How to use websites to protect your cash against inflation
If you’re worried about a recession and wondering what you need to do to prepare for it, then this will be an interview you won’t want to miss.
Our guest today is David Fairley of Website Properties – one of the first people to buy and sell content websites as a business as well the one of the first to start a website brokerage.
Today, you’ll hear his 20+ years of insights buying and selling websites, why investors are turning to digital assets as an investment class, what kind of content sites can provide safety & diversification, and the 2 questions David asks to buy recession-proof websites, and much much more. Click below to watch the interview.
Worried about a recession? David Fairley from Website Properties shares valuable insights from his 20+ years of buying and selling websites…
Matt Raad: Hello again, everyone, and welcome to the Digital Investor Podcast. I’m your host Matt Raad, and today we have a very special guest, David Fairley, CEO and founder of Website Properties.
I’ve wanted to interview David for a while now because he’s a bit of a legend in our industry. I’m guessing many of you haven’t heard about David and his background. He has been buying and selling websites for over 20 years. Not only that, but as a professional, he was one of the first people in this industry to set up a leading website brokerage firm.
And what’s interesting is not only his 20 years of experience but that he started out buying and selling websites like a lot of our community.
He’s done some legendary deals in his own portfolio. So, I’m keen for you to learn from a veteran in the industry and to read what David’s seen over the last 20 years. He’s also going to share some of the amazing deals he’s done, and what he’s seeing out there in the marketplace now.
Thank you so much for coming along, David. I finally got you on our podcast, and it is definitely a pleasure to have you here.
David Fairley: Well, thanks for that wonderful introduction, Matt. I appreciate that.
I’m happy to be of service to your readers, as there’s no sense in going down this path alone and hitting pitfalls unnecessarily. So, hopefully, we can navigate people through that and pull back the curtain to see what the opportunities are in this space.
David Fairley started Website Properties for sophisticated investors
Matt: For all our readers to understand, David specialises in selling multi-million-dollar websites. He sells a range of websites from a couple hundred thousand to seven and eight figures.
David, as you know, we have a wide range of readers, including a lot of high-net-worth investors. We have people in our community who are thinking about where to invest their money.
But we also have readers new to this digital asset investment class. And so, that’s what I wanted to talk to you about today. It would be great to read a bit about where you see the marketplace going, opportunities for someone if they’ve got some significant funds, or maybe if they’re wondering where to invest.
Can we start by introducing Website Properties? I hope I’ve summarised nicely what you guys specialise in, but let’s hear in your words.
David sold his first website more than 20 years ago…
David: We formed Website Properties out of our personal experience. As you mentioned, I got online in 1995, which was the early days of the Internet, and I started a hammock business. It turned into hammocks.com because I acquired the domain name, which was great for branding.
I ended up exiting in 2002, and when I did, I hired a couple of brokers. They made me prepay but didn’t actually do anything. They were quite incompetent, to be honest, and didn’t really understand the industry. But there weren’t too many people understanding the fundamentals of internet-based businesses, so it wasn’t that shocking.
So, I represented myself and sold to a company that wrote me a huge contract and then burned me on the back end. It wasn’t the happiest of experiences, but it led to what happened next…
…and over the next 6 years acquired more than 50 content websites to earn online income
David: It was the early days of Google, and there were a lot of latent content sites out there that hadn’t been monetised. So, I was going around quickly snapping up and buying small businesses. I acquired about 50 websites over five or six years.
I monetised these sites with AdSense and ClickBank affiliate programs. There are many different ways to do it now, but that was what we did back in the day.
I had 15-16 sites at once that were all passive, giving me a pretty good income stream. Once I had run them for 12 to 18 months, I would sell them. That ultimately made people want to know if I could sell their sites to friends and colleagues.
Website Properties has sold $600 million worth of website assets over the last 20 years
David: And so, that turned organically into Website Properties. I started formalising it in 2005-2006, although I have been selling other sites since then. Since then, we’ve sold around 600 sites, somewhere between $500 and $600 million in gross volume. So, we have quite a bit of experience.
Just to mention, the average business size we’ve sold is somewhere between half a million and a million dollars. But we’ve sold many smaller businesses in the low six figures too. It really depends on whether the business is solid and we like it. And if we like the seller, then we’ll work with them.
Of course, we’re always looking for more established deals and sophisticated buyers. But as far as how this evolved into a new asset class for investors, that’s something we can talk about next.
So, that’s the history behind where I came from and what I’ve done. I’ll pause there for a second, and then we can dive into the investment opportunity.
David was one of the first to buy and sell content websites as a business
Matt: When discussing $500-600 million in website sales, you’re quite a specialised company in mergers and acquisitions. And I’ve noticed a lot of your team members are entrepreneurs as well.
I’ve followed you for many years in your newsletter. Looking at the listings you get (because of your deep experience), that is the whole ethos of Website Properties.
Your background is content sites, just like a lot of our community, except you are 10 or 20 years in front of everyone. You were pretty much around at the beginning of the Internet. And wow, 1996 really was the wild-wild-west days!
You have owned some seriously big domain names. Some of them include hammocks.com, strollers.com, drums.com, unicorns.com, and probably another 50 other legendary websites out there. You’re one of the first to get into this game of buying and selling sites.
David: Yes, it was like the wild west days back then. After selling hammocks.com, I was literally just buying website domains, creating niche sites, and selling them pre-cashflow. When I look back on that now, it seems insane. But people were so hungry to get onboard, so we set them up, and away they went.
It’s a little bit of an OG moment, but I’m not wearing a badge of honour. There are other operators and companies that have gone on and outpaced us.
We’ve deliberately stayed small because it’s more boutique. It’s not quantity, it’s quality.
“We want to work with people we like and businesses we believe in.” – David Fairley, Website Properties
We’re not operating a puppy mill. It’s about the quality of appraising the business and valuations, and then the marketing and management.
We’re agnostic with the business as long as it’s online, doing well, and a viable business to sell to someone.
Why investors are turning to digital assets as an investment class
Matt: Let’s look at where you’ve seen this industry evolve, particularly because of your experience with your boutique website brokerage firm.
When you started out 20 years ago, I’m presuming it was selling smaller businesses because no one else was conducting website sales. So, it was more likely small-time buyers.
But now, as you’ve watched this evolve, who are the main sorts of website buyers you’re dealing with regularly? Who are you selling these seven-figure websites to?
David: Honestly, we’ve been selling seven-figure businesses the whole time. But as the industry developed and evolved, people are now running businesses for longer, up to three, four, five, ten years etc. So, there are more sophisticated people and better operators.
The type of investors who are buying content websites
David: The deals have improved and have certainly grown over the years. But when it comes to the main investors, there’s really a cross-section, including:
- People from the corporate world who have saved up. They’re tired of corporate and want to operate their own business.
- High net worth individuals who are trying to diversify.
- Portfolio and private equity companies that are accumulating assets. They’re aggregating e-commerce, Amazon, and content-based businesses that are easy to operate.
- Mum and Dad investors. Dads are buying businesses for their wives, spouses, or kids.
- Internet entrepreneurs who are regularly buying, selling and flipping. That’s what I did.
The business model of investing in digital assets is gaining more traction over the last five years as another asset class. The way to look at this as an online business is that you own the asset and cash flow, and you control it.
Just say, on average, a business is selling for 3x, being three times their most recent net profit. As an investor, if you’re paying 3x and get that same return, you will get a 33% return on investment for something you control the cash flow for.
How investing in content sites can provide safety & diversification from traditional assets
David: You want to buy businesses with a solid history, so you won’t get something that suddenly loses its revenue streams. But in general, there are not many places you can go.
A lot of the assets out there, such as stocks, equities, and real estate, are all in bubble territory. It’s a bit scary to start thinking about buying there. You could buy something, it drops 40%, and it might take you five or ten years to recover.
After the NASDAQ bubble popped in 2001, it took until 2015 to get back up to that. So, you never want to not exit at the top. This whole thing about riding things out is nonsense. You’re better off trying to time the market and whatnot.
But in the end, investing in an online business provides you with diversification if you have assets in real estate. I think real estate is important. Any commodity-based asset is important in this environment, quite frankly.
Are we already in a recession?
David: The macro environment is deteriorating globally. I think all the money printing that went on during COVID diluted people’s value of cash. If you’re smart, it’s making 4.5 – 5% in treasury yields when it comes to cash in your bank account. But if you just leave it in your bank, you’re making 0.5%. So you’re losing up to 7% a year in your cash.
Throwing your money into real estate or the stock market at a peak is a fool’s errand. Unless you’re buying real estate to get cash flow (from a renter), you’re playing with a lot of risk in your equity. It’s just dangerous to play at this point.
There is a lot of macro evidence showing that we’re already in a recession. We’re in a recession as well as Europe. There is a lot of stuff out there that shows we will go into that.
So, you have to look at this as a calculated question:
“Where do I want to invest my money? I want to invest in something I can control with good cash flow and sell afterwards for capital gains.”
The benefits of owing an online business
David: That’s why investing in digital businesses is really interesting. Again, you must do your due diligence, but online businesses have the following benefits:
- They operate 24/7.
- They’re global.
- You own and control it.
- You can build value over the years with that cash flow.
- You can earn up to a 30 – 40% return.
- Then you can sell it again to hopefully make a capital gain.
So, this is an interesting way to diversify excess capital that’s otherwise just eroding.
Are content websites safe to invest in during a recession?
David shares his experience from investing in online businesses through 2 previous recessions…
Matt: For our readers, it’s important to remember that David is not your average person here. He has over 20 years of experience watching and personally being involved in online business sales.
He’s been through the dotcom crash and the GFC. And since 1996, he’s seen a lot happen in the market, yet he’s still very passionate about the website asset class.
David, looking back over that journey, you understand what can happen during these crashes. So, let’s look at some of your experiences here.
I know we’re not allowed to give financial advice, and no one knows what will happen in the future. But Warren Buffet does say the chance of a recession is 100% – we just don’t know when. It’s certainly not looking good out there at the moment.
2 key things David considers when investing in content websites during a recession
Matt: So, knowing what you know about content sites, imagine you had $1 million to invest (or had a client with $1 million). Again, this is not giving financial advice. We’re speaking from your previous experiences, including the GFC in 2008, and then watching the growth of assets since then. How do you think content sites will handle a recession?
Consideration #1 – Will people spend money in this niche during a recession?
David: Well, these types of sites are generating passive income through ads. So, you have to think, “Is ad spending going to take a hit during a recession?” In some industries, it does, but in others, it goes up. So, it’s important to consider the niche you’re choosing.
I don’t think you want to be super myopic; who knows how long this will last for?
So, you want to find something people are interested in that has some resilience. Look at necessity items. For example, look at gardening. With food prices going up, people are starting to think, “I want to grow my own food.”
So, there’s a niche that you would look at and go, “I’m going to build or buy a content site on products that help apartment dwellers who have little gardens.” Now you have something super niche that will likely do well in a recession.
I have a client right now selling stores with dehydrated food that last for ten years. They’re from Utah, so they’re Mormons. But that business just pumps whenever there’s fear or anxiety out there.
So, it’s important to understand what site you’re getting into. You could buy a site that’s doing well; it has Adsense and other pay-per-click affiliate programs on it. You want to make sure it’s not going to be like:
“Oh, that’s a fanciful purchase right now. I’m not going to buy that thing.”
“Hey, I’ve got a problem with gout, or my husband is snoring. I need a solution right now.”
Some things are going to stay there forever, so that’s the discernment you have to use.
Consideration #2 – Can you diversify the monetisation on the site?
David: There’s risk in everything, but you want to find something that’s also diversified in how it makes money. So, that’s the other thing everyone needs to be aware of with content sites.
A majority of these are driven by organic search, unless they’re really good with data and can drive cheap traffic to get some arbitrage. So, you must be prepared to understand SEO (search engine optimisation).
Be aware that the algorithms change, and that can change the positioning. And so, when you’re buying a content site, you want to make sure they have legitimate backlinks and not doing anything spammy because that’s also a pitfall you can get into.
So, make sure the due diligence is there, and the site has:
- Multiple sources of revenue, and
- Is in a niche that should do well during the ups and downs.
Those are the main things I would look for.
How website assets could outperform traditional shares & real estate right now…
David: If you have extra money, it’s melting and making less than inflation right now. So, you have to ask yourself, “Am I going to put it into real estate (retail or commercial) or something else?” You need the cash flow so you can pay the mortgage and make money until the asset appreciates again.
Otherwise, you might invest in stocks. But most people aren’t getting dividends, so they’re just trying to get the upside. So, it’s a very precarious position.
Or the other thing is you’re investing in a business. You’re buying a business that is presumably making cash, so you’re starting to make your money back right away. And if you trust your instincts as an operator, then you’ll see areas of the business that you can improve. New energy coming in often does that.
You must ALWAYS do your own due diligence before investing in any online business.
David: So, those are the things that I would caution people on. There are lots of good opportunities out there. But just don’t go in there and step on a landmine unnecessarily because everything takes work.
Even with content sites, nothing is truly passive. You have to write interesting content (provide something of use) to succeed. The days of trying to spam content to these search engines are over.
The way to succeed with content sites is to buy a site you can relate to or are interested in and write good content on. You’re going to be passionate about it and create a lot of content, being video content, written or photos etc. Whatever it is, you have to be in it, and you have to be passionate.
How to protect your cash against inflation
…and why CASH FLOW is King!
David: Then you’ll have a nice long-term cashflow business and can roll that cash into something else. You can roll it into another business, pay off your mortgages, and invest in other things. Whatever it is, cash is king.
Having cash to deploy and invest is important. But at some point, you must consider, “Is my bank safe?” That’s a real question that people need to ask because this whole thing is about to implode in the United States.
The banking industry is global, and we’re not out of the woods yet. So, I think you have to be concerned about your bank’s strength.
Secondly, will this $1 million sitting safely in my bank be worth $900,000 next year? Just do some research on the effects of inflation, and you’ll realise, “I’ve got to take this melting ice cube and deploy it into something that’s going to make me more.”
It comes down to risk appetite and diversification, which is what we’re talking about. I’m not suggesting everyone just pile everything they own into an online business. I think it’s a great diversification of capital that’s just sitting there, not being deployed.
Matt: That’s a really good point. Inflation is like a melting ice cube with cash sitting in the bank. And then, to layer on top of that, we’ve had a bit of a market scare, haven’t we?
It’s great to hear from someone like yourself, David, who’s in the States and feels it more than we would’ve here in Australia. There’s a ‘shot over the bow’ possibly with the banks that could blow up again.
And how do you know if your $1 million sitting in the bank is actually safe and secured by that bank? What if the bank goes bust? We have yet to see that over here, but it could happen.
Sophisticated investors make their money work for them with assets that provide cash flow
Matt: It’s interesting working with sophisticated investors. Some of them, along with our mentors, have said to us over the years, “You know what, Matt and Liz? Sometimes it’s worth not having all your money sitting in a bank. Not just because of inflation, but you might be better off parking your money in a high cashflow business.”
And obviously, websites tick that box in a very big way. That’s why it’s great for us to read from someone like yourself who has had this experience riding through several recessions. And you’ve also been involved in business and business sales. You know what happens.
And you know the number one rule I was luckily taught many years ago by our mentors, who are very successful businesspeople – Cashflow is King. Whether there’s been inflation, deflation, or recession – they were right, and it saved our butts! And so, hearing you say this, too, is so cool.
Why diversification is a smart move during a recession
Matt: We’ve noticed there are a lot of people who read these interviews who are real estate investors. They’re very successful at it, but it’s a dangerous game with the high debt loads, particularly if you’re a commercial real estate investor. In America, are you seeing the returns in commercial real estate now are a lot lower or a lot higher risk?
David: Well, all I see now is everyone saying the next shoe to drop is commercial real estate because the vacancy rates are just astronomical. They’re off the charts, and so the data shows that it will be a bloodbath in the States.
The real estate vacancy rates are not going down, and the companies, even though they’re announcing they want their employees to come back, they’re saying only for three days a week. Everyone’s used to using Zoom now and being at home after COVID. So, it’s a fundamental change in the market and interest rates are crushing it on their own.
So it’s hard to say, but if you’re a real estate investor with a commercial property with leases signed or rented out, you’re good.
However, a lot of the real estate market from 2020-2022 had a freeze on their rent. People didn’t have to pay them legally, so they got hosed there. That is an extreme scenario, but we’ve seen real-world examples, and some consequences are still unfolding.
Which assets could perform better in a recession and in the long-term?
David: So, I do think that real estate is a great asset. Any asset right now in this environment that holds your value is good. But real estate values were pumped up because of the money printing, and everyone had to spend that money on something.
That’s also why the stock market went up. But it’s just not sustainable because that was government-created money that went through the banks and created the stimulus. So, we have to be realistic and look at what the ramifications of that are long-term.
Again, diversification is great.
I think if you already own a lot of property and you’re worried about that, then you might want to take some of that money and turn it into something that diversifies your risk.
That’s just a sensible approach, I think.
Matt: That’s a really smart point you’ve made. Diversification is probably one of the smartest moves you can make if we’re heading into a recession. And obviously, cash flow is king, which is the beauty of websites.
How to find out more about purchasing larger content websites?
Matt: We train a lot of beginners how to buy websites and do their due diligence.
So, David, there may be people reading this, and they’re in the boat where they’ve got some money to invest, or they’ve been in real estate for a long time. Can they come to Website Properties and speak with you or your team? Not to necessarily get advice, but can you guide them into their first easy website buy?
What sort of website would this typically look like? Is that what you guys specialise in there?
David: We typically represent sellers who come to us and want to sell their online business. If you go to websiteproperties.com, you’ll see all our listings.
So, sellers are our clients. But we do have buy-side agreements with some private equity companies and high net-worth individuals.
As far as coming to us to ask for advice or to look at some websites, you can email me directly. I don’t mind. We’re always there to help people and give them advice, even if it’s not our deal. If they see something, we can help or represent them to buy.
You must understand your risk tolerance & level of skills before investing in website assets
David: But as far as guidance, it really comes down to understanding the individual because everyone’s scenario is different. Everyone has a different risk tolerance and different skill sets and backgrounds. So, it depends on what they’re doing.
If someone wants to invest in something passively where they don’t have to spend an hour or two a day, that would be a different choice than saying, “I want to get out of the corporate world, and I got a bunch of money, and I want to buy myself a job, and I need to make $10,000 a month.”
In that case, we would need to find something different, and there are lots of other sites from anywhere in the world you can operate, such as e-commerce, dropshipping, and Amazon FBA sites. There are people all over the world living on beaches, making a ton of money, and just having the system.
So, if you’re buying from someone who’s got a business like that, then it’s already set up, and they’re going to teach you everything. You can go in and look at all the data and prove it.
And so it depends on the individual and your interest. I would always advise people to find something that’s at least interesting to them. It’s much better if they’re passionate about it. They might just be passionate about running their own business, and that’s fine too, but it does take work.
As I said earlier, there’s no such thing as a passive site when you put in $100,000 or $1 million. Don’t be foolish about this. You will be investing in a business and investing time, energy and focus.
Want to learn more about how to buy and sell websites safely in a recession?
Matt: I’ll give a plug here for eBusiness Institute – that’s what we’re awesome at teaching.
David: There you go.
Matt: If you’re reading this and interested in buying a website with David at Website Properties, reach out to him.
But seriously, if you’re new to this and want to learn how this strategy works, listen to our masterclass on how to buy and sell websites. We go through the whole strategy and show you what you need to learn to do this properly.
You don’t just rush out there, buy a website, and expect it to keep churning along for the next ten years miraculously. You’re going to have to work at it. And we’re really good at teaching beginners that part. We love specialising in that, particularly around content sites. It’s one of our passions.
I want to say a big thank you for coming along today, David. It’s been great introducing you to our Australian audience. I know you’ve travelled and backpacked around Australia in your younger days. You even drove a Ford Falcon, so you know Australia well and what our audience is like.
David’s final piece of advice for website investors
David: I would just like to end with one last thing I think is important for people who are looking to invest money.
Tip #1 – Don’t over-leverage your capital
David: We do get a lot of buyers who come to us, the newbies that haven’t gone online, so it’s good to ask questions. And I would say don’t be foolish. Don’t go and buy something that’s over-leveraged or you’ve sunk every last penny into. It’s better to buy something that, even in the worst-case scenario, it’s not going to bury you.
If you have $1 million and it’s your first time investing in websites, it doesn’t mean you go out and buy a $3 million business. It also doesn’t mean you spend the whole $1 million. You might want to look at something in the $300,000 range to start with. Buying something at $300,000 should buy you at least $100,000 yearly in net profit. That could be a 30 – 35% return on investment.
Tip #2 – Educate yourself before investing in websites
David: I always caution people that only you know yourself best. A lot of business common sense translates online. Just make sure you study everything that Matt and Liz Raad are teaching you.
And it’s great for us too when you do that. We’d rather have better-educated buyers and sellers come to us. It makes our job much easier. But my team and I are happy to offer any kind of support or feedback to anyone. I don’t have a problem sparing a few minutes for people who are wanting to go down this route.
I know that it’s exciting and exhilarating, and unnerving, but I encourage you. I’ve been an entrepreneur my whole life. I’ve never worked for anyone. It just gives you more freedom, and if you do it right, it can really change your life.
So, I hope that what I was able to offer today was valuable to everyone. And I’m here for anyone to email any questions or just to get in touch regarding listing their own business or investing in something that we’ve got. Or maybe even just getting some help and targeting an acquisition.
Matt: That is awesome, David. Thank you so much.
Tip #3 – Contact David Fairley for advice on your website purchase
Matt: And for our readers, seriously, you’ve got the offer there from David Fairley at Website Properties. He has over 20 years of experience buying and selling multi-million dollar websites at a professional level. But he is also one of the first online entrepreneurs with content sites, buying, selling, and renovating. So, David knows his stuff and he’s there to help.
So, if you want to reach out to David at Website Properties, make sure you do. And, of course, as I said, you do need to get educated if you’re brand new to this. Don’t just rush out there. As awesome as David is, you still need to learn from us how these websites work.
So, make sure you check out our free masterclass on how to buy and sell websites.
Thank you so much for coming along, David. We can’t wait to do an update interview with you down the track as well.
David: Thanks, Matt. It’s been a pleasure.