The greatest upside I see right now from any asset class is the buying and selling profitable niche websites. A niche site is one typically based on hosted WordPress that is monetized through ads and affiliate marketing.
In this post, I set out how you can snowball your way from $100k to $1MM within 3 years by flipping websites.
The 40% Rule
The Tropical MBA podcast a few weeks ago on the “40% Rule” by Jase Rodley discussed how you can generate 10x higher returns by investing in websites than you can from having your capital in index funds where you draw down 4% a year.
If you buy a website at a monthly profit multiple of 30x then it will return your investment in 2.5 years which is the same as yielding 40% a year.
Therefore if you have the skillset to operate and maintain a website (just maintain, rather than grow) then you can effectively retire with 1/10th the amount of capital.
$1MM will generate $40k a year from index funds or $400k a year from being invested in websites.
So how do we get to this $1MM capital goal starting with just $100k?
We snowball our way there by buying and selling (flipping) websites.
Sam & Johnny on a recent episode of Invest Like a Boss discussed at the end The Snowball biography of Warren Buffet of compounding money over time and that at an 8% interest rate it takes a long time to build wealth. Sam states:
“I feel like for the average person you can get that [snowball] effect in property like no other asset class because you are going to get the yield and capital appreciation as that property increases over time.”
Indeed at 8%, it will take 30 years to turn $100k into $1MM.
In the website flipping approach I outline below, you can compound the combined cashflow and asset price to go from $100,000 to $1,000,000 in 3 years which works out at 120%:
The Website Flipping Model
This strategy assumes you already have $100k to invest or have built a niche website from scratch to a value of $100k. It assumes you possess a skill set that you can deploy that will on average over the long run double a site’s income and asset value, in the way that a profitable poker player has a positive expected value win rate when you take out short term variance.
You can double a website’s value in many ways:
- Doubling conversion rate on an under-optimized site if you are a CRO master
- Doubling opt-in rates if you are a sales funnel expert
- Doubling the average order value of an e-commerce site by adding upsell funnels
- Improving domain authority if you are a link building expert
- Content pruning: reducing keyword cannibalization or improving crawlability by reducing index bloat
We are assuming that you need to build a niche site to deliver your $100k. New niches are always opening-up of course, with new crazes and trends — but it is better to find an evergreen niche, not one that fizzles out along with the trend.
In order to find your niche, it is very important to answer the following:
What value-added can I bring to this niche, do we have a unique angle?
- What are the gaps in the niche that the competition are not covering and is in demand?
- What can we do better than the competition?
The key here is to differentiate yourself from the competition, even though they may have more resources than you, and be better than them in a specific way, area, geography etc.. If you don’t then it will be an uphill struggle. If you want more details then check out the Authority Hacker free webinar.
Now for the math.
For simplicity, I am going to be assuming sites list at a 30x monthly multiple (to achieve the 40% rule) which is fair as a survey from Empire Flippers found that the average sales multiple for a six-figure content site comes out to 28.89x.
To make the maths easier I am assuming it costs nothing to buy a website and costs 15% to sell one (brokerage fees and all fees). I’m also assuming that it only takes one month to sell (the average time it takes content sites to sell on Empire Flippers is just 27.52 days) and two months to buy a website after due diligence.
Finally, I’m assuming that after you buy you a site you invest three months of your own time leveraging your skillset (rather than reinvesting more of the site’s income) and then list after six months of upside. Add in the 1 month to sell and 2 months to buy and it takes an exact year to flip.
So let’s begin, we have $100k to go shop.
Website Purchase 1 — $100k
That $100,000 divided by 30x buys you a site cash flowing (putting money in your pocket) to the tune of $3333 per month.
You pull your lever and within 3 months income has doubled from $3,333 to $6,666 and you list the asset after 6 months at this new level (to prove to buyers this isn’t a fortunate spike).
The website asset value is now $200,000 and it sells after one month and you bank $170,000 (minus sales fees). However, you also banked 3 months at the existing $3333 level and 6 months at the improved $6666 level (again for simplicity) for an additional $50k totalling $220k.
You started with $100k and now you have $220k to buy a new site making $7333/m.
Website Purchase 2 — $220k
You buy a site making $7333/m and, after 3 months, double monthly income to $14,666/m and then 6 months later list the site for $440k.
You sell and bank $374k plus $110k in earnings for $484k.
Website Purchase 3 — $484k
That buys a new site that’s spitting out $16,133/m and you pull your lever one more time and get income to $32,266/m for a sale price of $968k.
You sell and bank $822,800. Add in the 9 months income totalling $242k and congrats — in 36 months you have now taken that $100k to over $1MM.
Yes, this is overly simplistic and it assumes that you are able to double a site every time and that nothing devastating happens like a google medic update on a health site.
However, to counter this, multiples are going up over time and larger sites actually achieve a higher multiple. Yes, this hurts your 40% return, perhaps you will only be able to achieve 30% yields on the purchase however this does mean that your $32,266/m asset is now, at a 40x multiple, worth $1.3MM netting you over a million after commission.
Anyone can learn to build a six-figure content site to get to $100k (in fact I teach how in my course and coaching) and if you’ve got the stomach to go all in, you are in theory just 3 flips away from achieving 7 figures.
But then you may realize that a $1MM sale price will not be enough for you to retire and rather than flip you may simply cashflow the web property instead to the tune of $30k/m.
$30k a month from websites or $40k a year from index funds — at this stage of the equity market cycle I’m not sure which is a riskier strategy!
Originally published here – Source