The internet has provided extraordinary opportunities for many of us.
Real estate and websites share surprising similarities when you look at them as investment opportunities:
- Real estate and websites can be bought, sold and managed to make a return
- Real estate and websites allow investors to make passive income
- Real estate and websites are all about location, location and location
But what are some of the differences between real estate and websites?
- Real estate income is not scalable, website income is
- Real estate are much more capital intensive than websites
- Real estate is not going to generate double-digit returns in a short period of time, websites can
- Real estate normally comes with lower risk, and you’re not at the mercy of a Google update or social media algorithm that could wipe out your traffic and hence income.
- Real estate investors often have to deal with tenants or repairs, whereas website investors need technical skills
Why is location key to both?
While it is common knowledge that location for a real estate property is key to its price, what does location have to do with a website property?
Simply put, the higher your location – or ranking – on Google, Bing and other search engines, the more traffic your website can expect. Whatever you are selling with your website – whether you are a reseller, monetize through ads or something third – you cannot generate income if you don’t have people’s attention. And the best way to get people’s attention, is to get traffic from search engines after someone has asked a question!
Websites are higher risk, but also much higher return
There is no such thing as a free lunch.
Websites might be able to generate a higher return, but it comes at a higher risk.
One important thing to note when it comes to return. In real estate, the price increases is by and large out of your hands. In real estate, it has almost become an art-form rather than a skill to find a great real estate investment, because it mostly comes down to picking an area where appreciation is more likely than not, or even picking an investment that is under valued already.
With websites, you are in control and can very much affect the likelihood of growth and hence a higher return on your investment.
What about risks?
In real estate, aside from a market drop, you don’t have much risk. Sure, a house could turn out to need a lot more work than you originally anticipated, or the neighbourhood could turn out to become less popular, or a tenant could become a nightmare, but it’s unlikely a real estate investment ever completely goes to zero.
With websites, you do have to consider the fact that they could die, or reduce significantly in value. Many of these risks are out of your hands, putting your website’s faith in the hands of search giants like Google or Microsoft, social media giants like Facebook and Twitter, or ecommerce giants like Amazon. A few examples of what could make your website value drop significantly:
- A Google algorithm update causes a loss of traffic and hence income from your website
- A social network policy update bans your site, which again causes loss of traffic
- Competing websites or new high-authority websites overtake your rankings on Google
- A product you promote as an affiliate could stop trading, could cancel its affiliate program, or reduce its commissions. Or it could stop converting to your audience.
Operating a website – 100% passive income?
While a website is not affected by difficult tenants or a shady neighbourhood, there are certainly repairs and maintenance to be made just like a real estate investment.
You can run a website for a few hours a week and maintain it, or you can put more effort in and grow it faster.
The more important question is, what is that work like? How accessible is it to a first-time investor? And perhaps more importantly, can you as an investor delegate the management as with real estate?
The work itself can range from small, less important, tasks such as making slight updates to existing content, all the way to much more technical tasks like migrating a website to different servers. There are definitely ways to delegate all of this, and if you do so, then your income generating website(s) becomes passive income indeed
There are definitely case studies out there of people who bought a website, didn’t know what they were doing, and watched it slowly die. So make sure you know what you are getting into, what your strengths are, and make sure you have people that can help you in the areas where you are not strong.
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