John Higginbotham

Turning a Car Payment into a $60K Yearly Revenue Stream

Estimated reading time: 5 minutes, 21 seconds

You don't have to be Google or Amazon anymore to acquire websites and make a healthy living doing so.    You just have to know what you are doing, or know someone who does.

But,  first a short lecture on why you would want to do this in the first place.   In true Robert Kiyosaki fashion,  I always advocate buying assets first then toys;  such as cars, your nice house, etc.   There is nothing wrong with buying that fancy car, house or boat.   I never propose that you deprive yourself of nice things because you think you're being smart.   Being smart (if you want those things) would be to have them without having to trade in your precious time for money, which is linear income.  If you use your job to pay for your toys then you'll be a slave to it forever, or at least until you realize it is never a good idea.   I don't like anyone having that much control over me.

 

Some people think that not buying a brand new car or having a nice house is smart,  they are saving a lot of money.  Are you saving it just to give to your heirs so they can buy THEM a new car or fancy house?    When you leave this Earth,  I guarantee someone will spend all the money you've saved.    Again,   I don't agree with the school of thought that says we should deprive ourselves of nice things just to save money.  Save money for who?    Don't get me wrong,   I  believe you should get what you pay for.   I believe in coupon clipping, rebates, getting houses cheap, etc.   I don't just spend money because I can.   You need to get as much bang for your buck as possible.   I'm all about leveraged income and opportunity cost.   Sometimes you think you are saving money when in actuality you are not.    Oftentimes people jump over dollars to pick up pennies,   i see it every day.   Confusing, isn't it?

I realize I see the world differently since I haven't traded my time in for dollars in a long time.  I've experienced the pleasures of leveraged income for almost 14 years.    I believe the "smart' thing to do is buy assets, such as future cash flows and real estate to buy your toys.    I also advocate having a soft cushion  to land on if one of your investments does not perform as expected.   The economy, especially it's virtual counterpart,  can be a finicky beast.

So what is all this about?    In short,  you are buying a revenue producing website and paying for its future cash flow.     I am going to make some assumptions when you head out to buy your first piece of virtual real estate.

1.  You can get a personal or equity loan to leverage the purchase  (though sometimes I would prefer to pay cash, decreases the costs of capital)
2.  You have a relationship with an SEO company or someone who can keep an eye on rankings.
3.   You have someone you can trust to look after the day to day running of the site if you can not do it it yourself.
4.  You know everything to look out for when buying and or purchasing  a verifiable, income producing product. I blogged about it awhile back ago.

So you may be asking,  "Where do I get this website?"

I often look on flippa.com but pay more attention to Latonas.com,  who serves as a broker for those selling virtual properties.   I feel you have more recourse if there is a middle man,  especially in this case, although I would never buy anything outside of escrow.   I typically look for websites that are under 25K,   I am not currently in the position to spend hundreds of thousands of dollars right now on a website,  but plan to have the ability  in the near future.

The site I'm interested is Mc*******.com.   It is a drop ship site, so you never have to deal with product.    I only have two major  concerns with the site right now,  its use of Mc and proprietary scripts.  Mcdonald's is notorious for suing people who use anything with MC in front of  any word.   I believe they just own the rights to use MC in the restaurant service industry,  but this is something you would want to discuss with a competent attorney,  especially ones that deal in intellectual property.    I'd also have to make sure that they don't use any proprietary scripts (like shopping carts, etc) that would force me to be tied to them.    Before I'd invest in this site, I'd definitely want to get those two things cleared up.  You don't want to jump into something with potential legal problems and having to be dependent on another party for the site's maintenance.

Per the broker's site,   it has the following cash flow.

Revenue:  $61,355.69
Expenses:  $46,324.84  (includes costs of goods sold)

Profit:  $15,030.85

So,  I want to calculate what this site would be worth based on the current cash flow to see if I am getting a good deal.   I use a few different numbers to calculate this.

Discount Rate - the cost of my capital (money).   This is the money I am borrowing to purchase the site and the corresponding interest rate.
Risk Adjustment - most people don't use this, but I think it's imperative, especially with websites.   This number is basically the percent chance I think that it would loose all of it's rankings in Google.     I add these two numbers to get the Risk adjusted discount rate.

So now to crunch these numbers:

Purchase Price (I'd try to negotiate)  $19,900
Risk Adj Disc Rate:  %35

Revenue:  $61,355.69
Expenses:  $46,324.84  (includes costs of goods sold)

Profit:  $15,030.85

So....

Investment: $-19,900
Discount: 10%
Risk: 25%
Adjusted: 35%
Year 1: $+61,355.69 /Discounted: $-46,324.84
Year 1 Cash Flow: $15,030.85; Discounted: $11,133.96
Present Value of Future Cash Flow = $42,945.28
- Total Investment of $19,900
NPV: (net present value)  +$23,045.29
IRR: (internal rate of return)  52.95%
This is definitely a possibility....   I would not be overpaying for the site and it has a healthy cash flow.   I would just need to get to the bottom of the MC in the name and the current rankings and where else it is getting traffic.   I would also see if I could duplicate this website and if so,  how long it would take.  I would need to calculate the opportunity costs of the investment versus duplicating the site, taking consideration the time it would take to do so.

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