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. [bctt tweet="There can be value in selling what
you've developed or looking for things that compliment what you're
already doing." via="no"]We'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.  [bctt
tweet="Websites are selling at somewhere between 2 and 3-year
multiples of net income." username="danielhall"] 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. [bctt
tweet="I sometimes talk about passive income from website
acquisitions. The truth is, there's nothing passive in business. "
via="no"]The 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
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