House flipping vs website flipping – which business model is best?
While house flipping is actually quite a popular business practice in the US, website flipping is a relatively new phenomenon which can also be extremely profitable. In this detailed comparison, we review the pros and cons of house flipping versus the pros and cons of website flipping. By the end, you should have a better understanding of which business model is better suited to your entrepreneurial skillset.
House flipping overview
Advantages of flipping houses
It can be very profitable:
On average, house flippers make over $60,000 in gross profit per flip in the US. This is actually more than the average salary in the US, which is currently in the region of $51,000.
Of course, the expenses involved in the flip still need to be deducted in order to work out the net profit per flip. The point is, experienced investors are able to sell fix and flip houses for considerably more money than they originally paid for the property. This suggests that there is still plenty of money to be made through the house flipping business model.
You can flip multiple houses per year: Unlike more traditional forms of real estate investing that have extremely long-time horizons, it is realistic to execute a successful flip in less than 6 months.
Perhaps more importantly, there is nothing preventing you from executing multiple flips per year, provided you have the capital and the project management skills needed to do so. This introduces the possibility of multiplying your income, which is something most employees can only dream of.
You only pay interest if you take out a hard money loan: If you have identified a house flipping opportunity, you might be surprised to learn that most banks don’t lend money to house flippers. As a result, most property investors turn to hard money loans in order to fund their property purchases. Although the interest rate is typically higher with a hard money lender, your monthly payments only cover the interest portion of the loan. The entire loan amount is then paid back in full once you’ve sold the house.
You are investing in a very stable asset class: One of the reasons that it is so easy to secure funding for a fix and flip is because the investment is ultimately backed by a highly valuable asset. This reduces the risk for the property investor and the loan provider. If things take a turn for the worse, it is possible to recover almost all the funds by selling the house, whether that be through an auction or a marketplace like Zillow or Trulia.
Disadvantages of flipping houses
It’s possible to lose money when flipping a house: While house flipping isn’t necessarily as risky as some people think, it is still entirely possible to lose money during a flip. There a number of factors which can contribute to an unprofitable flip including:
- You struggle to sell the property after the renovations are complete
- You run into unexpected, extremely expensive house repairs
- You’re estimate of the after-repair value is totally wrong
Financial challenges could lead to foreclosure: Arguably the worst thing that can happen during a flip is losing the house to foreclosure. This can happen if you are unable to make the loan repayments for an extended period of time. In this scenario, the loan provider is legally entitled to initiate foreclosure proceedings.
If a foreclosure is triggered, you effectively lose the house and all the money that you have invested in it. This is literally the worst-case scenario, and it is something that you should do your best to guard against.
People that are well suited to house flipping:
- Building Contractors
- Real Estate Agents and Realtors
- Experienced Property Investors
- Project Management Professionals
- Business Savvy Interior Designers
Website flipping
Advantages of website flipping
Profitable websites are very easy to sell:
Generally speaking, websites tend to sell for 30-40 times the average monthly earnings, and they don’t take very long to sell. So, if you are looking at a website that currently generates $1000 per month, it’s safe to assume that it will be valued at about $35,000. If the site has strong social media profiles and an email list, it would probably be worth more than this. Conversely, if the site is reliant on one traffic source (like organic traffic from Google), it might be worth slightly less.
The underlying point is that selling a profitable website is relatively easy. There are plenty of marketplaces filled with hungry buyers that are salivating for a good opportunity.
You can build the entire site from scratch, using time rather than money: Unlike houses which require you to purchase both the land and the property (both of which tend to be very expensive), you can purchase a piece of digital real estate in the form of a domain for less than 20 dollars.
Moreover, building a site from scratch is one of the best ways to learn all the digital marketing skills you need to become a successful website flipper. Each domain that you purchase and grow is like a training exercise, which you can either flip or keep, depending on your financial objectives. The point is, you can get involved in website flipping with a barebones budget that even a minimum wage employee would be able to afford.
Cash flow positive from the day you take ownership: When you invest in a profitable website, the monthly earnings will almost certainly be higher than the debt repayments you are obliged to pay the loan provider (if you choose to take out a loan).
In other words, it’s an investment that can be cash flow positive from the very first month that you take ownership of the website. There aren’t many investment vehicles that can provide such a good return on investment, in such a short time period of time.
Require less capital to buy: Profitable websites can be valued at anywhere between $2,000.00 to $10,000,000.00. This is good news, because the financial barrier to entry is so low if you’re just looking to get started with this business model. In other words, it is entirely possible to save enough money to purchase a profitable website without taking out a loan. Very few people can purchase a house without taking on a loan from a bank or hard money lender.
Disadvantages of website flipping
There is a big learning curve: The biggest obstacle to flipping websites is developing the knowledge needed to grow the earnings of the site after you take ownership. This is important, because a successful website flip depends on your ability to grow the monthly earnings over time. If you don’t know how to grow traffic and better monetize the existing traffic, website flipping might not be a viable option for you at this point in time.
The traffic of your website could tank: Most websites rely on at least one traffic source in order to be profitable. The biggest problem is that if there is a key update to the most prolific traffic source, you could lose a large percentage of your earnings quite literally overnight.
While this is something you can guard against to an extent, the truth is that Google, Facebook, Pinterest, Youtube and other traffic sources don’t factor in your website when algorithm changes are made. Your best defense is to produce excellent content that stands the test of time, and adapt your traffic acquisition strategies when key algorithm changes do occur.
Websites are a volatile asset class: Unlike the stability offered by traditional real estate, websites are still classified as an ‘alternative asset’, which can make them seem riskier than they actually are. For instance, website flippers will only take ownership of a site for 3-12 months. While this doesn’t eliminate the risk of buying a website, this small ownership window reduces the likelihood of something awful happening while the site is still in your possession.
People that are well suited to website flipping
- SEO Professionals
- Content Marketing Specialists
- Digital Marketing Experts
- Social Media Strategists
- Highly Experienced Bloggers
- Tech Savvy Freelance Writers
Final thoughts:
In the end, it’s safe to say that house flipping is a tried and trusted business model that is still highly profitable in the US. However, website flipping can be a better bet for entrepreneurs with digital marketing skills that are looking for a cashflow positive asset that doesn’t cost a fortune to buy. If you are tilting toward website flipping, also keep in mind that building a profitable website from scratch is probably the best way to develop the skills needed to become a successful website investor.
