting yourself on lists and beginning to collect listings.  So, in your search, you’re looking broadly, and then the next step is to kind of narrow that search down to a few listings that you’re more interested in.  The next step, after that, is actually some due diligence on those listings, to really get in and ask questions about those sites to make sure they are really what you would be interested in and that there’s no funny business going on behind the scenes.

Then, really taking it down to a single one and completing a transaction, where you’re taking over the assets from the seller.  You’ve negotiated a price, and there’s a process for making sure the money is safe in escrow and that you’re protected with contracts while that transaction takes place between you and the seller to make sure that you’re getting everything that you think the seller told you that you were going to get when you made the offer.

After it’s yours, the next step is “what do you do with it?”  How do you optimize it, and how do you control the business that you’ve just purchased?  Then, you move on.  Perhaps, later down the road you just sell  it, or you may not.  You may just fold it into your own portfolio.

People attack this in different ways.  Some people have portfolios of smaller sites.  Many guys really look for something that’s bigger, where they can sort of invest all of their energy into it.  It’s a good idea to be focused in your approach.  That’s certainly the case in website investing.  If you own too many of them, it can be hard to optimize any of them.  Some people really hone in, and they might buy one site and then actually just augment it with complimentary, symbiotic kinds of sites, as opposed to just going out and trying to find anything at all that might make money.

A question I often get is, “Should I build mine around a theme or a particular type of business?” I’ve seen that to be very effective.  It’s effective because you begin to learn more about the nuances of that sector or that business model, and you also have resources that you can leverage.

Maybe you have technology, or maybe you have relationships with an ad network, or many things that you can leverage when you buy a new business.  And, other buyers that you are competing against with that business might not have the resources that you bring to the table.  For example, you might already have an audience, and you can sell the product of the new website to that audience. You’ll get a lot more value out of it than someone who didn’t have that audience.

On the Job Training

Clearly, to me, on the job training is one of the most important things.  That is something no one can do for you.  Just reading the listings, kind of putting a plan together, and there’s certainly some resources available on the Web.  Different brokerage sites have blogs where you can read about isolated topics.  There really aren’t very many courses out there on the topic of website investing.  There’s really only like one or two.  I put all of my experience into a video course that I developed, and it’s something that I continue to keep updated.  That’s important, and even beyond that, just getting other eyes on the deal. It’s not just an academic exercise. As you walk through the process, finding people that you can have a relationship with who have some experience in these and will say, “Hey, that’s a good one, ” or “That’s not a good one,” or “You ought to be asking the seller these kinds of questions.”

You know, a lot of that you can find in course materials, but it’s really hard to find that online.  As you can imagine, “What can I ask the seller about this deal?”  Try to Google that, and you’re not going to get many answers.  There’s the informational kind of education, and then there’s the experiential kind, where you’re not only looking at listings, but you’re also throwing some questions out there to the seller just to see what the give and take is like in a transaction.

Just on that point, it’s interesting, the kinds of people who buy websites.  One big category, surprisingly, is real estate people.  They’re not technology people, but they’re not afraid of deals.  They understand this process of, “Go find an asset that has some value, dig in a little bit, do a little research and due diligence, and make a deal.”  So, they’re not afraid of that.  When they hear me talking about buying revenue-generating websites, online businesses.  It’s kind of like online virtual real estate they’re in, and there are other people like that as well, who you wouldn’t necessarily think that this is the first guy that’s going to buy an online business, but in fact, there’s really a variety of people who are attracted to this model.

Resources for Investing in Websites

Flippa.com is the biggest marketplace for lower-end websites.  And, when I say low-end, I mean anything less than $50,000.  So, it’s not that low, but at any given time, every week, they have about 3,000 websites for sale concurrently, and they sell a great number of them every week.

Then, the other category is brokerages.  There are a lot of online business brokerages, not the kind of Sunbelt business brokers that we know, that sell the brick and mortar things.  Companies like F.E. (Frank Ernest) International, Quiet Light Brokerage, or Empire Flippers.  These are all companies that specialize in online businesses for sale. Those are the ones that you want to visit and get on their lists to buy.

I also have a private buyer’s list called WeBuyInternetBusinesses.com.  I’m not a broker, per se. However, because I’m pretty visible in this area, I get a lot of people asking me if I can help them sell their sites.  It’s just a private list, and I send it out to the guys on that list.  Feel free to sign up there as well.

Return on Investment

We didn’t really talk about the return, which we’re this far in and I can’t believe I haven’t mentioned it.  Websites are selling at somewhere between 2 and 3-year multiples of net income. Click To Tweet If you just do the basic math, what that means is that, if it’s a 3-year multiple, it means that you’re getting about 33% return on your investment every year, assuming that the website holds its value over that 3-year period of time.

As everyone knows, 33% is a fantastic return, and even higher-quality sites are selling at that 3X multiple.  Of course, there are some newer sites, maybe a little more risky and less tested sites that are selling at, maybe 1.5X-2X.  You don’t have to go on up to the 3X. But, that’s really what’s attractive to a lot of investors and new business owners about this. You can buy into a site that can potentially make you about 33% on your money.

Investing in Your First Website

“What do I need to bring to the table in order to invest in my first site?” The answer is that I’ve bought $100 websites, and $400 websites, and $40,000 websites.  And, it goes way up beyond that.  You can buy in for almost nothing.  Now, truthfully, the fact is that the less you spend, the lower quality you’re going to get.  So, when you buy a $400 website, chances are it’s brand new, it hasn’t stood the test of time, and you know, we don’t know if it will survive a Google update.

We may not even know if the thing is legitimate or not.  Some of the traffic might be fake and those kinds of things, and there are steps that we take to avoid buying into low-quality things, and we talk about those things a lot in the course.  But, the 33% return over three years, probably isn’t going to hold if you buy something that’s pretty new and may not last six months.  So, you have to keep that in mind.

Certainly, the amount of money that you have doesn’t really keep you out of the market.  As long as you have a few hundred dollars, you can get in.  Now, the reality is that these things that are less than $5,000 – $10,000 are not real businesses, in the sense that they probably don’t have several years of history.  They may have traffic, and they may have a product, and they may have all of the pieces of a business, but it may not be as sound as what people would call a real business, until you spend a little bit more.

Lots of people, including myself, have found really good deals in that range of less than $10,000.  I bought one for $400, three years ago, and I checked back and I had made $900 on it.  My $100 website, I have made $350 on it. Even those you can stand to make a really good return on.  If you’re going to launch something, you’re probably going to get something a little more substantial.  If it has more intrinsic value, it’s probably going to cost you more.

Narrow Down Your Options

The next step is narrowing things down.  Getting acquainted enough with the website, doing the reading and maybe a little bit of searching on it, and checking some things out that would make you want to take it to the next level.  We call this evaluation, and essentially what you’re doing is, you kind of develop a “watch list”.  Maybe you’ve found 3-5 listings that you’re interested in and might be something that you would actually buy.  You’ll start sending questions to the seller about those, and you’ll probably have an interview with the seller.

One of the key tools in due diligence is to have a face to face, kind of like over Google Hangout or over Skype, where they can show you the behind the scenes elements of the business.  So, like sales transactions, or maybe if it’s an eCommerce site, they’ll show you the shopping cart, maybe the PayPal statement, and those kinds of things, so that you’ll get an idea that it’s legitimate.  Most sellers will do that for you, even before you’ve negotiated a deal, particularly with the lower – end kind of websites.  Other sellers will do that during an escrow process.

This next step is kind of the beginnings of the due diligence.  Maybe you have those 3-5, and then you narrow this down to one that you’re really serious about buying.

Negotiation and Agreement

The next step, is actually, getting into negotiation and trying to figure out, “What is this thing worth?  What’s the value of it?”  And, I talked just real briefly about the multiples of net income that we use to kind of price sites, but there’s a little bit more to it than that. Every business is different, they have different risk profiles. For a real risky business, you’re not going to give them the same multiple than for what you feel like is a stable business.  You’ll think through that and kind of put a price on it.  It’s not that complicated.  The truth is that it’s not that hard to decide how risky the business is and to put a price on it that you think it’s worth.  So, that’s kind of the next part, that negotiation process.

The step after that is once you’re sure that you want it and you’ve reached an agreement. For lower-end sites, you may not need a contract.  You can kind of rely on the escrow process, which I use Escrow.com.  I’ve used them 20 or 30 times.  Essentially, the buyer’s money goes to escrow, once escrow has the money, the seller transfers the domain, and the website content, and all of the stuff that you’ve bought. 

Then, there’s a period where you get to inspect it.  You just make sure that the traffic really is coming in, the sales really are coming in, and you’ve got everything that the seller says was included in the deal. Let a little time pass.  Then, you tell Escrow.com, “Yup, it looks good.”  That closes the deal, and they release the funds to the seller.

So, for smaller transactions, a lot of times you can rely on escrow to keep both parties safe.  For a little bit larger transaction, you’re probably going to want to have an attorney, or if they are working with a broker, you’ll want to have contracts already established, that you could customize.  That keeps you safer because there can be some things that go wrong with escrow, and you certainly don’t want to risk it if you have a lot of money at stake.  That’s the next important step in the buying process.  Anybody who has bought a home has probably been through something very similar, although you don’t have a stack of papers buying a website like you do with a house.

During that escrow process, you’ve probably made the transition.  If you didn’t have a web hosting account, you do now, where you took one over from the seller.  Everything belongs to you, at that point.  Then, what’s important, in my course I talk about low-hanging fruit. Every business has some smaller, easy things to do that you can increase profits pretty quickly with, or at least you can test it.

And, I’m talking about things like, let’s say you buy a business that has only one price.  They’ve got one product, but there’s always buyers that want a premium version as well, or something, and they are willing to pay three times that.  There are other buyers that want a discounted version of something.  So, if you buy a business and it only has a one-priced product, that’s a real simple one.

You just add two or three levels of the product and differentiate it by expedited shipping, or a bonus training, or an eBook. You know, these are all familiar things to internet marketers, but every business has them, whether you are an internet marketer or not.  Or, if you’re buying a publication, moving the ads around to get better click-throughs, or increasing the conversion rate on an opt-in page or on a sales page.  All of those kinds of things are real simple, and when I buy a site, I already have those in mind well before I ever buy it.  “Hey, I know that I can do these three or four things to tweak this thing and get more money out of it almost right out of the gate.”  That’s really what you look for.

Then, as business people, we also want to put controls around it.  We just bought it, but actually, when I buy something, I’m thinking about selling it from the day I buy it, even though I don’t sell a lot.  That’s not my intent or objective, but I want everything to be in place in case I do sell it.  So, I want to make sure Google Analytics is on, capturing all of that, I want to have a spreadsheet that tracks the sales and the expenses by month.  I want to have some basic processes.  I want to make sure that the site has its own email account set up so that if I ever sell it, the email accounts transfer over and that it’s not dependant on my own email for customer service and those sorts of things.

That’s just a list of basic things that responsible business people are going to want to do with a new website, and believe me, those things sound pretty basic, but you won’t believe how many businesses there are that don’t have those basic things in place.  If you do those things in place, you can stand to sell them for a lot more.  You might sell them for an extra point in multiple or something like that because the potential buyers in the future would just feel like, “Hey, this seems like it’s under control.  It’s working.”  And, they’ll develop some trust in who you are as the current operator of the business, and they’ll feel like they can be more successful themselves with it.

I sometimes talk about passive income from website acquisitions. The truth is, there's nothing passive in business. Click To TweetThe non-passive part is like finding it to begin with and then doing some of those tweaks we said early on, to make it more profitable.  But, I’ve had websites that I bought a number of years ago that continue to make money month after month with very little maintenance or customer service.  So, those kinds of things are certainly possible.

Now I think, more often than not, there’s some routine that needs to be done on the website. If you don’t want to do it yourself, you’ll have that outsourced, the technical support, or somebody manning the chat box, or fulfilling the orders, or whatever.  So, there are ways to do that as well, and there are trade-offs. You may outsource things and have a little less profit to keep, but not have to worry about that stuff.

Learning From and Connecting with Jeff

If you want to learn more from Jeff, you can visit RealFastResults.com/WebInvest.  In terms of contacting me, my personal website is HeckYeah.org. I’m also developing OwnOptimize.com, and you can reach me through the contact areas of either of those websites.  You’ll find some resources there as well.

Resources

Jeff’s Course:
RealFastResults.com/WebInvest

Flippa.com

Brokers:
F.E. (Frank Ernest) International 
Quiet Light Brokerage
Empire Flippers

Real Fast Results Community

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