Can You Buy Passive Income?
Today we are going to talk about an alternative approach to something we talked about a few days ago about ways to make passive income.
We talked about building your own business from scratch and it was clear that this was an interesting topic because lots of you signed up for Michael’s free webinar about how to “build a six figure business from home” (you can still register for it here).
We hope you enjoyed it and found it useful! It really is a great way to leverage your knowledge, a hobby or any other ideas you have, but it’s not passive, it obviously takes a lot of effort to launch a new business of any kind.
A much more passive approach is to let someone else put all the effort into building an existing business, and then buying it from them. Not everybody realises this, but just like ‘traditional’ offline businesses, you can buy a huge range of website businesses that are already making money. And unlike many offline businesses, you can pick up a website from as little as a couple of hundred pounds.
TL;DR
- Passive Income – investing in certain website types can generate healthy passive income
- Asset value increase – with a little work, you can increase the value of your investment, while earning monthly income
- Growth Market – 400,000 active buyers and sellers in one of our chosen markets alone
- X Multiple – make back your investment in 6 months to 3 years
- Diversified – it is possible to build up a diversified portfolio of websites
How Can You Invest In Websites To Make Passive Income?
There are multiple places you can find websites for sale but (as with everything) it is important to make sure you deal with an honest seller in a controlled environment and therefore we recommend the most popular services which are; Flippa Empire Flippers FE International
– What kind of websites best suit a passive income?
Not an exhaustive list, but some great examples are content sites, review sites, adsense sites and affiliate sites, whether they be Amazon or other affiliate programs that may can be sources of passive income .
The Amazon example is very relevant right now because they just made a major change to their affiliate program in the last couple of days, effectively halving commissions in a number of popular areas. You can read more about this here but the short version is that yes they did reduce their commission rates, yes it affects many businesses and yes many people are up in arms about it but there is obviously another point of view to this. Key points are;
This is not uncommon. Amazon makes changes like this often (on average 5 times per year over the last 10 years).
Amazon has been around for 24 years and the internet has changed hugely in this time, so we should expect change.
They didn’t change the rates on all products, so like every change this likely creates new opportunities.
This might make it cheaper for people (you?) to buy Amazon affiliate websites now.
There are other affiliate programs out there and I’d argue it is good practice not to have all your eggs in one basket.
What about the other types of site?
Content sites; one of the biggest changes on the internet since its launch is the advance of content. As marketing people say, ‘content is king.’ Think about those huge unicorns Facebook, Twitter and Youtube. Their business is content (and data, but that’s for another day). People in their billions visit these sites to consume content. The beauty for them is that they have user generated content which they then monetise, but that’s for another day too. In technical terms it’s pretty simple to have a website auto posting content which drives traffic. You can then monetise that traffic with affiliate links or adsense (see below).
Review sites; are content sites which traditionally review products and services giving readers an independent opinion on a given product or purchase. In return, if the customer then decides to purchase the product and uses their link to do so, the review site owner earns a commission.
You can see in the image below that 50% of the top 8 suggested searches include the word ‘review’
Obviously, to create a review site for an Apple product would be incredibly competitive. So you would look to do something more niche, like this guy:
His niche is focusing on digital products that are offering a Lifetime Deal purchase. He reviews each product in detail (including with videos) to help users decide it its a product that would help their business and is worth the purchase. He then earns a commission with each sale his website generates.
Reviews are incredibly popular and could perform really well from a revenue perspective if targeting the right niche.
Adsense sites; are best described in Google’s own words; “AdSense works by matching ads to your site based on your content and visitors. The ads are created and paid for by advertisers who want to promote their products. Since these advertisers pay different prices for different ads, the amount you earn will vary”
AdSense in three easy steps:
1. You make your ad spaces available
2. The highest paying ads appear on your site
3. Someone clicks the Ad, you get paid
So that’s a look at the ‘what’ but what about the ‘how’?
How To Get Started With Buying Passive Income Websites
You might be thinking that running a website doesn’t sound very passive. You’d be right that most websites do require an element of work but if you get a content or niche site that is already ranking well and driving organic traffic, then all you need to do is swap out the affiliate and adsense ID’s with your own and you start picking up the cheque.
Alternatively, for more resource intensive sites or those that need a regular stream of content, you can look to outsource this and pay someone to do the work for you, while retaining a decent passive revenue and profit.
When investing in existing and established websites, there are 2 trains of thought to consider:
- Buy it based on the existing income and keep it running to maintain that income
- Buy it and pay an expert to improve the income over time
Both have their pro’s and cons. The first is limiting your earning potential but requires the least amount of work, while the second option does require more work but you could find that you significantly increase your monthly imcome and the asset valuation – sometimes, all that is required is a refresh of the websites design or theme, or moving Ads to more prominent positions, or a few more articles targeting longer keyword phrases. A little effort early can pay off many times over in the longer run.
Moving on and it’s time for us to take a closer look at the main platforms available to us.
Flippa – the largest and oldest website marketplace. Websites are sold daily from $1 up to a $1m+, there are 1000’s of websites for sale at anytime and it is a busy marketplace with over 400,000 prospective buyers and sellers
Empire Flippers – is a website broker. They act as a middle-man for buyers and sellers and traditionally focus on the higher end of the market ($50,000 and up). At the time of writing they have generated $124m in website sales, with a 93% success rate. They currently have 111 active listings on the website
FE International – similar to Empire Flippers in that they act as a website broker. The types of sites they list are more focused on SaaS and E-commerce sales, again, with more focus on the higher end of the market
My personal favourite is Flippa, purely because I’ve used it before, I’m comfortable with the layout, it has the most options and the greatest range in prices.
That said I’d encourage you to browse all 3 to get a feel of the difference styles and the listings on there. Here’s a snapshot of some of the listings on Flippa right now, for this I simply searched ‘established websites under $50,000’.
First of all you can see how much more you can filter your search with the options down the left hand side.
Secondly, check out the numbers. There are 3 numbers that you should care about.
1 The price, obviously.
2 The existing income.
3 The multiple.
It might be in the smallest writing but it is perhaps the most important top level piece of information. The multiple is how many years it will take you to make your money back if nothing changes.
This is where it gets tasty!
If you buy a website with a multiple of 2 (some of these examples sites are less than that, some will be more) then you’ll make your money back in 2 years. Plus you could then sell the site on for the same amount you paid for it, if nothing has changed.
Not bad eh?
Now what if you did change it, for the better?
What if you reinvested all your income in year 1 to improve the design of the site and the content, plus you did some advertising.
What if that meant you doubled the income?
So now you still make your money back in 2 years but now the income is twice as high. So either you can site back and relax while that passive income rolls in or you could sell it on, this time for twice what you paid for it.
Now imaging taking that money and doing the whole thing again 2 or 3 times more…
The above is a great example of website that would be worth a closer inspection.
Asking price ensures that it would be paid off in less than a year
$511 per month average profit, so about 6k a year profit after the first 10 months
Monetization already in place (Amazon). So it could be a case of letting it run or finding a more profitable affiliate program.
Naturally, it would require further due diligence, which we’ll come on to next.
Things to Consider When Purchasing A Passive Income Website
Purchasing a website is no different to any business, it is vital that we conduct full due diligence before making the big decision of purchasing a website.
In the case of Flippa, it is also important to note that as soon as you make a bid, you are legally bound to purchase the website if it is past the reserve and you are the highest bidder. So it is important that you conduct all of your due diligence before placing a bid.
Due diligence is a very in-depth topic and more detail is required that it is possible to cover here. However, here are some of the most important questions that you need to consider and get answers to.
Read-only access to their Google Analytics – this allows you to verify traffic and just as importantly, traffic sources. Be mindful of sites with large traffic figures, but they all seem to be coming from a country which would not be the target audience – the traffic may be low quality or has been purchased
Proof of revenue – naturally you want to see verified proof of earnings. Any seller worth their salt should be able to provide this both as pdf exports from the relevant sources and, in some cases, videos showing them logging into each account
Costs – it is important to ensure that you are aware of all costs associated with running the website – e.g. hosting, domain, any plugins or tools. Do they have workers producing content – how much do they cost? are they willing to continue working with the new owner?
Customer Acquisition – how does the website get customers. Is it organic traffic or paid traffic? Will you be able to access the same traffic after taking the site over?
Operational Requirements – what tasks are required to maintain the site? how much time do they take? will you be able to take these over and will the seller provide training / handover
Technical Knowledge – what are the technical requirements of running the site, do you have the knowledge or expertise to take this over? Does any software included need coding updates etc?
Operational Assessment – what is working well or not so well? Do you see opportunities to improve the site, traffic or revenue?
Why are they selling – this can usually give a good idea on the sellers motivation and potentially throw up any red flags You can obviously go much deeper into due diligence and we certainly recommend that you do if the cost of the site is 4-5 figures or more.
Here are a few helpful guides on conducting due diligence on website purchases:
Flippa – First Time Buyers – Due Diligence
FE International – Advanced Due Diligence
How Much Does It Cost To Get Started Buying Websites?
You can literally pick up a website for as low as $5 on Flippa. As it is an auction based model, the seller has the option to set no reserve. This means that if you are the only bidder, with the minimum bid being $5, then you would win the website.
That said, it is unlikely that the particular investment will be good value and you would have to wonder why nobody else bid.
When I first started buying websites, I did what I think many start out doing and buying what looked like cheap websites for less than $200. In the end though, I found they then took far more work to make anything of, and usually ended up getting trashed.
My best purchases have usually been from the $1,000 to $20,000 mark. For the reasons mentioned above, I’m usually getting a solid foundation, with existing traffic and revenue streams. There are bargains to be had under a $1,000 but they are harder to find.
Empire Flippers recently did a survey of 30 buyers in their network and discovered that:
- 46% had increased monthly income
- It was much easier to double income on a $50,000 website, than it was on a $300,000 website purchase
This supports that the thinking that price is important, but ‘value’ is much more important when considering purchasing a website as an investment.
One final thing to point out is that Flippa provide these easy to access categories which streamline the process of finding potential website investments. So if you are just starting out, I’d suggest looking through these first to get a good feel of what is available and how they are priced:
Learn more about Passive Income Websites
If you are interested in learning more about investing in websites, we recommend the following links:
Flippa – the largest and oldest website marketplace. Websites are sold daily from $1 up to a $1m+, there are 1000’s of websites for sale at anytime and it is a busy marketplace with over 400,000 prospective buyers and sellers
Empire Flippers – is a website broker. They act as a middle-man for buyers and sellers and traditionally focus on the higher end of the market ($50,000 and up). At the time of writing they have generated $124m in website sales, with a 93% success rate. They currently have 111 active listings on the website
FE International – similar to Empire Flippers in that they act as a website broker. The types of sites they list are more focused on SaaS and E-commerce sales, again, with more focus on the higher end of the market
Flippa – First Time Buyers – Due Diligence > FE International – Advanced Due Diligence > Due Diligence Checklost
Investing in websites can be a really excellent investment strategy and one that can deliver real passive income. But like with anything, you really need to think about what you are looking to achieve, that you are investing what you can afford, and that you do plenty of due diligence!