February 22, 2012, 5:00 am

Major Blog Acquisition – Would You Buy a Blog for 50K?

by: The Financial Blogger    Category: Alternative Income,Make Money Online
email this postEmail This Post Print This PostPrint This Post Post a CommentPost a Comment

 

 

mansionFollowing up on yesterday’s series of posts about cheap buys, I’m now flipping to the opposite side of the spectrum: major acquisitions. While dropping 1 or 2K on a website (or even less) is often a no brainer (especially if you can recover your investment within 6 months), putting $50,000 on the table to buy a site changes the game a little bit. In fact, you are really moving from the $5 poker table to the $1,000 ones. But before we start on major blog acquisition strategies and how you can grow your empire, let’s take a look at what I call a major acquisition.

 

 

What’s a major site?

 

There could be different definitions out there and this is why I want to explain what I mean by a major site. I’m not talking about an outstanding site (this would be like GRSfor example) as these are out of my reach… for the moment. To be a major site, you need to fit the following metrics:

–          Making over $1,000 per month for more than 12 months in a row

–          Having multiple sources of income

–          Getting a high volume of traffic (over 20,000 visitors per month)

–          Getting over 50% of your traffic from search engines

–          Having over 1,000 RSS feed readers (or newsletter subscribers)

–          Having over 2 years of history

If you have reached these metrics, congratulations! I consider your site as a major site ;-). Since over 50% of bloggers don’t make $1,000, these sites are becoming very attractive. Major sites have a consistent history and therefore, show some stability in terms of traffic and income over time. This is why they can be valued over 24 month worth of income.

 

Why would you buy a site for $50,000???

 

When I look at major sites, I look at them as consistent money making machines. They should be viewed as businesses or as rental properties. The bigger multiplier is used because the site has proven that it can generate a great income many months in a row. If you fail to prove consistent revenue, forget about it; you are not a major site.

 

But there is more than just income when you consider major sites. They get privileged positions for certain keyword rankings. In other words, Google likes them. And if Google likes your site, doing SEO becomes a lot easier. For example, do you think it’s hard for me to rank for dividend keywords with The Dividend Guy Blog? I basically just have to include my keyword in my topic and subtitles and I’m almost sure to finish within the first 2 pages of Google within 24 hours. No link backs, no internal linking, no article marketing. Just a simple, good quality article. Why? Because DGB is a major site and Google likes it. This is exactly where you can suck up so much power from major sites where you can’t do squat with smaller sites.

 

This is major leverage you can use to grow your income by 10% to 20% the very first year. The great part about this is that the income is sustainable and will continue to be paid into your pocket month after month.

 

Compare a major site to a rental property

 

Leave the world of internet for a moment and look at common rental properties. Depending on the market you are in, rental properties would sell between 10 to 15 times the yearly gross income. This doesn’t include time spent, empty rentals, cost of maintenance, municipal and school taxes, interest paid on mortgage, etc. For example, a property making $2,000 in rent per month would sell between $240,000 and $360,000. People are ready to pay such a high price for 2 reasons:

–          Because it has been proven that the property will generate such revenues in the future

–          Because the  buyer expects the property to increase in value over time

Nonetheless, if the buyer has a $50K down payment and buys this property at $300K, he won’t be making crazy investing yields. Let’s do the math for fun:

 

Total income: $2K * 12 = $24,000

Expenses on a rental property:

Interest (roughly 3.5% of the amount of the mortgage): $8,750

Maintenance costs (let’s say $100/month): $1,200

Municipal and school taxes: $4,000

Total yearly cost: $13,950

 

Total Investment Yield on down payment: ($24,000 – $13,950) / $50,000 = 20.1%

Total Investment Yield on the value of the property ($24,000 – $13,950) / $300,000 = 3.35%

 

As you can see, what makes rental properties interesting is the leverage behind the investment. If you had the $300,000 in cash to buy the property, the investment yield would be 6.26% (you need to take cost of maintenance and municipal taxes while ignoring interest cost). A “big” 6% before taxes. And THIS is the best case scenario. Eventually, you’ll have to do major renovation (roofs, windows, etc) and you may have an empty rental too. However, people are ready to pay crazy multipliers because they assume it’s a safe investment. They will also argue that I didn’t account for the possibility to increase the rent and the rise in property value. The overall yield is probably over 10% if you take these 2 factors into consideration.

 

Now let’s go back to the major site

 

On the other hand, if you take the very same 50K, you can probably buy a major site making something between $1,050 to $1,388 per month using a 36 to 48 times multiplier. So let’s run the same magic and check the return on investment. So let’s say you paid 50K for a site making $1,250 per month (so 40 times the monthly income).

 

Total Revenue: $1,250 * 12 = $15,000

 

Expenses on site:

Server ($100/month is more than enough) = $1,200

Writers ($25/articles, 3 articles a week) = $3,900

Total expenses: $5,100

 

Total investment yield on investment: ($15,000 – $5,100) / $50,000 = 19.80%

 

So we are now faced with 2 possible investments offering about the same rate of return if you ignore the $250,000 mortgage you took to buy the rental property. Can you really ignore a $250,000 debt? I don’t think so. So if you compare apples to apples, we would need to look at the return on a $300,000 investment in a website. Let’s say you just found 6 sites that sell at $50K for the same metrics. You will be getting 6 times your revenue and pay 6 times the same expenses. Therefore, the investment rate on a major site is still 19.80% vs 3.35%.

 

On top of that, I didn’t factor any time spent to take care of your rental property. However, if you pay a writer to write 3 articles a week on your site, you won’t have much to do to reap the benefits. The interesting part is that the website will also offer the possibility of increasing your rent (make more money with your site) and see its value appreciate over time. Therefore, you are in front of a simple decision:

 

Would you rather make 3.35% or 19.80% return on your investment?

 

You might argue that the internet is more risky, I dare you to prove it!

 

 image credit

Similar Posts:

You Want More? Sign-up! ->
TFB VIP Newsletter


If you liked this articles, you might want to sign for my FULL RSS FEEDS. If you prefer to receive the posts in your email, subscribe CLICK HERE


Comments

I couldn’t agree more. In fact, I have a post that compares blogs and physical real estate in the queue at PITR. I still think the better model is the mediocre blogs. Blogs that are gettings 10k visits with maybe 15-20k pageviews that will sell for under $10k. There are plenty of these out there and it guarantees a high return. But then again, I think you are underestimating what someone could bring in with a major site. I’d say it would be easy to earn $2k each month with those kind of numbers.

by: The Financial Blogger | February 22nd, 2012 (8:14 am)

@20’s Finances,
can’t wait to read it 🙂

It depends on how you want to make money out of your site. If you are doing a cheap buys to fill it with links, this business model will eventually collapse as it is not very sustainable.

I think the major blogs offer other ways to make money than simply through private advertiser. On the other side, you would be surprised to see how many major blog that don’t make much with their site! I’ve seen many as I bought many ;-D

That’s a good point. There are a lot of major sites that don’t market themselves effectively and are in a niche that isn’t as profitable. I too have come to realize that not all high-traffic sites are good money makers. I just looked and my post will go live tomorrow morning (sometimes I forget when things go live – it’s hard and somewhat to keep track of everything) 🙂

No matter it is real estate or a blog, as long as it create positive income, it worth looks into. You need to compare how positive is the income and how much effort you need to put in it.
I wonder how much effort to maintain the blog compare to that of real estate?

by: The Financial Blogger | February 22nd, 2012 (1:47 pm)

@Passive income,

it’s hard to say as it depends on both how you manage your rental property or your blog. I’ve seen people paying writers and simply optimize a few things on a blog (which requires almost no effort) and make some good money out of it. The same is possible with a rental property. However, when you have a problem with your property or tenant, I guess that real estate becomes more demanding than simply write on a blog.

I think it’s a good idea in theory to but I am interested in building my own. That might change once I see other sides but for now I would say no.

I just need to wait for 2 more months (to hit the 2 yr mark) to be qualified as a “major” site 🙂 That feels good.

Can you maintain the same amount of income consistently even after the buyout (and assuming the original author is not longer writing)? Esp. if the site author is the brand, like Smart Passive Income. I don’t think people will still buy using his affiliate links as much as they do now if he stops writing and sold the site…

Think I’m a long way off from being a major site seeing as I currently may £0 in income. However I make plenty of friends!!!! I think the reason why people don’t pay for sites as investments is the lack of knowledge of the industry or even awareness of it.
Out of interest, when do know you can monetise your blog?

by: The Financial Blogger | February 22nd, 2012 (5:06 pm)

@Suba,

Congrats on becoming Major! I’ll make an offer soon 😉 lol!

In Pat’s example, I would expect a small drop in income at first. He is making a lot of money from his youtube tutorials and past articles that rank well in SEO. Therefore, new people find his old post everyday and sign-up for his affiliate products without knowing him too much.

But I would qualify Pat’s site as an “outstanding site” and not a major one ;-). I’ve once bought a site with a strong writer (Gather Little by Little) and while the community wasn’t supper happy at first, I saw the site revenues grow pretty fast. I guess it all depends on how you integrate the site (adding tons of advertising the first month would not be smart 😉 ).

@MultiMillionaireRoad,
you can monetize whenever you want… as long as you don’t transform your blog into a Nascar. However, don’t expect much results if you are having under 10,000 visitor per month. Under that level, you are left with private advertising to make some serious money.

I think it is risky to bet $50,000 that Google won’t change their algos and ruin you, but that is just my opinion (sorry, I can’t prove an opinion 🙂

Thanks for a peek behind the curtain of successful PF blogs.

This comparison is definitely eye opening for me. It’s interesting to see the valuation on blogs keep going up. For all of our sakes, lets hope it continues!

by: The Financial Blogger | February 22nd, 2012 (8:24 pm)

@John,

when you think about it, do you find risky that you bet on 3 individuals to pay their rent on your Triplex? it’s about the same type of risk, right? If Google decides to tear down your site apart, you’re dead. If 1 or 2 tenants decides to not pay their rent… you’re dead too 😉

It probably is a similar amount of risk, but it seems to me that it would be easier to recover and find new tenants. If you lose 70% of your traffic one day, you may never be able to recover and be stuck with something worth zero.

It seems more likely that a blog could go to zero value than a triplex. Would you agree?

Ohh no another 1 year to be a major blog. Rest all numbers are conquered 🙂

This has been a great series of articles (the past 3). Really enjoying it as I work to build up various blogs myself.

Congrats to those of you in the ‘major blog’ category, I’m jealous 😉

It is actually pretty interesting to see these numbers as they make very good sense, but I’m also afraid of the unknown like @John. Perhaps with more experience on the net I could feel more at ease, but I’m not ready to drop $50K just yet. Aside from that, I doubt the bank would loan against it too readily…. thoughts?

by: The Financial Blogger | February 23rd, 2012 (7:40 am)

@Cashflowmantra,

Thx man! coming back with the last piece of the puzzle on Monday, stay tuned 😉

@Shaun,

Banks would probably laugh at you if you ask a loan to buy a website. They are far from understanding this business (they are better at real estate…lol!)

Awesome post man!

I’m glad you mentioned poker in your intro as 1 thing must be clear to anyone that “thinks” he can manage the 1000$ buyin table.

It’s probably one of the most important aspect of poker BANKROLL MANAGEMENT (and probably why majority of players go broke lol). I wouldn’t put myself all-in and throw all my money one a single 50k investment. Even though that kind of website has usually pretty stable revenue (or else you’re crazy to buy it for 50k without good reasons), websites are still highly depending on various factors (rankings) that aren’t what I call “sure investment”. If you plan to recover your 50k investment in 24months… you MUST know what you’re talking about, which is why I wouldn’t recommend some new comers to get that kind of site. Of course, if you know what you’re going into and think you can double the revenue, go for it! My worries are more at “noobies” that think that kind of investment will make them fortune without even knowing what is SEO or the possible monetization strategy they should test to make this investment even more profitable.

I’m really glad you post that article and think it can be very helpful for readers to see what can be accomplish ONCE you “master” the process. Best thing to do IMO is get a basic understanding by creating multiple websites to get at least a couple hundreds/thousands each month before committing to such investment!

[…] 6. Major Blog Acquisition – Would You Buy a Blog for 50K? @ TFB. […]

[…] 5. Major Blog Acquisition – Would You Buy a Blog for 50K? @ TFB. […]

[…] Major Blog Acquisition – Would You Buy a Blog for 50K? – via @Financialblogr […]

I was mostly interested in metrics. And calculations. And everything else. 🙂 On a serious note: now I know what metrics I need to shoot for to be considered a major site. A long road for me! 🙂

Since I don’t have 50k I’ll stick with the small sites. I should make over a 100% return on my latest purchase. Maybe it isn’t sustainable but I’ve had some success with this method for a while now.

by: The Financial Blogger | March 1st, 2012 (6:59 pm)

@Andy,

I’m pretty sure you can find very solid sites for 20K though (I know, it’s still a lot of money).

The cheap buys are very profitable from what I see, I’m just curious to see how this model will last over time. It may be sustainable too… we’ll see!

You know where I stand, but the difference is that the outside forces on the different investments. For example there is almost only one factor when talking about a site….if google delists you, your investment is almost dead (almost). For a property to go down the tubes you need a little more from those outside forces.

Like John, just an opinion

[…] recently mentioned that you can buy a major website for 36 times the monthly income. Some people told me that I was a nutcase. Fine. But when you think about it, this is some […]

Good post. I think it’s best to have both.
Like some comments above said – you never know when the income will dry up.

[…] since we have to calculate our expenses too. Note, this is the price we are willing to pay only for major properties (which include specific characteristics). For smaller blogs (under 25,000 visitors per month), we […]