Investing in Virtual Real Estate

A little-known way of making money online is that of investing in virtual real estate i.e. buying websites.

I know you are conversant with the idea of buying land or houses so I will use that as an example to make a point. If you buy a house at Kshs 5 million and then rent it out, the monthly rent that you can charge is usually 1% of the buying price (this sometimes varies but it is the average). Therefore, the expected rent of a house worth 5 million would be Kshs 50,000 a month or Kshs 600,000 a year. To get back your 5 million investment, it would take 8.3 years. This is considered a good investment.

A better one would be to buy a small business. The average rate of return on a small business is about 20% – i.e. if you buy a business at 5 million, you should expect to make 1 million a year. This means that it would take you 5 years to get back your investment.

What about buying a website? The strange thing is that the value of a website is usually only about 12 – 24 times its money income. That is, if a website makes Kshs 10,000/- a month, the selling price should be a maximum of 240,000/-. This means that it only takes you two years to get back your initial investment.

Sounds like a good investment to you?

It is not a silver bullet though – you’d be throwing your money away if you do not know what you are doing. Before buying a website you have to invest time and energy to learn how websites work and to do due diligence on any particular website before buying it. The good news is that you can get websites at extremely low prices of $100 (Kshs 8,000) only. Therefore, you can start small and learn as you make bigger and better investments.

Daniel Scocco has a very good guide on buying websites for profit. This is the advice that Daniel gives i.e. how to do your homework before buying a website:

1. Do you have the technical knowledge to manage it? Some websites are quite simple to run, and you’ll just need to update the content via a content management system once in a while. Others, however, are quite complex, and you’ll need some technical skills (e.g., PHP, MySQL, JavaScript). Make sure you know what is involved.
2. Do you know how much traffic the website gets? The best way to assess this is to ask the website owner to install Google Analytics on the website and to give you a user account so you can see the numbers by yourself. If he is reluctant to do this, be skeptical.
3. Do you know how much money the website makes? Similarly you need to be 100% sure of how much money the website makes. Ask for screenshots, and if necessary even video screencasts, and those are harder to fake.
4. Is the website solid and established? You want to make sure that the website you’ll be buying has solid roots, else both the traffic and the revenues could vanish after a couple of months. You can verify this by checking the age of the domain name, the number of pages indexed by Google, the number of backlinks pointing to the website, and by the traffic and revenue history (e.g., ask for at least 6 months of data for those metrics).

You can buy (and sell) websites online at Flippa.

Interesting in investing in websites? If you want to get into this but have no idea how to search for, value, evaluate and manage a website, give us a call. We’ll work something out.