Post Christmas Update
December 28th, 2011 by KenricChristmas 2011 has come and gone. I think I will come up about $4,000 short of my goal that I set back in January. While it does suck that I won’t hit the goal, the fact that I’m only $4k short means I had a great year. I actually had 200 less orders in Dec 2011 than Dec 2010, but surprisingly I made way more in Dec 2011 with less orders. My margins have increased very nicely.
So far, there have been only a few returns or messed up shipments.
So what’s new for 2012?
I am feeling a need for business diversification. You never want to put your eggs in one basket. Right now I have 2 very different businesses, ecommerce and a service. They are 100% independent of each other.
Within ecommerce, you can diversify by going into totally different niches. I think you have to do this in case something catastrophic happens in your niche. What if Google slaps my sites? What if Walmart decides to order 100,000 units and sinks the market? You never know. So I can choose to diversify by opening up more stores. But to be honest, opening stores is no longer exciting to me. It’s so cookie cutter to me.
The service business can also get devastated by things beyond my control.
But the nice thing is that right now I have 2 diversified businesses. However, I think that 3 independent businesses would make me feel alot more comfortable.
So I’ve decided to get into a totally new arena. I will be opening an SEO company and also a website rental business. The SEO business is self explanatory. In fact, I get asked often enough to help with SEO services that I probably should have done this a while ago. The website rental industry is fairly new. I have been thinking about this for probably at least 2 years and just never pulled the trigger. I met this 17 year old kid who started this earlier this year and made $450,000 in 3 months. Now he was doing something different in that instead of renting the website to the company for $5000/mo, he negotiated a deal that gave him 10% of the contracts that his website brought in. Needless to say, the company landed a $4.5 million dollar job through the site!
The premise is fairly simple. You create a website, get it ranked for certain terms and then rent the website out to a business. The nice thing about this business is that it is very low maintenance and has high returns. You can’t even compare the amount of work and money in real estate that you need to do to make $300/mo cashflow to a website.
I figure that it would cost me at the most $500 to make a website that I could rent out for $500-$1000 a month. I wonder if I should rent it out on a 3 month trial at $250 first. If it works well, I can jack the rent up to $1000 a month. I bet they’ll want to sign a long term lease at that point! The nice thing about this is that I create an asset that I can control. I can control the lease and if the people don’t pay, I just shut it off or go to someone else.
I guess I will never know how this will work until I do it.
Real Estate
I haven’t talked about my REI in a while. I guess that is good news. Actually writing this post just reminded me that I need to contact my tenant in Chicago. He likes to pay for many months at a time. I think he paid for Sept-Dec in one check, so I need to email him to remind him that January rent is due.
My SLC townhomes are almost 6 years old. My property manager is telling me that the carpets need changing soon. My PM is telling me that the rental market is good as nobody is buying and everyone wants to rent. That’s good for me as a landlord but bad for me in property values. I guess that’s why they say you need to buy and hold!
Posted in Making Money Online | 10 Comments »
Stumble it!
You are following the bricks and mortar shopping center business model to the world of on-line real estate. However, you have a number of advantages over the mall owner and some additional risks.
The shopping mall owner estimates the prospective tenant’s first year gross sales and matches the tenant to a space where the base rent approximates the desired percentage of the estimated gross sales rent for the type of business for the first year. The base rent is versus the desired percentage of gross sales over the life of the lease, with periodic increases in the base rent and the reimbursable expenses. The mall owner expects the tenant’s sales and therefore the percentage rent to increase over the life of the lease. You probably will want to do some research and establish website rents using the same approach.
In a center, the idea is to get the perfect blend of tenants, so you have some lower rent tenants and spaces that complement the large stores and the high rent tenants. Different businesses pay different percentages of gross sales, based on their anticipated sales and margins. That’s not an issue in the online real estate world. Someone visiting a website to buy a piece of sports equipment does not stop next door for a virtual frozen yogurt. You have an advantage because you can skip the lower rent tenants to focus on the most profitable ones.
Because trends change and not every tenant is successful overall or in a specific location, the mall owner typically opts for short term leases with options to extend. After five years, the owner usually raises the base rent to match the desired percentage of the then current gross sales. If the business is not performing, it can be replaced when the lease expires. You may be able do the same, at least for smaller businesses with lots of competitors willing to pay for the site. The question is whether a tenant will sign a lease that allows you to give the site to a competitor at the end of the lease term.
The other good thing about on-line real estate is that you own what are called “tenant improvements” and they are cheap to install, modify or replace completely. Compare that to the mall owner, who typically has to restore the leased space to shell condition before the new tenant takes over and they have to wait for some or all of the rent until the tenant is open for business.
The advantage to the mall owner are the barriers to entry. Building a mall costs a lot if money and you have to pull together your anchor and many of the second tier tenants before you can get financing. No one will finance a second mall down the street if you snagged the quality anchors. Your competition is limited. You likely will control your geographical trade area for many years.
With websites, the cost to create them and grow them through SEO is low and there is no locational advantage. Over time, rents should decline because of competition. Businesses will become more savvy about rents and costs and will have multiple vendors of websites to pick from.
Eviction of non-performing tenants should be much easier on-line. You can just shut down the website as long as your lease contract specifies this as the website owner’s remedy. You may have trouble if your tenant goes bankrupt, because the tenant’s leasehold interest would likely become an asset of the bankruptcy estate. Because these sites are inexpensive to build and promote, there may be situations where it is better to abandon them rather than defend them.
Anyway, this business should evolve over the next several years and I will be very interested in watching how your specific business performs in a rapidly changing on-line retail world.
By Another Investor on Dec 29, 2011
AI, Thanks for the reply. I think you are assuming that I will be renting websites to b&m store retail stores. This is not the case.
I will be going after local services on a per city or neighborhood basis. For example, a site that I would build would be cityname-garagedoorepair.com/net/org and it would be targeted towards people searching in that city for garage door repairs. It would rank only in that city in both google and local search on the maps. So for my area, I could do phoenix, scottsdale, mesa, tempe, gilbert, etc… in just that one niche of garage door repairs.
By Kenric on Dec 29, 2011
Kenric:
I was trying to draw comparisons to the bricks and mortar model because I think your website rent ideas follow that model. Too much comparison and not enough point, I guess….
Do you know what percentage of the businesses you want to target have their own websites already? I suspect most do, but they are not very successful and the business owners are skeptical about the benefits. Getting people to switch may take a really good sales job.
By Another Investor on Dec 29, 2011
AI, I would not be asking them to move their own website over to mine. I would do a cookie cutter template with drop in logos and contact info. But the public won’t be able to tell that and it will look like a legit site to them.
I’d say many of the businesses would already have their own website, but they would most likely be very bad and get no traffic. If nobody can find their website, it’s the same as them not having one.
In my experience most businesses have very poor sites and do not believe that the internet can help them get business.
I think getting them to switch would be easy. All I would do is put their contact info onto my site for a few weeks and they will see if they get more leads. If they do, I don’t see why they would not want them to keep on coming.
By Kenric on Dec 29, 2011
Google Places takes most of the local real estate in search. Which would allow your target audience or competitors to jump ahead of your site(s) pretty easy.
By D on Jan 1, 2012
Kenric:
I think what they would be willing to pay depends on their volume and their margins. I still get a couple of yellow page books every year, and the mom and pop service and retail business owners here complain bitterly about how much it costs to advertise in these. They continue to do it because they get business from these ads, but they have a problem paying the $1,000 to $2,000 the ads cost. Your “rent” might not be achievable in a low volume, low margin set of businesses.
You also might discover you are not the first person to register domains and pitch an SEO marketing plan to the small business owners. This is a low barrier to entry business idea, and there are probably others out there. If there are others, you may have to show some solid results to convince a frugal business owner to open his or her wallet.
Since your SLC property manager says no one is buying and everyone wants to rent, would it make sense to invest the $110K up there? Add the net income from whatever you buy to the net income from one of your properties to pay the mortgage off faster, or bank it until you can come up with the loan payoff amount.
By Another Investor on Jan 2, 2012
AI, somehow I missed your last reply. To be clear I am not merely registering a domain and pitching SEO. For that, I would need to register the domain, provide content and get it to the front page of google before I even offer it to anyone. I have to do work to increase the value of the real estate before renting.
I also do not want to target frugal business owners. I’ve found that trying to prove to someone who can’t afford it is not worth the time. I need to go after businesses that are making good money that want to make even more. I don’t know how many small businesses can spend an extra $1000 a month on “marketing” that they probably don’t understand.
People have asked to hire me for SEO, but they usually balk at the $500/mo I charge. That’s my start point, but I’m only going to take a few at that rate.
For real estate, I just can’t invest in REI anymore. It’s just not worth it to me. Online is where I’m comfortable now. My friends have been buying stores in the $5k range and make their money back in 3-6 months. I’m looking at a store for $7000 right that makes $300 a month. However, I’m pretty sure I can bump that to $1k a month in a few months. I missed out on a store last month that I’m sort of kicking myself on. It was only $7k and made $1500 a month.
Once I purchase a store, I will post it as a case study on here.
By Kenric on Jan 8, 2012
D, I will be ranking on Google places also, not just the web results.
By Kenric on Jan 8, 2012
I figured you were on vacation somewhere.
If you have surplus cash (not needed to start or grow businesses) not making a good return, what do you plan to do with it? Paying off the SLC mortgages seems less productive than buying new properties with a higher rate of return. Given your low effort, low drama management style of the past, buying more properties locally would be a close to passive, long term wealth building tool.
It will be interesting to see if there are enough small businesses already making money that will want this service. Still not sure the bricks and mortar folks will see the added value, at least at first.
By Another Investor on Jan 9, 2012
How about a teaser marketing tool allowing a business owner to try out your site/ SEO experience for a few months either at a lower month to month rate with option to cancel or a 90 day money back guarantee? It will allow those who are not sure if they will get an adequate ROI to be comfortable trying your business out.
By iggy on Jan 28, 2012