EFP 92: Do You Want To Partner With Empire Flippers?

Justin Cooke

May 1, 2014

We’ve always balanced our content on the Time Vs. Money crowd, but we haven’t provided enough value for those whose time is extremely limited. We know our buyers are busy and can’t to commit hours every week to maintaining a website, keyword research, adding content, etc.

We’re aiming to solve this problem.

There’s way more opportunity to look at websites as online investments as actual assets and invest in them appropriately.

How Partnering with Empire Flippers Can Help You

This week Joe and I are laying out the plan for passive earners where you get to actually “partner” with us on a website and we’ll build out the website for you. We’re still working out the finer details as it’s a rather complicated project to flesh out, so we’re hoping you can give us your thoughts on what you’d like to see.

Keep in mind that everything we talk about today is very much in the beta phase and we’ll need time to get to where we want to be with this.

We’re really looking forward to your input on this!

Check Out This Week’s Episode Here:

 Direct Download – Right Click, Save As

Topics Discussed This Week Include:

  • Our new plan to give buyers the chance to partner with us in their website purchases and investments.
  • The long-term vision, where we’re going with this, and a different way to look at online businesses.
  • ROI, risks, and a snapshot at several different scenarios.
  • ROI comparisons to S&P, real estate, and several other investment strategies.
  • Our ETA on the release of the option to partner.

Mentions:

Help Us Out:

  • “The Empire Flippers are looking for people who want passive investments. Let Justin and Joe build out your sites!” – Tweet This!

What are your thoughts on our partner investment strategy? Do you have any recommendations on what you’d like to see? Anything we missed? Please let us know on SpeakPipe or comment below!

Photo Credit: Chris Brown on Flickr

 


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Speaker 1:                           Welcome to the Empire Flippers podcast. Are you sick and tired of gurus who have plenty of ideas but are short on substance? Worried that ebook you bought for $17.95 won’t bring you the personal and financial freedom you long for? Hey, you’re not alone. Join thousands of others in their pursuit of [inaudible 00:00:19] profits without the bullshit. Straight from your hosts, Justin and Joe, from Empire Flippers.

Justin Cooke:                     Welcome to episode 92 of the Empire Flippers podcast. I’m your host Justin Cooke, and I’m here with my business partner extraordinaire, Joe “Hot Money” Magnotti. What’s going on, buddy?

Joe Magnotti:                    What is up, everybody?

Justin Cooke:                     We’ve got a great episode lined up for you this week. We are gonna be talking about partnering with us. We’ve been working on something for a couple of weeks, actually a couple of months now where we have an idea for the more passive investors, the Portfolio Pauls if you will, to look at getting involved in websites and not having to put as much time in. We’re gonna delve into the details here. Before we do that, [inaudible 00:00:57] updates, news and info.  First thing up, we’ve got two new five-star iTunes reviews.

Joe Magnotti:                    Hit me up, man.

Justin Cooke:                     First one is from Canadian Jeff in Canada.  He says, “I didn’t think I’d be listening to any more podcasts on a weekly basis, but these guys proved me wrong. The podcast is full of valuable information and has quickly become one of my favorite podcasts. Don’t hesitate to check it out and their website, which is also a great resource for aspiring web-based entrepreneurs.”  Thanks so much, Jeff.  We’ve also got another one from Mass Boff from the UK. He says, “Without this podcast I probably wouldn’t be where I am today. In just over a year I’ve quit my job, tripled my internet business, traveled to [inaudible 00:01:34] Philippines, and now the pleasure of hanging out with Justin and Joe Talk Business. So far this podcast has been a big factor in my business success because of the actionable and inspiring content they provide.” This is actually from James, our buddy who owns the website iclanwebsites.com.

Joe Magnotti:                    Yeah, it’s really cool [inaudible 00:01:51] technology he’s putting together there.

Justin Cooke:                     He does the websites or the social aspect for guilds and game in the gaming world. And he’s got a ton of visitors, a ton of users and he’s making good cash. It’s so interesting because he came out here and was on an island building his own business. There’s so much opportunity in this business. I think he’s got a good chance of doubling or better his business within the next six to nine months, so it’s pretty exciting stuff.

Joe Magnotti:                    Yeah, it’s very exciting. I wish he could commercialize it. That’s the only thing I’d love to see him do.

Justin Cooke:                     Yeah, absolutely. All right. So second update we have is we are removing the products and services section from our website. So we’re no longer gonna be offering key word research as standalone, content as standalone, starter packs. We’re removing that. And it’s kind of weird because that makes us money. The reason we’re doing that is focus, right? We really wanna narrow down and hone in our focus on where we think our greatest opportunities lie.

Joe Magnotti:                    Yeah. I’m really excited about the redesign of the site, the rebranding of the site. And I think having any products or services in there is distracting. I mean the revenue has been steadily declining from those products and services anyway. I think some of them are not as good of offers as they could be. They’re not as valuable. So yeah, I think removing them makes sense.

Justin Cooke:                     We do have another product that we’re looking at. It’s a recurring product that we might be adding in a couple of months. We still need to hash out the details, so we’re working on that and we’ll have more information on that when it’s available. The other thing is we actually did start the development on a website evaluation tool. This is something I’ve been working on for probably six months or so. I think I’ve mostly got it hashed out. We’ve done the wire framing and everything’s ready to go. Development team is working on it now, so that should be available in a couple of months. I’m really excited about that actually.

Joe Magnotti:                    Yeah, I mean it’s cool that the same development firm that’s handling the marketplace is able to do this, and I think it just brings them one step closer to us in understanding our business and being able to work with us on a regular basis.

Justin Cooke:                     Have you ever tried using those website evaluation tools that are out there? They’re just so crap, dude. They’re so crap. Their traffic numbers are way off, their estimates of valuations are way off and I think we’ve sold, god, over 1000 sites now. Definitely hundreds of other people’s sites, so being able to put this together as a resource I think will really help our industry, and it will act I think as a great lead magnet for us for people looking to sell websites.

Joe Magnotti:                    Agreed.

Justin Cooke:                     All right, enough about that, man. Let’s get right into the heart of this week’s episode.

Speaker 1:                           This is the Empire Flippers podcast.

Justin Cooke:                     All right, so the title of this week’s episode is “Do you want to partner with us?” And we should probably explain this a bit. We’ve always believed in supporting the time versus money crowd. So the people with more time than money, we’ve helped them build out niche sites and offered limited products and services they can help to get going on their journey. The people with more money than time we’ve offered a way to buy in and add websites to their portfolio. Where we haven’t done a good job, I think, is supporting the people with more money than time as they move up the value chain or the people that have large amounts of sites but have very little time to run them and work with them.

Joe Magnotti:                    Yeah, that’s kind of the history behind this program is we’re getting people that have the money to spend on these larger sites but they just don’t have the time. And there is just even a little bit of time, even just a couple of hours a week, four or five hours a week, they’re not interested in committing to that. They’re not interested in getting a VA. They just want a done for you kind of service.

Justin Cooke:                     And some sites require 20 hours a week, 30 hours a week and it’s a VA or two Vas working on the project. And we get this question all the time. Can you run your sites, my sites for me? Do you have any kind of program or process to either run them for me and grow them out and build them out because I just don’t have the time.

Joe Magnotti:                    Yeah. I think that’s the biggest thing too is the growing out, right? A lot of people are interested in growth. They’re saying, “Yeah, I could spend the two hours on adding new content, but I don’t understand the growth strategy, I don’t know what to do and I don’t wanna be responsible for holding it over. I want a partner to help me through that.”

Justin Cooke:                     So we’re gonna get into the exact plan, but basically what we’re looking to do is create a passive investment asset class for the Portfolio Pauls. So people out there that want to add a large portfolio of websites, we wanna offer them an opportunity to do that and to not be an active builder. I mean if you wanna maintain your sites or grow your sites, there is work required, right? You’re gonna have to do something, and there are investors out there that are looking for a good return that don’t wanna put that time in. So this basically allows them to leverage our skills, our expertise in helping them build out their passive assets.

                                                All right, so first thing, buddy. Let’s lay out the plans and get into this. So this is basically where we’re gonna bring on investors. We’re gonna bring on partners, right? And what they’re gonna do is they’re able to purchase a website the same as they are today. So basically they’ll be able to buy a website 20X net monthly profit. So for example if there’s a $3000 a month net profit site there, they can buy that site for $60,000. The difference is we’;re gonna actually partner with them. What we’re gonna do is take over the management of that site, the growth strategy for that site and lay everything out. So it’s gonna be a partnership between them and us where we’re running the site. It’s gonna be a 50/50 split of net profits.

                                                So the site’s earning $3000 a month, we’re gonna get $1500 a month and they’re gonna get $1500 a month out of the net profits.

Joe Magnotti:                    And all the operational cost comes out of our half. So I think that’s a huge advantage right up front. If you worry about maintaining a larger site that has customer service responsibilities or anything like that, we’re gonna take on that operational cost.

Justin Cooke:                     And we’re committing to 40-50% of the expenses or the net profit that we’re getting, we’re gonna be reinvesting back into the site. And that’s through a growth strategy that we’re gonna share with the investor, with the partner. And here’s the other piece of this is that as the site continues to grow we’re gonna have a split of the improved profits that’s actually in our favor. So 70% to us, 30% to the investor. The reason for this is so that we have some incentive to grow the site. It’s an aggressive growth strategy, and this is actually something we’re gonna discuss toward the end that there are some things up in the air. The idea is to give us a larger piece of any profits that are above the initial amount, so above the $3000.

Joe Magnotti:                    That’s the key thing here to remember is that it’s above the initial amount. $3000 in this particular scenario would still be locked in at the 50/50 basis.

Justin Cooke:                     So here’s the other thing too is that the buyer investor owned the property. They own it outright and they can walk away at any time. So if three months in, six months in, 20 months in they wanna walk away, they’re completely able to do that. There is no long-term contract or commitment. The only thing we ask for is a 5% cancellation fee at the current valuation at the time that they walk. So they walk three years down the road. The asset has gone up by 2X or 3X. We’re gonna do our current valuation, our current valuation method on the site and take 5%. And what that comes with is a handover intellectual property. So all the strategic documents we’ve created, the process, any video walk throughs, everything will be handed over to the buyer investor and they can either build out their own team or continue working on the site themselves.

Joe Magnotti:                    Yeah. All the IP, right? Any of the stuff that we’ve come up with in the meantime would be something that the investor would be able to walk away for that fee, and I think that’s reasonable. Also we should mention that the investor does retain control of the domain. It is completely owned by them and we are servicing the site.

Justin Cooke:                     They can also sell the asset with us at any time, so six months down the road they wanna sell it, no problem. We will ask for a short period of exclusivity, we’re able to sell it for them, but other than that we can sell the asset for them at any time that they’re interested in doing so. So what this will come with is there will be an initial kickoff meeting, so from there on out there’ll be quarterly strategy meetings where Joe and I get on the phone and actually hash out the strategy for the next three months. And this is something we currently do at Empire Flippers today. We meet up quarterly and we talk about our strategy for our business. We’ll be doing this same thing with you on a call.

                                                The other thing is you also get monthly reports from our team every month that shows you exactly what was done the previous month and what the plan is for the next month. So while you won’t be directly involved in the work, you will be getting regular updates from both Joe and I and from the team on your individual assets. 

Joe Magnotti:                    Yeah, I think this is pretty important. If you’re gonna be a partner, it’s good that you know what’s going on even if you don’t have to take an active role in what’s going on. For transparency we’re also gonna have a dashboard for the buyer investor to review, so they’ll be able to log in and check the dashboard and look at things like traffic and earnings and everything, so that they’re completely up to date. We’ll have our team update that I think via Google Docs, and we’ve got a piece of software we’re gonna be able to use to report some really interesting stuff.

Justin Cooke:                     Yeah. During the beta test we have to smooth out these [crosstalk 00:10:57].

Joe Magnotti:                    This will be [inaudible 00:10:59] or something. It’ll be interesting. But I think there will be a dashboard for even the beta testers to use. I should be clear about this. This is a beta test, so right now we’re gonna be looking for somewhere between four to five investors or buyers, and we’re looking at limiting or capping this to a total of $200,000 in assets. So we’re gonna be limiting this just a bit, and obviously that also puts us in a range of probably a minimum of $40,000. We’re not gonna do it for less because of the work that’s gonna go into this, and it just isn’t worth it on an $8000 site or something.

Justin Cooke:                     Yeah, absolutely has to be a high ticket item.

Joe Magnotti:                    All right, man. So that’s the plan. Let’s go over a couple of scenarios as we have it today.

Justin Cooke:                     Yeah, now we’ve made a pretty complicated spreadsheet that we’ve gone back and forth on trying to figure things out, and I hope my math is right.

Joe Magnotti:                    I think it is, man. So here’s the deal. Let’s look first at a bad scenario. So we’re gonna look at a declining asset. This is a site that someone purchased for a $60,000 investment. It’s -3% growth month after month, so it’s going down 3% every single month for 20 months.

Justin Cooke:                     It’s not, when they bought it it wasn’t declining but whatever happened after they bought it, it started declining. So over time the buyer investor will get $24,000 in distributions. At the end of the period the asset will be worth 1.8 thousand per month. It was 3000 net profit previously. So 1800 per month puts it at a $36,000 asset. So the total return to investor both in distributions and in the value of the asset at the end puts the asset at just under 60,000, 59.8 thousand. So that’s a -0.26% percent ROI in 20 months. You’ve gone 20 months, you’ve put this money in and you end up just about even.

Joe Magnotti:                    Yeah. I think that this is a pretty conservative sort of loss area. If you had something like this, you only lose less than 1% of the value of your asset. I think that’s, you have to say I escaped, right? 

Justin Cooke:                     We’ve done other more complicated models too where it goes up 1% and then 3% and 4%. Month six or seven it loses 50% and then it goes back up 2% and that kind of thing. And it works out about the same, even or under 10%, over 10%, it’s not a fantastic investment. I don’t wanna go 20 months and end up even on my money. That’s not great. But that is a declining scenario. So let’s look at just steady. Let’s say the asset doesn’t grow at all. We’ve put in a bunch of money where we’re investing money and time into this, and it doesn’t go anywhere.

Joe Magnotti:                    We put in our money into growth-

Justin Cooke:                     And our time, yeah, yeah, yeah.

Joe Magnotti:                    And the investor has just been taking their half.

Justin Cooke:                     And nothing happened, right? We just maintained the site. That’s not very exciting. So with a $60,000 investment, 0% growth per month, there’s been $30,000 in distributions to the investor buyer. The asset’s worth $3000 a month or $60,000 with us. So they’ve received $90,000 both in assets and distributions, which would equate to a 50% ROI in 20 months. So they gained 50% of their money within 20 months and that’s not great, but that’s considering zero growth.

Joe Magnotti:                    Right, yeah. I think that’s the power of our marketplace, our ability to sell sites quickly. So we’re definitely gonna be able to add a lot of value to even a site that doesn’t make any money.

Justin Cooke:                     So let’s look at this. Let’s say that the site is increasing. It’s a $60,000 investment again. There’s 3% growth per month. That means that the buyer investor’s received $36,000 in distributions. The asset’s worth $5.3 thousand per month, so that’s about $105,000 asset. So the total value is $141,600. And that’s been 136% ROI for the investor in 20 months, which is fantastic. And we’re talking about a 3% growth rate. What I love about this, Joe, is that there are two advantages, right? We’re reinvesting pretty close to 20-25% of the net profit back in the business. We’re leveraging our team here in the Philippines to do that, who has experience with this. And we’ve also got time on our sides. We now have got 20 months that have gone by. I think it’s very likely 3% monthly growth rate is not unrealistic at all, especially for assets or websites at this level, right? These are still generally high growth opportunities.

Joe Magnotti:                    Yeah, no, I agree and I think that this is a plausible scenario. Yes, it’s definitely an increasing asset but it’s very plausible could happen. The idea of what kind of return you can get on a solid property online.

Justin Cooke:                     So anyway, one of the reasons we’re going over this today is we really wanna get your feedback, especially if you’re in the financial sector and are familiar with this. But this seems pretty awesome to us. I mean it seems like there’s a lot of value here. Let’s actually look at some of the ROI comparisons. So Joe and I looked this up previously, but the S&P, for example. In 2011 there was a 0% return, 2012 there was a 13.4% return and 2013 there was 29.6%, which is the best year since 1997. Historically you’re looking at about 10% per year as the rule of thumb.

Joe Magnotti:                    Yeah, I mean the stock market does well for some people, does worse for others but the big thing about the stock market is timing, right? I mean if you look at 2008 and some of these really bad years, the rate of return is absolutely horrible. So people can’t time the market, and I think that that’s definitely a problem.

Justin Cooke:                     Yeah, so timing I think with the stock market for sure, but when you look at it historically and as a market you’re only talking about 10% growth or whatever year over year. So that’s clearly a much bigger market than we have right now. But we’re on a rising tide. When you talk about websites as investments or assets, more and more people are getting online and more websites are being built that are making more money. We’re part of something that I think is really growing and increasing, and that’s why there’s so much opportunity in this compared to the stock market, which is much more established. It’s been around a long time, right?

                                                So the second thing I wanna look at is real estate. So you look at single family residences, generally those are low. A lot of times people are buying to move their family in and live in the home. And they’re not looking at it necessarily as an investment or investable asset. If you look at something that is more an investable asset, so like a real estate investment trust or an REIT, the National Council on Real Estate Investment Fiduciaries reported a 20-year period ending in 2011 that they’ve received annual rates of return of about 10.91%. So just about 11%.

Joe Magnotti:                    Yeah, that makes sense to me with real estate. But we all know about the headaches and the idea of putting up with the cost of ownership. And I think that’s what we’re trying to alleviate here, right? A lot of the cost of ownership, the burden would be on us rather than the investor.

Justin Cooke:                     One of the interesting things I would say that I think is in real estate’s favor is that you’re actually able to leverage your home to purchase other income-producing assets. And I don’t think you’ll be able to leverage your business for cash until it reaches a certain level. So you’re not gonna be able to do that with a $50,000 website. You’re not gonna be able to leverage the asset or the investment in that asset for more cash. But you can at a certain level so your business gets big enough, you can actually borrow against that.

Joe Magnotti:                    There are some online opportunities right now that allow you to do that. Places like [inaudible 00:18:31], they do allow you to take more money out based on the money that you have coming in. But yeah, you’re right, it’s not leveraging the property or the overall value of the property.

Justin Cooke:                     Let’s look at the next thing. So Dow Jones, we’re looking at 9.4% since 1900. That’s been around a while. So we’ve got some data there, and obviously it goes through boom and bust years, but you’re looking at 9.45 over the last 114 years.

Joe Magnotti:                    Yeah, and then I saw a great chart about how much you could lose or gain in one year, how much you could lose and gain in two years, how much you could lose and gain in three years and it’s really interesting that the larger your period of time obviously the lower your risk on the Dow Jones. That’s an interesting thing. Unfortunately, we don’t have that kind of data to back us up with this kind of online presence. One day we will, but there’s a lot of short term advantages in these kinds of websites.

Justin Cooke:                     So what I think is really interesting is when you start to get into the newer space. So if you look at peer to peer lending, and I’m sure you’re probably familiar with places like Prosper or Lending Club, one of the things about these business is that they publish their rates of return online for everyone to see. So when you’re getting into the P2P space, which is much newer, you can see what you’re looking at. With Lending Club as of April 1, 2014 their adjusted net annualized returns is 8.24% for grades A through C. So they obviously chopped up the bottom of those loans, the lower level assets that they have. And you’re looking at 8.24%. For Prosper, if you look at [inaudible 00:20:06] returns September 30 from loans originating in July 2009 through November 2012, you’re looking at 8.89% average. So if you look at all of these different sources, whether they’re in the newer P2P space or they are the older 114-year-old Dow Jones, you’re looking at anywhere from 8-12% for the most part.

Joe Magnotti:                    Yeah, and the other interesting thing that we didn’t talk about, Justin, is some of these opportunities, obviously not the stock market, you can sell with the stock market any time, but some of these other opportunities like Lending Club and Prosper, you’re a little more locked in to the time period that you have to have that money in. With us, what we’re trying to say is you wanna sell that asset. If the asset goes up by three times and you say, “Hey, I’m out, let’s list it on the marketplace,” we’ll go ahead and do that. 

Justin Cooke:                     You wanna buy a house, wanna sell off all your assets, buy a different business, you’re free to do that and probably easily doable within 30 days. All right, man, so let’s talk a little bit about the opportunities and the risks here. One of the biggest opportunities I think is that this is truly passive, right? It’s not that the asset is passive. There’s still work being done, there’s still content being created, everything. It’s just that you don’t have to do any of it.

Joe Magnotti:                    Yeah. I think that’s really the huge one here. How many people have said to us, “I’m willing to plop down $50,000 tomorrow. I just don’t wanna run the site.”

Justin Cooke:                     We have buyers right now that are looking for sites, and they actually avoid the sites that are good deals or good buys because they simply don’t have the time. And I think that’s a shame. I think they should be able to build these up. Now clearly you’re giving half of the net profit to us. We’re taking half off the top. And we’re getting a larger piece of the growth. But what this is doing, so this is limiting your upside, but what it’s doing is keeping you from having to hire a team of VAs and manage that process and create, go through and do the work yourself and then show your team so they can figure it out. You don’t have to do any of that.

                                                So basically you can take your cash and invest in many more assets, even assets that might be outside of your comfort zone, as long as they meet ours. So there is gonna be some limit to this in the sites that we’re willing to take on simply because some of the sites wouldn’t be a good match for our skill sets or our team. So for example, we have a site right now, [inaudible 00:22:23]. It’s very technical, and I just don’t believe our team could run it, right? So that would not be something we’d be willing to partner on because we don’t feel we provide enough value in that space. Whereas some of the other sites, yes, we’d absolutely be willing to do it because we have a very clear growth strategy that we could implement.

                                                So the other thing is we’re talking about great returns, Joe. I mean we said anything from S&P 500 to the Dow Jones to the P2P networks, you’re looking at somewhere between 8-12%, with a 3% growth per month on websites you’re looking at 136% ROI in 20 months. That is phenomenal, even staying steady. Let’s say the sites don’t grow at all. We’re just maintaining them for whatever reason because there were a couple of hits along the way or whatever, you’re talking about 50% ROI within 20 months. That’s fantastic.

Joe Magnotti:                    Yeah, I think that’s really cool and again, it just shows that there is a lot of value here in this space. There is a lot of things to be done.

Justin Cooke:                     The other thing is we’re allowing our buyers investors to leverage our skills, leverage our team here in the Philippines. We’ve got the infrastructure. Why aren’t we using it more effectively?

Joe Magnotti:                    This one is a big one for me because I don’t wanna be doing the outsourcing thing anymore. So why, we were thinking about let’s, they could hire our team after they buy the site [inaudible 00:23:38].

Justin Cooke:                     They don’t wanna be running the team. That’s the problem. So now we’ve handed over a team of people that they now have to run and check up on and build the reports out of. It’s a bit of a mess, so why don’t we just keep that internal. We’ve got that worked out and just handle that for people. They want a more done for you service, a hands off service and I think this is a much better way to provide it.

                                                The other thing is that we’re creating, expanding and building on valuable asset investments. So our plan is to expand these clearly, because we get a much higher ROI on any growth or gains that we get on these sites. It’s to our advantage to help you build these out. So we’re gonna pull out all of our tricks to build these sites out and really grow them over the 20 month, 30 month, 40 month that we’re running them.

Joe Magnotti:                    Yeah, I think this is a huge one, especially at the end. Investors are really gonna be able to see the kind of growth that happens to a real asset online.

Justin Cooke:                     All right. So you don’t get these kinds of returns and this kind of opportunity without some serious risks. So let’s go over those really quick. I mean the first risk I’d say clearly is that Google algorithm changes. Especially if the traffic for a particular site is heavily organic or limited to a few key words let’s say that it’s getting. That puts the site at risk. It could take a 50-60% nosedive on organic traffic if it got deindexed, if it got hurt. Obviously we’re gonna try to avoid that as best we can by diversifying the link profiles and using our methods, our white hat methods to build them out. Because again, we take a hit on that too, so it’s not to our advantage. But that’s definitely a risk in that the Google game today, you never know what’s coming.

Joe Magnotti:                    Yeah. I think we’re pretty conservative when it comes to SEOs, so any SEO that we did on a site would be pretty white hat. But yeah, we don’t know how Google’s gonna react in the future unfortunately. And if you do have a site that gets a lot of organic traffic, it is a risk.

Justin Cooke:                     There’s also a problem where there may be a lack of interest in that particular industry or that market. So let’s say for example it’s a drop shipping site that sells fax machines. Well, in the next couple of years I’d say fax machine sales are probably not doing so well. I imagine they’re going down. It’s a bookstore, online bookstore or something. Amazon’s crushing you, Kindle, whatever. So if it’s in a niche that is not in a rising tide, that is in a decreasing tide, that could be problematic for the site. So we could see diminishing or decreased returns over time simply because it’s in an industry where there is no growth. Even though we’re putting money into it and trying to grow it out.

                                                There’s another potential risk is that if the site is heavily based on let’s say paid traffic, Ad Words or what have you, there could be increasing advertising cost for that traffic. So as more people get into that niche, more advertisers are playing around. The traffic could get expensive and it could no longer be profitable. So we could have a profitable advertising or paid traffic source initially that becomes unprofitable over time and we’re not able to do that, which obviously would decrease the revenue that site’s earning. So there’s another risk there I think in purchasing the sites.

Joe Magnotti:                    Yeah, and I think paid traffic is definitely more reliable, but if there’s increased competition, paid traffic is something that has to be accounted for.

Justin Cooke:                     We’re also gonna be looking for opportunities where there isn’t paid traffic and there should be, right? So those are also great opportunities, and that’s something that we’ll be looking at. So this definitely is not without risk. I think that the opportunities outweigh the risks here. I think we’re looking at positive expected value out of this, positive EV. As a poker player you’re very familiar with that.

Joe Magnotti:                    Yeah, and I would like to hear from our listeners if we missed any opportunities or risks. And something that you guys think is something we should add to the list.

Justin Cooke:                     Absolutely. So we actually haven’t even launched this yet. The plan is to do a nice beta test with four to five investors. We’re looking at an asset of about $200,000 to start. Once we’ve proven that out for four to six months, then we’ll probably roll that out publicly. But we don’t have this all figured out. We’ve really just been running the numbers. We had a big meeting on this yesterday. There were a few unanswered questions we wanted to cover. The first is how much and should we adjust the percentage for growth rates. We had a great conversation with a potential investor the other day where he was pushing for us to improve our percentage on growth. So if there was a $60,000 asset making $3000 a month, if it goes to $4000 we get more out of that additional thousand than the buyer investor.

                                                So at 70% we get $700 a month. The investor gets $300 a month. And his reasoning goes like, “I want you guys incentivized on growth. I want you promoting this. I want you building it out.”

Joe Magnotti:                    Yeah, it makes sense but I’m just not sure if it should be 70/30, right?

Justin Cooke:                     80/20, could be 60/40 and we’re not sure what those splits should be.

Joe Magnotti:                    And it might be tiered, depending on the amount of money that comes in, it might be something that we have to tier.

Justin Cooke:                     Another thing that we discussed is that if we’re gonna get a higher percentage of the growth rate, shouldn’t we cut down the initial rate? So right now we’re saying just 50/50 in perpetuity until you cancel or we cancel with you or whatever. Which by the way is a potential too. So we might actually cancel the deal. If so, you wouldn’t owe the 5%. That would be on us, so we would happily hand over everything and we’re just walking away. But either way. So should it be 50/50 percent in perpetuity? If we’re getting an improved amount on the growth rate, let’s say 70/30, shouldn’t we cut that down on the initial rate to 70/30 in the investor or buyer’s favor?

Joe Magnotti:                    Yeah, you know it was pretty complicated to model on a spreadsheet, so that’s why I wasn’t able to do it easily. But I think it’s probably something we should do, we should look at but we’re open to it.

Justin Cooke:                     So we’re looking right now because we need the initial cash to put in to build the site out for future growth. So what we’re thinking right potentially doing is like 50/50 split on it for the first six months, and then everything kicks in, right? So 70/30 in our favor on the growth and then 70/30 in the buyer investor’s favor on the initial asset. So doing something like that-

Joe Magnotti:                    So now we’re paid on the growth or the success of the growth that we put in, and the investor is able to cover their downside by getting a bigger piece of the pie or the initial revenue. I think that’s interesting. We haven’t really put that together, but I’m interested to hear what your thoughts are too. Last thing is that we can’t do this. We’ve been asked, some of you I’ve talked to, but we’ve been asked to do this on $15,000 sites, $20,000 sites. And it’s interesting. We just can’t. It’s just not affordable, right? Because the amount of money coming in just isn’t enough to really, we’re gonna have to do these quarterly calls, we’re gonna have to do monthly reports, we’re gonna have to put enough money into these sites to make it interesting in terms of growing them out, and it’s just not worth it to us at the lower levels.

Justin Cooke:                     And one day there might be a fund option where we buy ten $20,000 sites and then you can-

Joe Magnotti:                    At $15,000 each or something. That’s potential but-

Justin Cooke:                     But I think even the 40K honestly to start may be a little low but [inaudible 00:30:28].

Joe Magnotti:                    Well, we’re testing through this, man. So we gotta figure it out at some level, and it has to be a level that I think our buyers and investors are interested in getting in on. So I think that’s probably a good number and we’re gonna try to roll with that. But even that, that’s okay for the beta, but it’ll probably have to be increased as we take it public. So anyway, we’re really interested to hear what your thoughts are about this. Did we cover opportunities and risks well? Does that seem pretty reasonable to you? Does it seem like a good idea? Are you interested, and what recommendations would you have for us? Make sure to check it out at empireflippers.com. This will be episode 92, and we’d really like to see your comments and thoughts.

                                                All right man, enough about this. Let’s get into the tips, tricks and our plans for the future.

Speaker 1:                           You’re listening to the Empire Flippers podcast with Justin and Joe.

Justin Cooke:                     All right, Joe. So you’ve got a nice tip for me you’ve been banging on me for a few days about that I need to read. I actually just bought it on Audible.  Let’s talk about that for a sec.

Joe Magnotti:                    Yeah, I’m listening to this book called Masters of Doom. It’s about the [inaudible 00:31:31] software guys that created Castle Wolfenstein or Castle [inaudible 00:31:35] 3D and Doom and Quake and all that. It’s a great business book about software development, about partnerships. It’s really, really interesting and if you were around, if you were a kid in the mid ’90s doing the gaming thing it’ll appeal to you too. It’s the entrepreneur sort of gamer idea.

Justin Cooke:                     [inaudible 00:31:58] the partnership went pretty south. Do you see any comparisons in what we’ve been through and what they’ve been through?

Joe Magnotti:                    Yeah, of course. There is some of that. But I think at the end of the day they were just a little too much head in the sand and set in their ways. They weren’t willing to compromise.

Justin Cooke:                     They weren’t able to compromise or adapt?

Joe Magnotti:                    Yeah, yeah, a little bit of that for sure. I think they were really smart guys obviously, and they were able to adapt some of their skill sets. But they weren’t able to adapt their stance and their views. You should really listen to it. I think it’s very applicable to partnerships today and entrepreneurship. It has some good lessons to be learned. But also one of the other things I think I pulled out of it is man, these guys were dedicated. I mean when they were building the first pieces of software out there, the amount of work and the amount of effort that they put in is pretty unbelievable.

Justin Cooke:                     That seems to be the case often, and there’s no guarantee of success with that level of dedication because there’s plenty of, you just never hear about them, there’s plenty of people that fail. You just don’t hear about their stories. But the ones that are truly successful, they build it into something amazing is they just knocked it out. That seems to be a common thread. All right man, I’m gonna read this book, Masters of Doom, huh?

Joe Magnotti:                    Yes.

Justin Cooke:                     I bought an Audible. It’s sitting there. It’s next in the queue, buddy. So I’ll line it up.

Joe Magnotti:                    All right, that’s it for episode 92 of the Empire Flippers podcast. Thanks for being with us. Make sure to check us out on twitter @empireflippers, and we’ll see you next week.

Justin Cooke:                     Bye-bye, everybody.

Speaker 1:                           You’ve been listening to the Empire Flippers podcast with Justin and Joe. Be sure to hit up empireflippers.com for more. That’s empireflippers.com. Thanks for listening.

 


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Discussion
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  1. Yuv says:

    Hi, is this service is still available? If not, do yoy have something similar?

    Thanks!

    • Justin Cooke says:

      We’re currently beta testing the first Investor Program and have closed it off to new investors. Assuming all goes well, we’ll likely be opening this up again in Mar/Apr 2016. Will let you know when we do!

  2. Eric Watts says:

    As you are selling what the SEC considers investments, what is your Broker Dealer registration number please?

    Have you done any of the legal homework around what you are doing?

    Eric

    • Justin Cooke says:

      Hey Eric,

      Did you actually listen to the podcast?

      Either way, our understanding of how this works has developed quite a bit since we first published this podcast. Keep in mind that we’re actually selling “websites” not investments. Ultimately, the buyer owns these websites free and clear – we’re simply looking at offering “property management services” to maintain and grow the sites post-purchase.

      Either way, we’ve spoken to investors, attorneys, and accountants about this. Would you like to add something to the conversation? I’d love to hear it!

  3. This is a great idea with loads of potential. I would like to find out about progress and information on the beta program? Has an update been published recently?

  4. This is a great idea with loads of potential. I would like to find out about progress and information on the beta program? Has an update been published recently?

  5. Wes Grasty says:

    I think you also mentioned a dashboard to review the sites as you go along. Is that dashboard available to the public to use for their sites? It sounds like it’d be very helpful for online businesses in general.

    • Well considering it’s just in the concept phase anything is possible. However, it was not our intention to allow the general public to use it as revenue updates would be done manually by our team on the backend. The interface would just look pretty.

  6. Anthony D says:

    Hey guys,

    I’ve been listing for quite sometime but have never posted till now.

    If this something that actually happens I would be a very interested in persuing.

    I think structuring the arrangement in phases makes sense for both parties. Keeping things as clear and simple for the “beta” stage key as well.

    I would try to control as many variables as you can that make sense. For example, there is a baseline level of risk in any investment, this is no different. At least for the first go around, I would strongly reccommend that you have the same terms with each investor. I think at this point if you had custom terms with each investor that could cause some trepidation. It could also, cause some emotioanl strain on you and your team.

    Start-up Phase

    A 50/50 split for six months on base profit (what I would call the profit from day one).

    Growth Phase

    After the start-up phase I like switching to a 70/30 split (investor/you guys) on base profit and 30/70 split (investor/you guys) of growth profit. I’m not married to the 70/30, 60/40 could work as well, but I do like the reverse split on base profit and growth profit.

    Break-up fee

    I think having an agreed upon process for both parties to walk away is also important. As you mentioned, the investor owns the site, they can sell at anytime. One thing here I think is fair to you guys, is you get exclusivity to sell it for a fixed period of time.

    If you guys want to walk away, maybe you can have a ramp-down period (could be fee based) so you will help the investor transfer operations.

    More than happy to discuss more if you guys want to brainstorm…

    • Justin Cooke says:

      Hey Anthony,

      That’s a great point – keeping it the same for everyone in the beta would make things a helluva lot easier and probably be much more fair. We won’t be able to make everyone happy, but we’re going to have to test through something that would work for us on a wider scale anyway.

      Both sides being able to walk is something we’ll definitely bake into the deal.

      Justin

      • Anthony D says:

        Hey Justin,

        I have always been of the mind set if you make everyone happy you aren’t pushing the envelop enough. It sounds counterintuitive to some but I think the premise is solid.

        I agree as this scales, you guys will do a handful of — measure, test, refactor…

        Looking forward to see how this pans out!

        A

  7. Rick Van Meter says:

    Hi guys, great idea.

    Yes I think you getting 50% for six months on the base profit and then dropping to 30% is a better structure. Two reasons: i) because you are getting 70% of the growth, and ii) 50% doubles the payback period for the investor and in light of algo changes – which is the
    biggest unknown – doubles the investment risk for the investor.

    I also think 3% monthly is aggressive. I think you would make a better impression on investors if you gave them the lower growth rates that would yield them a 75% ROI and a 100% ROI rather than 136% ROI. You also need to consider taxes in your ROI calculation.

    The biggest benefit though, which I think you only barely mentioned, is that I can sell the site at any time and keep 100% of the proceeds (less 5% fee). So, I make a capital investment, have you guys increase the value, then sell it in a year before google screws me. I think if you stressed this idea you would attract Fred Flippers, rather than just Portfolio Pauls. Truth be told though, we all are a mix of both, and we change from month to month. I would bet that many of the Fred Flippers would eventually decide to keep the site if you do a good job. This
    will expand your target market.

    You may want to consider a 10% fee rather than 5% if thesite is sold before a certain time, one year perhaps.

    Great idea. Rick Van Meter.

    • Justin Cooke says:

      Hey Rick,

      Yeah – our reasoning for the 50% for 6 months would be so that we have enough $$ on our side to make significant investments in growth for the first 6 months. After that, we’re up for the gamble of taking our upside on growth, I think.

      I get your point about growth – I think when we do a written post on this we’ll go over several models and really lay it out. (Possibly with our spreadsheet/calculator for others to use) Before we do that, though, we both want to sit down with a savvy investment guy/gal to review the model.

      You’re right regarding the flipping/selling piece. We may offer a discount on the re-sale of the business – something we need to discuss. We’d like to keep that business in-house, though, clearly.

      I’m not sure we mentioned it on the show, but there would be a cancel policy on OUR end too. If we canceled I don’t think we’d require the 5% exit fee – but we do need a way to untangle ourselves from the agreement if it’s not something we’d like to continue. I think it would also include a 30 day warning to give the buyer/investor some notice/time.

  8. Herbert Camey says:

    Awesome. ..

  9. bobdak says:

    Justin and Joe,
    Listened this morning on my way into work … I would jump at this but don’t have the $40,000 — i do understand others to. I’ve got 4 to 6,000 but i am crazy scared to put that out because i want to research any site at the level, and at this price range the sites move fast … the sites you vent on empireflippers — how much research should i be doing on my side or should just i just trust your venting processes? Maybe a podcast or even better a videocast of how you guys vent sites before you post them .. might be good … one question … in episode 87 you talked about a site you were thinking about buying on Flippa … called 49s.com or something like that … can you send me the link to that site? thanks for the info .. i’ll post a 5 star review on Itunes tonight!!

    • Bobdak, we put the sites through a pretty vigorous process. There’s no guarantees in life, but I can tell I personally look at these sites and review the content, links, revenue and seller. If it’s not a site I would buy, we won’t list it.

      As for the site we were thinking of buying — stay away, very far away. As far as I can tell the Flippa listing was just a scam to get more recurring customers.

      • Justin Cooke says:

        Hey man,

        Soooo – I totally agree with Joe that we put the sites listed with us through a rigorous process. No guarantees and you HAVE to do your own due diligence, but we’re all confident about the sites we list.

        However – I REALLY like the site we were looking at for sale. I’m not sure I believe the seller – I think his earnings might be BS – but even without the earnings, there was a strategic purpose behind the purchase that we could have capitalized on.

        That being said – I absolutely wouldn’t trust the seller or the revenue/profit that was listed. I think it’s sketchy…but WE could have made it work as a drop sell for people looking for ideas to get started.

        The seller’s currently suspended so PROCEED AT YOUR OWN RISK:

        https://flippa.com/3043964-great-opportunity-with-solid-income-the-past-year

  10. dennis says:

    Building the site is probably the easy part.

    Are there already plans to rank them / maintain rankings by building links?

    • Justin Cooke says:

      Hey Dennis,

      Sorry if we weren’t clear. We won’t be building the sites – we’ll be taking over already built/established sites and then putting together and implementing a growth strategy. (Added content, linkbuilding, paid traffic, tested monetization methods, etc.)

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