The second option is to buy sites to flip them later which is called site flipping. You buy low, can optionally improve the site to increase its traffic or revenue, to sell it for a profit later on.

My intention with the site that I bought for $23,000 last year was to stabilize its earnings, reap in the rewards for a year to sell it for a profit after 12 months. I’d like to post an update on what happened to that site and where it stands now.

Here is the revenue that the site generated in the last months:

• July: $3471.80
• August: $3384.60
• September: $1957.62
• October: $1774.65
• November: $1804.44
• December: $2209.74

The total is $14602.87 for the last six months of operation. Not all of it is profit though, more about that later. You may have noticed that the revenue dropped considerable in September, this can be attributed to the fact that it is a seasonal product that is more popular in spring and early summer.

You need to subtract your expenses from the revenue. With site hosting and the domain name at about $10 per month, and a monthly SEO campaign for $399, total expenses came down to $2454 in that time. The net revenue therefor was $12148.87 in the last six months.

Since I have paid $23,000 for the site, I made more than half of my investment back at the six month mark. If thinks pick up in the coming months, I may make all the money back in the next five months. Everything is profit afterwards.

The site earns 10% from those sales.

My main intention then is to sell the website again for a higher price than I paid. Why a higher price? Because revenue history pays an important role. Buyers pay more for sites with a larger revenue history. If a site’s earnings have been steady for a year, it is more worth than a site who earned money for just one month. It is a risk factor that needs to be part of any calculation.

My intention is to sell the site for 24 times its monthly profit which would be around $50,000 which would all be profit. I may have to use a website broker for that who usually charge you between 10% and 15% for their service. This leaves me with $42,5000 to $45,000 in profit which is not bad for a year and an initial investment of $23,000.

Risks

Investments always come with certain risks, a stock may tank, a bank may file for bankruptcy, a house may be destroyed by an act of god. You face two core risks when it comes to web investments.

• 1. The seller may have not revealed all the information to you. Let me give you a basic example. A seller not mentioning that part of the site’s traffic was paid for, which for obvious reasons should have been included in the site’s evaluation. You may be able to settle this with the seller directly, but more often than not in court.
• 2. Acts of god, or more precisely Google or other traffic sources the site depends on. Algorithm changes, blackhat attacks against the web property or issues with a script the site depends on can turn revenue from normal levels to zero. While you could try to get those issues resolves, it would mean that you had to spend additional money to do so (Unless you are a do-it-yourself webmaster. Even then you’d have to spend your time fixing the site instead of using it for other projects of yours).

Check out 8 Essential Tips For Web Investors for additional tips and information.

Closing Words

Site flipping can be highly profitable, only comparable in revenue to high risk stock market investments. Most of the risks can be mitigated on the other hand with a careful evaluation.

I plan to re-invest the money into one or two web properties after the purchase.

You may also be wondering why I do not keep the site instead and let it earn the $2000 for me every month. The reason is simple: It would have to earn that amount of money for two years to even the sales price. In those two years, I could try and quadruple the money with two new investment cycles instead, provided I find the right web properties to invest in. Instead of having one site earn $2000, I’d end up with sites earning $8000 per month. after two years.

The biggest issue that keeps people from investing in websites is knowledge. How do you determine the worth of a website? Do you only look at the money it earns per month? Or are there other factors that can play a role? Should you hire a broker or do all the evaluating and bidding yourself?

Here are eight tips that can make the difference between making a great investment and buying a site that is not worth a single cent.

1. Start Low

Yes, that $50,000 Dollar website looks tempting. It might be a good investment. But what you need at the very beginning is experience. Look at websites that are sold at a lower price range. So what’s a good starting point? This depends largely on your budget. My suggestion would be to start with a website for less than $1,000 Dollars. You will get valuable experience out of this first deal. You make your first negotiation, understand how payments are made, how websites and domains are transferred to you and how to setup the website on your server or web hosting account.

Delays or downtimes, which may happen during the process, do not hurt you that much as well. Imagine a 24 hour downtime because of an error in the site’s DNS configuration. Would you prefer that to be your 50,000 Dollar site, or your 1,000 Dollar site?

Verdict: Start with a low site or two before you dive head first in your first four, five or six K investment.

2. The Price

A website is worth as much as the buyer is willing to pay for it. It is difficulty to determine the price, especially in the beginning. A good rule of thumb for PPC kind of sites (like Adsense) is to multiple the average monthly earnings of the last six months by the factor twelve. Make sure to adjust extreme values accordingly. Those are usually one-time peaks that should not be part of the calculation.

Adjust the price if you have analyzed the website in question and came to the conclusion that you can make changes to it to earn more than that average. This can be the case if the site uses bad ad placements for instance or if ads are missing on some of the site’s pages.

Verdict: Pay up to twelve times the average earnings of the last six months. Adjust that by the website’s optimization potential.

3. The Traffic

Some webmasters might say that there is no bad traffic. I’d have to disagree with that when it comes to buying websites. There are basically four types of traffic:

• Direct Traffic, that is visitors who enter the site url directly or open the site from their bookmarks.
• Search Engine Traffic, traffic from organic search engine rankings
• Referrals, traffic from third party sites that link to the site in question
• Paid traffic, traffic that has been paid for.

In my experience, it is best if the majority of traffic comes from organic search engine rankings, unless otherwise noted in the sales letter. Some websites use paid traffic to generate revenue. Why are referrals and direct traffic worse from a buyers point of view? Because they can be easily manipulated. Think of a webmaster who owns a high traffic website and the site that you want to buy. The webmaster might have added a link on his high traffic site to the other site to increase the site’s traffic. Chance is, that link will not be there anymore once the site has been sold, unless part of the agreement.

Another aspect to look after are the keywords that the site ranks for. A site that sells TVs via Amazon’s affiliate system will earn less per visitor if the main keywords are not TV related.

Verdict: Go for sites with organic traffic of 60%+, the more the better.

4. The Payment

When in doubt use Escrow or a comparable service. It is always alarming if a seller does not offer Escrow, especially if you are prepared to pay all of the fees (try negotiating to split the fees). What’s Escrow? It is basically a service that acts as a middle-men for both parties. You send the money to Escrow who park it until you have received the services or goods that you ordered from the other party, in this case the domain name, website and all other assets that are part of the agreement.

Verdict: Use Escrow to make sure you get the website and data after making the payment.

5. The Revenue

As with traffic, there are good and bad revenue streams in terms of verification. Good revenue streams are not easily faked, like Adsense or Affiliate earnings. Bad revenue streams are private ad sales or one-time deals. Would you buy a website for $1,000 Dollars because the seller claimed to have received $100 per month for the last twelve months for placing a link on the website?

Another aspect that gets often overlooked is the availability of the services used. Amazon for instance blocks people from several US states from becoming an affiliate. It would be pretty bad if the website you bought made use of Amazon affiliate links.

Unless you already have an account, you should check the requirements for opening an account prior to bidding for a website.

Verdict: PPC or affiliate based offers are the most reliable revenue types. Do not bid for sites with shady or unprovable revenue streams.

6. Verification

The first thing that web investors need to do when they spot a potential investment is to verify the claims of the seller. How is that done? Start with a simple whois to see the website owner and administrative contacts. It is a good sign if they match the seller’s profile. Some website selling business sites like Flippa run their own verification system to verify a seller’s phone number and other data including Google Analytics data.

You can also look up the seller on the Internet, or use a reverse IP lookup script like ewhois to find out more about the seller’s other businesses.

Two key areas are left for you to verify: Revenue and Traffic. Traffic can be easily verified if Google Analytics is used. Ask the seller to add you to the account to get a first hand look at the site’s traffic. For revenue, it is not nearly as easy. Screenshots are fine but they are easily faked. Ask for video proof or a screencast session to see the earnings in realtime.

Verdict: Verification is very important and one of the first steps in validating a seller’s claims.

7. Niches

The best website niche is one that you have expertise in. While it is nice to sell high tech TVs on an affiliate website, it may be better to operate a site that you are familiar with. Why? Because you may get comments or questions by potential buyers. Should I get an LCD or Plasma TV, or a 3D TV? You may end up losing credibility if you cannot communicate with your buyers. Even worse, they may buy somewhere else and leave comments about your mediocre service on the Internet.

It is not really a necessity to buy a website in a niche that you are proficient in, but it can help you in the long run. Being proficient is also interesting when you add new content to the site you have just bought. New TVs coming out? Pick the best and add them to your store or site.

Verdict: Pick a niche that you are proficient in if possible.

8. Time

Would you rather buy a website for $900 that earns you $80 per month but requires you to spend one hour working per day, or a site for $500 that earns you $40 that runs on its own. The first site may look like the better deal, as it earns more per Dollar that you invest. But it also takes away 7 hours per week or 28 hours per month. And that makes it a very bad deal. First, your time is limited. If you only buy websites that require your attention, you will end up with a handful at most.

So called passive websites require almost no attention. It usually pays of to monitor the earnings and traffic, and to publish new contents a few times a month, but that’s done in less than an hour per week. That leaves ample room for many more websites.

Verdict: The less time it takes to maintain a website the better, unless you can outsource.

Anything that I left out that needs to be mentioned? Let me know in the comments.

The stock market is different. You need to research stocks a lot before you invest your money. And that’s where the problems start. You could invest into a fund but would need to do research on that fund as well, or hand the money over to your contact at your bank and ask them to invest. If you are lucky, you may get a 20% or even 30% increase over one year. If you are unlucky, you may end with 0 Dollars. The most likely outcome is the +/- 20% range. If you get 20% you end up with 12,000 Dollars after one year, minus taxes and brokerage fees. You may also get a dividend on top of that. Problem is, you do not have the money yet. You need to sell your stock. (Please note that expert traders may have much higher returns, the average Joe on the other hand will usually end up with less money). And you do not get that extra 20% or whatever directly into your bank account.

Investing In Websites

Lets take a look at website investments for a minute. I’d like to share two first hand experiences with you. I bought a site about six months ago for 400 Dollars. It generated a revenue of approximately $40 per month from Adsense and Amazon. I paid another $200 Dollars to get guides and articles updated, and fresh contents on the site, and another $400 so far for SEO.

That’s an investment of 1,000 Dollars. The site is now raking in $60 Dollars per month and climbing to new heights ever since. If it sticks with 60 Dollars I will end up with 720 Dollars after one year’s time. That’s a 72% increase in the first year. If I would not have done anything it would probably have returned $480 in its first year, which is a 120% return on the investment.

The second site was more expensive. I paid 23,000 Dollars for it. It earns between $2000 and $3000 Dollars per month. I plan to do light SEO and content generation on that site for about 200 Dollars per month. My first year investment is therefor 23,000 + 2400 = 25,400 Dollars. The money I earn from the investment is conservatively $2000 per month, that times 12 is 24,000 which is almost a 100% return of my investment. Even if all hell breaks lose and the site drops to $1000 per month, I would still earn 12,000 from it which would be more than 40% return.

And that’s money that I get right into my bank account.

Websites rise in value not only if their revenue increases, but also if other factors change. And one of those factors changes without the user’s doing: Age. A track record of constant earnings over a longer period of time will usually result in a higher selling price.

Websites, like stocks, can crash badly. Most websites rely on Google, Bing and other search engines for the majority of traffic. A ban on Google could seriously hurt the earnings of a website. You’d still have opportunities like PPC but that would require another investment and thorough research.

It is still possible to burn all your money on a bad investment. I see offers for new websites with 100 visitors that are supposed to earn 1500 Dollars per month every day. You will encounter black sheeps among the sellers, which you often can get rid of by looking at a website’s track record of traffic and earnings. If the seller is only providing information about the last month or two, you can almost be sure that something fishy is going on. One of the tricks of those sellers is to drive extra traffic to the website in the first month to make it look like it is getting good traffic and earnings. Once you buy the site, the traffic stops and you end up with an almost worthless website. It is possible to spot those if you get access to the stats of a site.

I’m not saying that website investments are the best option for everyone. You need some knowledge in the field, not only when doing your research and evaluation, but also technical knowledge later to move the website and set it up on one of your servers or hosting accounts. I do all that by myself but you could hire someone to do the job. That again costs money.

For me personally, investments in websites are the way to go forward. I have the expertise to evaluate them and the technical know how to maintain them after they have been purchased.

If you do proper research, your websites will return between 40-100% of your investment after one year’s time. Even if it crashes in the search engines, you can still work on it to improve the rankings again.

That’s another difference to the stock market. Once you have made your purchase there, you are a passive bystander hoping for the best. With your website, you can actively promote and optimize it.

Here are two good sites to get you started with web investments: Flippa.com is probably the best known marketplace for web properties. You find many professional buyers and sellers there, and it is rare that you can make a bargain purchase there. It happens, but it is rare and you need to be fast. Despite its quality, you find many lukewarm and some fraudulent offers on that site.

A second place to buy domains is the Digital Point forum. You usually get less stats and information about a website, and more fraudulent or lukewarm offers because of this. Sites here tend to go for a lower price though and you may end up paying less. Some webmasters buy on DP, optimize for a month or so and sell for a premium on Flippa. That’s called site flipping.

You will find other sites where you can buy domains, eBay for instance or Sedo. Good sites there sell for a lot of money.

Where do you invest your money in?

That’s where the website valuation software, or lets say website valuation service, Ebizvaluations comes into play. The service requires data that can only be known to the owner of the website or to a seller who has either seen the information on a website (like the website selling platform Flippa) or who has been in contact with the owner of the property.

Data that has to be entered include the monthly income and expenses, the months the site has been making that income and the type of site. There are additional – but optional – fields that can be filled out including the number of monthly uniques and pageviews, the members, the uniqueness of the content and the skill required to run the website.

All of these information will be taken into account plus the information that can be gathered from public sources including the Google Pagerank, Alexa rank and Compete rank.

The website report will list all computed background information plus an estimated valuation of the website.

The valuation is usually more precise thank those of automatic website valuation tools thanks to the additional data that is entered by the user. The only difficulty that users can experience is the need to acquire the data that needs to be entered. It usually is not a problem to gather the data from website auctions but it could be for websites that are not up for auction.

Performing that task manually can take anywhere from a few hours to a few days depending on the type of website or project. Hundreds of factors can play a role in determining the real value of a website.

There is another solution albeit less accurate and not suitable for serious business. Website value calculators will analyze and calculate a value of a website in seconds. Stimator is one of those websites and it provides one of the slickest professional interfaces in the niche.

The value of a website is analyzed and calculated as soon as the user enters the domain name in the form on the page. Several different values like backlinks, traffic levels, social and inlinking scores, web recognition and linking data are computed and part of the calculation of the final value.

The site seems to be more accurate than most comparable sites as it lists $1,349,935 as the value of ghacks.net, hehe.

A report can be opened that is displaying several of the scores of the analyzed website. These scores are explained in the about page. The page does not say how they are computed but it lists factors that influence the score.

No value calculator will ever be dead on but there are some that can provide a first impression of a websites value. Serious website buyers on the other hand will never rely on these tools alone but perform a manual analysis before they consider bidding or buying a website.

Are you a webmaster? What is the value of your website according to the tool? Do you think it is dead on or way off?