As I mentioned a month ago, I tried my first “active” investment by buying a website that makes a small profit. The first month has been interesting as I learned more about how it works, dealt with some surprises, and planned for improvements.

The biggest problem so far is that shortly after buying the website, which is based on monthly transactions, about 30% of them were cancelled. At this point I don’t think this something that could really be known ahead of time but it’s a good reminder that when you make an investment like this you have to discount the value because a lot could change. Since then I’ve had several leads to add new transactions but due to some outdated information and users who can’t be contacted none of them have come through yet. I am confident that in the future the profits will start to increase.

Due to the way it’s set up most of the income can only be transferred to my accounts once a month; since the site came with a balance at the time of the sale I have gotten part of the price back already but the profits for the first month won’t come for a few more weeks. The profits in the first month will be 14% of the real price, and the cashflow for this month has been 16% of the full price. Although the amounts are fairly small that’s a great return to see and the full amount of the investment could be returned in a short time. One of the great things about buying websites is that they often sell for very low multiples of income. This is partly because of the risk that things will change, but a little knowledge can help avoid the ones that aren’t likely to repay the investment.

This cashflow and profit is all the result of past work before I bought the site but I have put in some time to keep things running and plan for future improvements. I’ve started to build up systems that will eventually automate the process, allowing the profits to increase without my direct involvement, and make it possible to bring in more users and increase the value of the transactions. One of my first changes was to start a simple user referral program in place to build on the existing user base and reward them for helping to grow the business. It hasn’t resulted in an increase in revenue yet but I have seen a quick rise in interest.

I haven’t decided what I want to do in the future yet; looking at the rest of the industry I can see that I could grow this into a significant company with enough effort, but for now I’ll try to increase the profits while minimizing my time input. Eventually this could lead to selling the website for a much higher price. It is interesting to work with but if income rises enough I wouldn’t have a problem with selling it to someone who wants to put in the effort to do more with it and investing the profits somewhere else. Whether I keep it or sell it in the end, I need to focus on simple steps to improve the business and developing systems to keep it running without me.

Although there have been several unexpected events this is going well so far. I’m putting all the income in my investment savings account which will allow me to accumulate capital for more investments like this in the future. With the knowledge I get from running this site (and possibly a few others like it) I should have the experience to eventually make larger investments without increasing my risk. At this point the time input probably cancels out the high rate of return but if profits grow in the future this will be my best investment yet.