Posted by: Martin | May 11, 2010

No cold calling here

Falling for the current craze

Feels like everybody is setting up, or talking about setting up, an online business right now to make money  through advertising, affiliate marketing, selling ebooks or other products or services.

Guess I’m a very late to join the bandwagon, but I thought it would be fun to run a site and learn, and see how it works out, and have a source of passive income that is not linked to real estate in West Africa.

So I contacted a guy that had a site for sale (I’m too lazy to build my own) who quite honestly and interestingly explained that to come up with a sale price he assumes that the site revenue will drop by 10% a month if no further work is put into the site due to competition.

10% is huge, and a good reminder of why I like real estate so much.

A few advantages of real estate compared to website businesses:

-Unless you buy during a boom you can realistically expect the value of a property and the associated rental income to increase over time with inflation. Not decrease by 10% per month. This is of course reflected in the prices of websites vs property, but:

-With real estate you have a stable income, so you can plan ahead and slowly but steadily re-invest your earnings. You can estimate where you will be in ten years and even see that your grand children can inherit a real estate portfolio. With a website earnings fluctuate wildly, and you have absolutely no idea where your website will be in 10 years. I think this is the kind of the reason Warren Buffett isn’t too much into investing in technology companies – it’s just too hard to look into their future.

-I have heard a saying that “all entrepreneurs or anybody in business is ultimately a salesman“. This is a bit of a problem since sales isn’t my thing. I’m into stuff like investing, math, finance, negotiating, interacting with people of different cultures (especially Africans, but not necessarily selling stuff to them), psychology (but more of the theoretical “finding interesting biases in human behaviour” sort than practical salesman psychology ) .

I’m interested in businesses where the sales part isn’t the key part, and contrary to the saying, I believe there are such businesses and that buy and let real estate is one of them.  In the tv show The Apprentice with Donald Trump most episodes are about sales, but there are exceptions such as in the first series when the contestants are asked to rent a luxury apartment with a great view.  Potential tenants enter the apartment, get the wow-feeling, and from there on, it’s all about negotiating and not about pure selling.  Loved that episode!

In real estate, as I see it, the investing part is critical, and then there is a bit of a marketing part to get buyers to be aware of your property, and a bit of a sales part to make the property look nice for prospective buyers, and to say smart things while the prospective buyers view the property, and then an important negotiating part.  Admittedly negotiating can be seen as a part of selling, but it’s about psychology in combination with numbers, calculations, discount rates and forecasts, and that I like.

-I thought making ad revenue from a website didn’t involve much selling.  Sure, the website needs to be made to attract viewers, but beyond that I thought basically one signs up to Adsense and watch the money roll in.  However, having looked into buying a website I’ve realised that one can sell links on it too, that Adsense isn’t enough and often one needs to sell the site directly to advertisers, and that getting people to link to you looks uncannily like a saleman’s job.

Other paths out there!

After having said all this, I still want to take the plunge and own a income generating website and maybe challenge my aversion to selling. But I would love to see someone who is currently making passive income on websites only, trying one of the many other ways of making passive income. There are other paths out there!

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