The 5 Downsides of Investing in Websites

If you read my first post on why websites are great investments you hopefully learned a little bit about why websites and online businesses can be great investments. Maybe you even jumped on my bandwagon and thought “Alright! Where do I start?”

As passionate as I am about the concept and opportunity here, buying and selling websites is not for everybody.

I have been involved, in some way shape or form, with websites and online businesses for the past 8 years. I have gotten advertising accounts banned, failed big at launching a forum, purchased a business already penalized by Google, wasted thousands of dollars on SEO services, gotten scammed by overseas customers, and (uh-oh) have sold a website for a sizeable loss. My point being, there are a lot of things to learn.

Before you are ready to get serious about building an online business or website, you should carefully consider these 5 downsides and risks of doing so:

1. Even the most passive websites still require some time commitment

There is no such thing as a “no maintenance” website. Yes, you can find extremely low maintenance websites, but every website will require some maintenance. For example, even if I didn’t ever write another blog post for my BMW site, I would still need to spend probably an hour a month on general site maintenance.

The downside here is almost two-fold: first you need to be willing to at least invest a minimal amount of time into the website and second, you need to know how to perform the maintenance necessary. The second part is the easier of the two; finding the motivation to maintain a website is where we see a lot of owners fail.

And the bottom-line is: if you want a website to grow, you have to spend time on it. If I want my traffic to keep going upwards on my BMW site, I have to continually add content. And that takes time. Down the road we will get into things like outsourcing and turning high maintenance sites into passive investments, but for now we will stick to the basics.

However, even without a ton of time or knowledge, investing in highly passive websites is still a great investment strategy/opportunity – just know that there isn’t a such thing as 100% passive or “auto-pilot”.

2. They are highly illiquid

You can’t sell your website or online business and have the cash in 2 days like you can with stocks. Websites and online business take a considerable amount of time and exit to successfully sell, and it usually takes a few weeks to a few months. Although, I will note it is still a lot easier than exiting a real estate investment or a traditional “brick-and-mortar” business investment.

Generally speaking, the larger your business is, the longer it will take to find a buyer. But even for smaller (less than $25K) sites, it commonly takes 2-3 weeks.

Given the illiquidity of website investments, I don’t recommend using every dollar you have to purchase one. Make sure you have enough discretionary cash leftover to support yourself for a few months if you suddenly lose your job or have unexpected expenses.

3. Selling costs are high

In addition to the lack of liquidity, the cost of liquidity is high. Selling your stocks simply costs a $5 broker commission. Selling a website has broker commissions as well, but they tend to range from 10-15% of the total sale price of the business.

Unless you are negotiating directly with the seller/buyer and setting up your own transactions (which we don’t recommend), you should expect to only receive 85% of the sale price into your bank account.

This means that your site has to return at least 15% or appreciate in value by more than 15% for you to breakeven or turn a profit on the investment. It’s a high hurdle rate and can be a serious investment return killer.

4. Online business is an art, not a science

There is no master formula to never fail, there is no master formula to generate $1,000 of product sales in a day, or get 20,000 visitors a month with just 1 hour of work. And NO, Tai Lopez’s 67-steps aren’t going to have you driving a Lamborghini in 3-months. 

Like I mentioned at the beginning of this post, I’ve messed up a ton of times. Fortunately, I’ve been able to learn from each mistakes. But that’s what this process is: it’s failing, learning, failing, learning, finally succeeding and then repeating. Hopefully you can learn from my mistakes and maybe fail one less time than you would otherwise.

There’s a ton to learn, but that’s also what makes it an exciting journey. There isn’t any get rich quick opportunity – it takes work and continuous learning and improvement.

5. You really have to know what to look for, and spend a lot of time on due-diligence

I was reading a BBB (better business bureau) complaint the other day against an old (no-longer active) business listing website. It was similar to Flippa, but a bit shadier in terms of the quality of sites posted on it. In the BBB complaint, the guy said he purchased a $5,000 that was supposed to be making like $2,000/month. Well, after he purchased it, he quickly realized the site didn’t make any money at all, and that most of the financial and traffic stats that were shown in the listing weren’t consistent with what he was getting while owning the site.

He figured he just got “unlucky”, so he unloaded another $5,000 into a similar website. You can guess what happened with this one too.

Now he’s filing a complaint against the site that allowed the website to be listed for sale. But at the end of the day, these brokerage sites like this one and even Flippa too, have no liability for the sites that sell on their platforms, and they do no verification, vetting, etc.

So, all of the due diligence work is left to the purchaser of the website. For someone unfamiliar with websites and what to look for, it is extremely easy to get taken advantage of.

Good news: you can read my super in-depth due-diligence blog post to make sure this doesn’t happen to you! (Currently being written)