Greg Elfrink

May 4, 2016

For decades, when people asked what the pathway to wealth was, others would respond with ‘Real estate.’ Now, the answer is less certain. One thing that is for certain is that times change. New opportunities come and displace old opportunities.

In the era of the internet and digital revolutions, is real estate still the way to go?

Is the dream of passive income and true wealth still locked in land? Or is there another route that could prove to be more lucrative, with higher ROIs that you could leverage? Which is better, being a landlord of physical properties, or being the owner of a digital empire consisting of revenue producing websites?

Real estate has produced steady returns of 9.5% up to 11% on average, outpacing the S&P Index according to Source Investopedia.

Show Me the Data

While that is considered a fantastic return for many investors, a website can produce an ROI of as much as 50-80%, or even crazier numbers. Unfortunately, there has been no similar study done yet on investing websites and their rate of return, but looking through our marketplace highlights the profit potential of an online business.

Because there are fewer studies about websites than there are about real estate, websites may initially look a lot riskier than real estate. But while investing in websites may seem riskier than real estate, these risks come with qualitative differences that can actually make them more attractive than conventional forms of investment.

Both offer you the benefit of being your own boss. If you have a portfolio of real estate properties and understand how to make the right deal and how to do good property management, you could be working less than 20 hours a week once your investments are going strong.

Likewise, once your website is profitable, you can also “take it easy” if you want. Many profitable websites only take a handful of hours to run a week, and some only take a handful of hours a month to run.

While there are similarities in the “lifestyle” that can be achieved, it still comes down to one pressing question:

Which risk should you accept to earn the reward? Is it better to be a real estate tycoon, or the owner of a digital business empire?

The Inherent Rewards of Being a Real Estate Tycoon

The rewards of growing a real estate investment portfolio are many, and they are mostly tied to one common theme: real estate is a tangible asset.

When a website’s profits go to zero, there is really nothing you can do other than try to get it to make money again. A website that is not making any money is not worth much of anything.

A piece of real estate that loses money, however, is still valuable because it is a physical asset. It is an actual place on a piece of land.

While an investor should avoid buying real estate based on appreciation alone (because it is never a safe bet that your investment will increase in value), over the decades real estate does typically grow in value. This is for several reasons, one being the very real fact that land is a finite resource. As towns and cities get built up, the competition for space becomes fiercer, and so the property values can rise as real estate becomes more desirable.

You can also use property to finance other investment strategies. You can take a Home Equity Line of Credit (HELOC) and invest it into anything you want. It is like an extremely low interest credit card.

Most people use HELOCs for big fixes like boilers, the roof and things along these lines.

Some savvy investors will use HELOCs to continually invest in real estate or in other financial instruments that help them reach their financial goals. It is important to realize that a HELOC is a loan that is using your property as collateral. In effect, it is similar to a new mortgage.

Used wisely, HELOCs can help rapidly grow your investment portfolios.

One of the biggest benefits of real estate is that once the property is paid off, your rent income becomes pure profit. Unlike websites, real estate is less volatile in its rental income production at this stage.

You never really have to worry about a Google algorithm update or a Facebook advertising change of policy when your house is fully paid off (or even when it’s not paid off).

This can become super attractive, but it can also take a very long time to pay off an entire piece of real estate, not to mention that real estate itself can see all of its profits go to zero very fast. While there are many benefits to real estate, there are some terrible downsides that need to be taken into account as well.

Unlike websites, if you get hit by these risks, it could turn not just your business upside down, but potentially your entire financial life for years and even decades to come.

The Unfortunate Downside of Building a Real Estate Fortune

While there are a ton of benefits to investing and growing a real estate portfolio, there are also a ton of downsides.

Real estate is a very capital intensive sport.

Not a Lot of Profit Until the Property Is Paid Off

There are hundreds of tales of young landlords struggling to make ends meet. Because honestly, there is not a lot of profit in owning and renting real estate property at the start. Real estate is a long term game, and it gets better over time.

Most rental properties are only going to be making $100-$400 a month of net profit. In order to make this kind of money, you will have to spend or get a loan for $100k (or maybe even more) to own the property, so you can rent it out.

If you take that $100k and instead invest it into revenue-producing websites, the story of how much you can earn becomes very different.

If you spent the same $100k on buying websites that earn a net profit of $100 a month, you would likely be spending around $2k per website. You could buy 50 websites at this price, and at the end of your $100k, instead of making $100-$400 a month, you will be making around $5k per month.

While there’s no guarantee that you will be earning money every month from your website purchases, the same is very much true in the real estate game.

The stakes are, in fact, even higher in real estate.

All Your Profits Can Be Annihilated Overnight

If you went ahead and bought $100k worth of websites that earn you $5k per month, and in 12 negatives of real estate investingmonths a Google update comes out and wipes away your earnings, you will be pretty mad.

You might say that this is the reason why real estate is a better bet than investing in websites.

Here is the truth, though: in 12 months you earned a total of $60,000. Your websites could become unpenalized with some work and start earning again, or use a new traffic source and start gaining revenue again that way.

Also, your websites might have actually been earning more than $5k per month if you had focused on growing your investments. The $5k per month is only if you did absolutely nothing during your 12 months of ownership.

You know the websites draw in paying customers. They just need incoming traffic..

Now take that same 12 months of real estate ownership. Let’s say you were at the high end, making about $400 per a month on your property. In 12 months, that is $4,800 you earned from your $100k investment.

It is worth mentioning that there is literally nothing you can do to significantly increase your $400 profits per month. That number is set in stone. Unlike a website, you can’t increase traffic or increase monetization. You could charge higher rents, but then you deal with the problem of renters not wanting to actually rent your place, bringing your profit down to zero.

The scariest thing about real estate is that you are just one incident away from killing all of your profit –  possibly for years.

You might have a boiler that goes out and needs a total revamp for $8,000 dollars. Or maybe your roof is destroyed and needs a full replacement that will end up costing you $15,000 or more.

That is 20 months worth of rental income for the boiler and right around 38 months (3.1 years) of profit.

Of course, we have to hope nothing else bad happens to the property during this period as it struggles to start turning a profit again.

There are multiple ways this can crop up in your real estate property depending on the property and where it is located:

  • Roof repairs
  • Boiler repairs
  • Flood damage
  • Frozen / burst pipes
  • Natural disaster damage from tornados, hurricanes, etc.

You might not have to worry about Google algorithm updates, but make no mistake, there is a lot that can keep a landlord up at night with anxiety.

Tenants Can Be a Huge Problem

Tenants: it is often a love and hate relationship for the aspiring landlord and property mogul.

Without tenants, you can’t make any rental income, but with tenants, you can face the rapidly dwindling worth of your property value. If the tenant hates you or has a chip on their shoulder, they might cause significant damage to your property that, as above, could destroy years of profits.

You may have a really good tenant that suddenly leaves, leaving your property vacant. Vacancies can quickly consume your profits as well.

If vacancies hit you at the same time as a big repair rears its ugly head, it can lead to a very unprofitable situation very quickly.

Can Become Upside Down on the Deal

Upside Down Mortgage Real Estate InvestingIf you invested in real estate properties with the idea that you will be able to sell it at a higher price, you invested in hope. You are literally gambling that the property will go up in value. Just because properties overall often go up does not mean yours will, or that a downturn in the market won’t slam everyone. By having property appreciation as the only method of potential profits for your purchase, it means it won’t take a lot to be derailed completely.

Hundreds, potentially thousands, of real estate investors had this experience during the 2008 big real estate subprime loan crash in the US. People’s mortgages were so high from inflated prices that even renting out the properties still could not make them any kind of income on the property.

They had locked themselves into a situation where they were effectively losing money year after year, throughout their mortgage’s life.

The Inherent Rewards of Owning a Revenue Producing Digital Portfolio

 

The Return on Investment (ROI) can be significantly higher with digital investments than physical investments. In fact, the ROI can be ludicrous when compared with normal investments like bonds, stocks, and, yes, even real estate.

If you bought a website that earns $2,000 in net profit per month for $40,000, and you worked on it for a year, you might increase the net profit to $4,000 per month. You could turn around and sell this website for $80,000 just 12 months after your initial purchase.

Let’s say you earned $2,000 per month for the first 7 months while you were working on the website. That puts you at $12,000 earned. In month 8, your work starts bearing fruit and earns $3,000, and the next 3 months you work is fully ramped up and doing $4,000 per month.

In the last 4 months, you earned $15,000, putting your total yearly profits from the website at $27,000.

You turn around and sell the website at an $80,000 list price. You may not get your full list price, but our brokerage sells websites within 10% of the list price.

Let’s say you sold the site on the lower end for a total of $72,000. You subtract the first time seller listing fee of $297 and the 15% broker commission for selling your site, and you are looking at a total profit of $60,903.

You spent $40,000 in one year, and your investment earned a gross revenue of $87,903. That is $47,903 dollars in net profit, more than the average American worker’s salary. That is a 119% ROI in 12 months.

You would be hard pressed to find an investment strategy with a more lucrative ROI.

Creative Monetization Strategies

In real estate, you really only have 2 ways of monetizing your investmBenefits of Buying an Online Businessent:

  • Rent out the property for more than the total monthly expenses
  • Sell the property when it appreciates above what you bought it for

When it comes to a digital asset, though, there are several different ways you can monetize the website.

The sky’s the limit, but here are a few common ways websites make money. A single website might use combinations of these methods simultaneously:

  • Adsense
  • Amazon
  • Affiliate networks (Such as MaxBounty, Clickbank, etc.)
  • Services (Writing services, SEO services, etc.)
  • Software

All of these could be someone else’s product that you are selling as an affiliate marketer. If you’re unfamiliar with the term, an affiliate marketer is someone who promotes someone else’s products. The nice thing about affiliate marketing is you never have to deal with product development, customer service, or any of the traditional hassles entrepreneurs face.

All you do is sell the product.

Then there is the option of creating your own product to get even higher margins.

You might create an information product or maybe a membership product where you earn a recurring monthly income on each person that becomes a customer.

The possibilities of different kinds of income creation when compared to real estate are far more massive.

Leveraging a Website to Build a New Income-Producing Website

In real estate, you could snowball your rental profits each month into making extra mortgage payments on one house to kill off the mortgages you own.

When it comes to websites, you can do something even better.

The best way to show this is by using an example.

Let’s say you have been building a website about fitness equipment. You are currently monetizing it via Amazon’s affiliate program. You have built up a nice little email list of subscribers over time from people loving your content.

That is when you get the idea to create a new product. You decide to sell health supplements. You create the product, list it on Amazon, brand it, and start promoting it. You can use the website about fitness equipment to promote the new supplement business, and you can even promote to your email list to check out the listing.

Or maybe you want to get into the information products space. You create a course on how working out can increase your body image and self-esteem. You do the same thing, promoting it on your fitness equipment website and to your email list.

In the span of a week, you could have this new business idea up and running by leveraging your previous digital asset.

And like the examples we gave before, the ROI for your new business can be insanely high when compared to the kind of capital required to create the same kind of net profit in real estate.

Working Anywhere

work remotely and location independent online

Unlike real estate properties, websites are not in any physical location (okay, technically they are housed on a server somewhere, but that is irrelevant here). This means you can be working on your websites anywhere you want.

You could technically have a real estate management company looking after your properties and work on your real estate from anywhere, too, but this is much more of a hassle.

For managing websites, as long as you have a good laptop and even a somewhat okay internet connection, you can build a big business anywhere in the world.

Way Less Capital Intensive

I have mentioned a few times just how capital intensive real estate can be. When it comes to websites, it is often the exact opposite.

Typically, a website’s costs are the hosting, domain registration, and maybe outsourcing for content unless you write it yourself. Now there are forms of online businesses that are very capital intensive, such as Amazon FBA and drop shipping.

If you compare the kind of investment needed for Amazon FBA and drop shipping to a traditional brick and mortar business, the investment is not unreasonable by any stretch of the imagination.

A pizzeria, for example, might spend $40,000 dollars just on an industrial pizza oven, so they can have the hope to grow their business by serving more orders.

That does not include the rental lease for the commercial property, employees, drivers, insurance, ingredient costs, and a litany of other expenses that nickle and dime the pizzeria owner into spending a small fortune just to open their doors for business.

When it comes to building a profitable online business or even buying one that already produced income — like what we have on our marketplace — there is not nearly as much of a capital commitment needed to make some serious ROI.

If you are unfamiliar with our marketplace, it is where we list online businesses that are making profits month in and month out. By buying one of these businesses, you take a lot of the guesswork out of building a profitable website.

For more information, click here to see our current listings on the marketplace.

The Terrible Truth of Online Business Building

The benefits of building or buying an online business should be a serious consideration for anyone looking to invest their money in smart investments.

That does not make online businesses immune to risks. There are plenty of risks when it comes to building a real business online, and some of these risks can take your business’s profits down to zero overnight if you’re not careful.

Let’s look at a few of these risks and how they play out. We will also talk about how these risks can be mitigated with careful planning.

Traffic Stops for Reasons Out of Your Control

The heart of an online business is traffic. If you have zero traffic, you have zero leads which translates

Should you invest in real estate even if you do not have a lot of money

into zero customers.

There have been hundreds of cases of website owners running profitable websites one day and the next not making any money because their traffic has dropped to zero. The most common reason why this happens is due to  organic traffic from search engines like Google.

When Google updates its algorithm, the changes they make are out of your control. You can’t call them up and tell them to stop updating their service or to give back your previous rankings.

Usually, if your website is penalized, there are ways to get this organic traffic back. As long as you did not have a manual review that knocked your website down, you can disavow bad links and do a few other search engine optimization (SEO) tricks to get your website traffic back going.

Another way traffic could stop completely is if you are doing a paid strategy using a self-serve ad platform such as Google Adwords or Bing Ads. If they banned your account, you often cannot get it back.

You can try to go through their customer service (though Google has a pretty awful track record as far as that goes) and try to update your site to meet their rigid guidelines, but there is no guarantee you are going to get your account back in good standing to start running those ads again.

Then there is the social media play.

It was not too long ago that marketers were banking on the massive organic social reach that Facebook was offering to their page owners. Now with their updated ads platform, Facebook has seriously decreased the amount of organic reach someone can get with their page.

There are still ways to grow organic reach with some creativity (and maybe just a few paid ads).

At the end of the day, you can mitigate these risks by diversifying your traffic. If your website has multiple traffic sources and if you bought or built a business with a real brand where people come to it anyway, you will put yourself in a much safer position with your digital investments than if you had relied on the kindness of just one traffic source.

What if Your Monetization Method Fails?

This is something that can happen overnight, just like traffic.

If you have a site running Amazon or Adsense, you might get your account banned at any time. When these accounts get shut down, there is usually only a vague reason given as to why. It can be difficult to navigate through their customer service to retrieve these accounts as well.

Affiliate networks have the same problem.

For the uninitiated, affiliate networks are large companies that reach out to advertisers. These advertisers then list an offer with the network, and the network then goes out and finds affiliates to promote these offers. When an affiliate succeeds in promoting the offers, the affiliate networks payout to the affiliate.

One day you are running a bunch of ads from your affiliate network account, and the next day you’re shut down. Luckily, these kinds of networks are usually a lot more forgiving and have good customer service that proactively tries to treat their affiliates well so their affiliates will keep promoting their various deals.

Then there is something that can happen to any product, whether it is an affiliate product or one you created yourself, and that is simply having your product go out of style. Things out of your control cause consumers to begin purchasing something else instead of your product.

This can be most clearly observed in the weight loss niche. It seems every month there is a new fad or quick way to burn fat, some new supplement, or some new fitness regimen that is all the rage.

The shelf life of these kinds of products is usually very small, and they are forgotten completely once the new fad comes into play.

Your Website Gets Hacked

For most website owners, this will likely never be an issue.

Still, it is a risk that is worth mentioning. Hackers might take over your website for a multitude of reasons. Sometimes, their reasons are fairly innocuous in terms of damage to your website, such as the Russian private blog network hackers known as SAPE. SAPE are a group of people that hack into a website and place a link on the website that links back to their client’s money website in exchange for money. Overall, they’re pretty harmless,but can still pose a problem.

The bigger your business becomes, the more of a threat you have from hackers. If you have your own products and collect people’s data –like credit card information and so on– you especially need to be wary of hackers.

It is suggested you use a software like LastPass.com where you can create incredibly difficult passwords for all of your logins.

If your plan is to grow a huge business, it might be worthwhile to hire a consultant to go over the various strategies you can employ to minimize the hacking risk.

Again, the vast majority of website owners will never have to deal with this problem. It is just good to be aware that it exists.

An Internet Business Requires a Lot More Skills

In comparison to real estate, there are a lot of skills involved in running a business online.

You could purchase a pretty passive business and collect a paycheck month after month. However, if your goal is to grow that business, you will need to invest some time or  money in learning a few different skill sets.

The moving parts involved in an online business vary wildly depending on what kind of website you purchase. An Amazon FBA business will have very different responsibilities than a content site, for instance.

You should be well aware what skills are required to run the kind of online business you are looking at investing in.

Before purchasing that website, you may want to investigate the skill sets needed even further. This could mean picking up a reputable course or book on the subject and doing research into the material.

Regardless of how many hours you spent researching into the marketing method, you’ll never really understand the skills completely until you start doing it yourself.

Implementation is the largest part of education.

In addition to learning different skills, you may also have to learn some management principles. This is very true if you plan on growing your websites at scale. You will have to understand how to manage different outsourcers that are doing different jobs for you.

Then there are the tools you will need to learn.

Here are some common tools that are often used across multiple websites:

  • Google Analytics / Clicky
  • SEMRush
  • Longtail Keyword Pro

There are others, but these three are used in a variety of online businesses and can help you achieve your goals. They are worthwhile tools to get to know and to become familiar with.

Overall, there are very real risks when it comes to building an online business. Yet if you compare them with the capital intensive sport of building a real estate portfolio or even a traditional brick and mortar business, you are ultimately facing much less monetary risk. Even if other risks, such as traffic, could affect your online business, that wouldn’t really affect your real estate business.

Which Is Better? Should You Invest in Real Estate or Digital Estate?

Both real estate and online businesses have their inherent risks and rewards.

Nevertheless, the risks with online businesses tend to be much lower than real estate — at least in hard monetary terms. You may lose a website or two, but it won’t leave you with having to pay an unprofitable mortgage for 30 years or foreclosing on your property.

Usually websites are a bit more flexible and able to bounce back from hardships than real estate.

Of course, once it is paid off, real estate has the added benefit that there is not a whole lot that can mess with the pure profit rental income (other than tenants and unexpected repairs). You never have to worry about a Google algorithm update, and that is a pretty nice feeling if you’re an SEO always living under the gun of the Big G (i.e. Google).

So which way to go? Which is better?

The end game with real estate is that you have all of your properties paid off. Yet, to pay off all of your real estate in full takes a long time. Most people rarely even pay off their main property after 30 years. Usually, this is because they end up buying another house and find themselves in a perpetual cycle of paying mortgages down, but never actually getting their real estate paid off.

Websites tend to produce profit much quicker than real estate and can create some insanely high ROIs as we talked about earlier in this post.

Is there a happy medium? When, if you should, invest in both?

Build a Digital Empire—Become a Real Estate Mogul

While you could really just keep reinvesting in online businesses to keep building up huge ROIs, some people are still going to be very attracted to the idea of owning tons of real estate properties.

The truth is, digital assets can be grown a lot quicker. They can also be used to pay off real estate assets far quicker than if you only focused on real estate investing.

A Loose Blueprint for Aggressive Real Estate Growth

how much money do you need to invest in real estate

Grow Your Business

The first step is to focus on growing online businesses because they have a much lower risk, and capital requirements with a much higher ROI reward. You want to create a portfolio of the kind of websites that are producing income.

You can speed this process up by purchasing a portfolio of websites from our marketplace and then growing each of those websites to higher monthly earnings.

As you grow these websites, you will want to start focusing on a few websites that are looking like they have the biggest potential. For the other websites that are falling behind, you turn around and sell them to people that might see an opportunity you’re not seeing.

If you bought these websites and increased their revenue, that means you are going to get a better multiple than what you bought the sites for, which gives you a nice net profit. You take that net profit and buy up the value chain to even bigger, more lucrative online businesses while still growing your main websites.

Remember, as you buy your way up the value chain in online businesses, you also invest in yourself to make sure you understand the skill requirements needed for each business to run smoothly.

The last thing you want in your portfolio is a website that you have no idea how to run or that is going to bring down the overall level of your portfolio. Buy websites that suit your skills and your interests as well, if at all possible.

Keep repeating this process. Soon you will be routinely selling websites in the $40k to maybe even the $100k level. You can take a portion of these proceeds as either down payments for new real estate properties or as a way to speed up the timeline of paying off your mortgages in record speeds.

As you look for awesome deals with online businesses, start looking for good deals in real estate, too. Remember, always make sure you can make money from the rental aspect, even if the mortgage isn’t paid off. This way it will not matter to you if the property appreciates or not; this strategy is more the buy and hold strategy anyhow.

As you become a truly masterful Portfolio Paul, you will build out good, repeatable systems for creating, managing, and growing online businesses. This will allow you to start buying sites in a certain niche or business model that you know you are good at it, which will allow you to also sell these same sites later for a much higher profit margin.

You can take these proceeds and keep purchasing more websites, or sell some off to purchase more real estate.

Snowballing Growth

As you gain more real estate properties, take all the income you earn from these properties and use the Dave Ramsey Snowball Method.

Normally, the Snowball Method is used to help clear out debt, but it is also super applicable to paying off investment properties quicker. How you use it is you take all the profits from your rental properties, and you funnel those profits towards the mortgage you owe the least on. Once that mortgage is paid off, you funnel all of that profit (plus the new amount of profit you got from paying off the first mortgage) into the next smallest mortgage.

If you had 5 real estate properties, by the time you got to the last mortgage, you would be paying an extra $3,800-$4,400 a month on that property. At that rate, you can easily kill most 30 year mortgages in less than 10 years.

As you can see, by investing in online businesses, buying and flipping can create a massive shortcut in real estate investing.

Investing in one over the other does not have to be mutually exclusive.

Is this process difficult? As with any new skill, it will take time to become a master of running a digital portfolio.

The cool thing is that this skill set is in high demand as more and more investors look for Portfolio Pauls to hire to run their own digital assets. Either way, mastering these kind of skills and systems is an incredibly valuable personal asset for yourself.

It all starts with buying a single online business and learning to run it.

From there, the snowball will grow into an avalanche if you work on it diligently.

Empire Flippers Is Your One Stop Shop for Empire Building

Whether you want to follow the loose blueprint above or just want to create a huge online, profit-booming portfolio, we are set up to serve you.

We have all the processes in place that protect both the buyer and the seller. Our email lists are full of people interested in buying your portfolio sites, and we also have inventory if you are looking to buy bigger websites to grow your portfolio even more.

Our team already has the skill sets needed to make the transaction happen. You can leave the brokering to us while you focus on aggressively growing your online portfolio.

Whether you are looking to become a real estate mogul, a digital empire owner, or a hybrid of both, Empire Flippers is ready to guide you along your path by helping you make the right purchases for your digital portfolio.

Are you ready to build an empire?

Check out our marketplace today to see our most current listings of businesses for sell.


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Discussion
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  1. Glenn says:

    This is a topic I’ve thought a lot about, and I’m still on the fence as to which one is better. What it comes down to for me is that I don’t love real estate, but I do love online business. More than this though, is my ability to increase the value of the online properties.

    I will point out a few areas that I disagree with your article though. First, you say, “Real estate has produced steady returns of 9.5% up to 11% on average, outpacing the S&P Index according to Source Investopedia.” If a good real estate investor buys a $1 million property, they will only put down $100,000, and yet they see the gains on the full $1 million. So 9.5% growth turns into much more ROI. I know you did a podcast recently about a company that allows you to finance purchases, but lending institutions are much more likely to loan money for a real estate purchase than an online purchase.

    Secondly, there are significant tax breaks for owning real estate.

    Still, I enjoy online properties better, and I have a team of people who can help me improve those properties.

    The key point for either investment strategies is to be well educated and know what you are doing.

    Final comment, do more podcasts! I love them.

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