Estimated reading time: 7 minutes, 44 seconds
"Gold is getting old. The New Rich (NR) are those who abandon the deferred-life plan and create luxury lifestyles in the present using the currency of the New Rich: time and mobility. This is an art and a science we will refer to as Lifestyle Design (LD)." - Tim Ferris FourHourWorkWeek.com
Personally, I strive to buy assets FIRST, then liabilities. The cash generated from the assets let me enjoy my "toys" ... without having to worry about getting fired or any myriad of problems the "working class" typically have. Things such as cars, houses (that I live in) or anything that does NOT produce an income I define as a liability. Unless you are renting out rooms of your home, then your home, in this case, is also a liability. Build up your asset column FIRST and you'll NEVER be a slave to anyone or anything for as long as you live..... But you gotta build the asset column FIRST.... If you don't... and go ahead and buy that expensive "stuff", even if you make hundreds of thousands per year.... you'll ALWAYS be a slave to your job. So enough of that....
As part of my research series I am analyzing web properties AFTER they have been sold at public auction. If you want a primer on how I analyze a website, visit my post on Virtual Warren.
Today I am analyzing tabledecorationideas.org. Sounds like a simple website, right? Well this site brings in a modest $1400 a month. Of course, I never just take a seller's word for it and immediately do my own research to make sure the "numbers add up".. If the site is bringing in little traffic and the seller claims a high revenue, alarms start to go off. It just has to add up. You want to make sure that the traffic is legit. Bot traffic is useless. Here is what I do if interested in the site first off:
Look it up on SEMRush.com. Gives a fair indication of traffic the site brings in... however, it's not perfect and does not pick up on low volume keywords, which this site has.
Ask for access to Google Analytics. Any site worth its salt will have this installed. The administrator can grant you access to the data. This can not be manipulated... either it's getting legit search traffic or it's not...
Ask for verified screenshots of the Adsense earnings.
Study traffic and earnings... Has it been increasing/decreasing.
Check backlinks - are they spammy??... if the bl's are questionable, I avoid it... getting banned by Google is a big deal... as this is where most of the traffic is coming from. I study the back link scheme at Seo Majestic... an EXCELLENT resource! You can read my posts on backlinking schemes and what to avoid on VirtualWarren.com.
Ask whether the site has been updated.
Ask whether there was any paid traffic sources - this will be indicated in Google Analytics
Study the seller's reputation.
In this case the seller has given all the usual information.... it is right there for everyone to see. He also has a stellar reputation in the market place, this is difficult to manipulate.
The following is taken straight from the listing:
Additional Revenue and Traffic Details
All revenue is from adsense and the figures are confirmed through flippa and screenshots are also available for verification. Traffic GA figures are also confirmed through flippa and you can view the screens attached. All traffic is organic and mainly from google. In order to get access to Google Analytics stats - please make a bid and message me your email.
Jun, 2013 $1,710.72
Jul, 2013 $1,570.15
Aug, 2013 $1,765.32
Sep, 2013 $1,506.59
Oct, 2013 $740.01
Nov, 2013 $894.54
Dec, 2013 $726.25
Jan, 2014 $1,560.04
Feb, 2014 $1,142.43
Mar, 2014 1,754.88
Apr 1, 2014 $750.08 (till 27th)
As you can see there is a lot of variation in earnings... which I know to be true from my own holdings. One day a large site can make 100 bucks, the next day it's earning 10 dollars... there really is no rhyme or reason to it sometimes.
There is one thing I do not like about this site... it has been hand coded and not based in wordpress... WordPress makes it easy to add social functions and other neat scripts to help with rankings. When a site is hand coded, it makes it a little more tedious. I have a healthy understanding of HTML and PHP, but it would still be nice if it were already established in WP.
So some questions to ask myself.
Do I think this site will continue to make money? Yes I do and much more, it appears that the site has not been promoted any in at least several months (a year according to the seller).. so with some promotion it would be fairly easy to increase the earnings.
What did the buyer pay for the site? This is a flip, the seller purchased it from someone else. There is no easy way to find out this information, unlike in real estate transactions where this information is readily available. He make over 14K in the year he had it, what did he pay for it?
Would I buy the site? Absolutely!! Of course the auction is over and the ending price may have been much different, but I would have purchased this site. Especially when you can leverage other assets to buy a website that will make money indefinitely. Let's look at that for a moment.
If you get a signature loan for 10K at 9% interest for 5 years, the payment would be less than $210/month. There are many ways to leverage assets, get equity loans on property, cars, etc. The point is to use the money you are leveraging to buy assets.
Of course, you want to take as much money as possible from the website profits to pay the loan off as quickly as possible. There is no guarantee that the website will produce as it has in the past. Google is very fickle, so like everything else, it is risky. Like in real estate transactions, you can leverage yourself too much, to the point where if one of your assets is failing, it brings down the others... Ideally, you want to get to the point where you can pay cash for everything.
In the end, you can build a large virtual real estate portfolio fairly quickly by using the power of leverage and cold hard cash.
My goal has always been to buy cash producing assets using leverage and other resources so I am never a slave to any one thing, including a J.O.B. I like the thoughts of being able to run my enterprise from anywhere in the world.
Being a real estate investor as well, I can plainly see the advantages to holding virtual real estate in my portfolio. A lot less headache. I consider real estate transactions to be a long term investment and not something that will provide me enough cash to live off of... However, its virtual counterpart can provide me enough cash to live comfortably... the cash on cash return can be lucrative.
So let's evaluate this site's present value of future cash flow (PVFCF)... I like to throw in a couple of numbers when calculating this (not everyone does this).. they are Risk and the Discount rate... I add these two numbers to get an adjusted rate. How do I get these two numbers you may ask?
The discount rate is the cost of my capital... if I am borrowing money it is the interest rate... in this example I will set it at 8%. If I was using cash, it would be the minimum return I'd expect from an investment, I typically expect 10%.
Most financial analysis formulas don’t include a risk factor but I feel it’s imperative for me. There are inherent risks in purchasing a website. If you can accurately identify those risks and the percentage chance that everything could go horribly wrong, you’ll have a competitive advantage. To put another way, he who most accurately identifies the risk, wins. I typically put the risk factor anywhere from 10 to 20%.
So I get a total of 16% for an adjusted rate.
So in this example, the year 1 expected revenue is $14,421, discounted at aprox $13204.
So as you can see, the (PVFCF) is 66020.
The NPV (net present value) is: 39719
How did I derive these numbers?
Ct = net cash inflow during the period
Co= initial investment
r = discount rate, and
t = number of time periods ( I use 5 years)
So as you can plainly see, this website is well worth the investment.
I mean hell, if Yahoo can throw away a billion dollars (many years ago) and never did anything with it.... 10K for a site that brings in 1400/month is a no brainer to me!!!
If you are interested in Virtual Real Estate, you can find my latest book on Amazon....
For some reason "some" mobile users can't see the FB comments on this post... I have some work to do apparently... but here is my comment:
I failed to mention the expenses for this website... the one non-discretionary expense is hosting... in my case, I have a couple of dedicated servers, so it is almost negligible... for others it would be upwards of 100 to 120....
Happy Investing!!! See you at the TOP!!!