As you might know I am a big fan of purchasing websites as an investment option. Instead of putting your money into a savings account or buying stock you can purchase a website, work on it a bit and collect the monthly revenues, either from advertising or from products you might sell on the site.
This strategy has both pros and cons. The biggest advantage is the fact that you can get a return on investment that is much higher when compared to other investment options. I’ve see websites generating as much as 10% of their selling price, per month. That is, you purchase a website for $10,000 and it generates $1,000 monthly in profits.

The biggest drawback is the fact that you need some technical know-how to be able to run a website properly, and you also need to put some time to manage it (which is not true for the other investment options).
Just as the other investment options, however, purchasing a website also comes with a risk. The main one being that the website you’ll buy will lose its traffic once you purchase it. Imagine purchasing a website that receives 500,000 monthly uniques, only to see this traffic vanish within months or sealing the deal. It would be quite a bummer, huh?
The problem is this happens quite often. Maybe the previous site owner used some shady SEO techniques and wants to pass the site before traffic starts suffering. Maybe he got lucky and traffic skyrocket without explanation, so he wants to sell while things are looking bright.
I’ve been burned by this a couple of times.
What can you do to avoid it? First of all you need to perform a careful analysis of the website, asking for all kinds of proofs, historical data and what not. But even with all this information at hand you might end up purchasing a lemon.
And that’s why I believe one should limit himself to purchasing two kinds of websites: really small and really big ones.
Really small ones have all the risks mentioned above, but you won’t need to spend a lot of money for them, so even if once in a while you end up with a lemon it won’t affect your overall return on investment. Diversification, in other words.
The drawback of this strategy is that it requires more work, as you’ll need to tweak those small websites if you want them to start earning money.
With really big websites the story is different. Those sites are much less volatile, so the chances of purchasing one and seeing its traffic vanish overnight is very small. I am talking about authoritative sites that are among the top three in their niche.
In other words, the riskier sites are the medium-sized ones. Those won’t be cheap, and at the same time they are not authority sites, so there’s a good chance that things could go wrong, ruining your investment.
That’s my experience at least. What about you guys, what kind of investments in websites turned out sweet or sour?