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Comment by bgroat | Hacker News Reader

$500/mth is $6,000/yr

At a 4% safe withdrawal rate what you've built is the equivilent of saving $150,000.

You should be EXTREMELY proud of yourself, and never underestimate the power and value of the asset you've built

Without taking anything away from OP's achievement, I'd caution against this kind of exuberant comparison without some qualification around it. The risks to that app's continuing to yield $500/month in perpetuity are quite different (and, I dare say, worse) than the risks faced by the kind of balanced portfolio that "safe withdrawal rate" implies (to me). I acknowledge that you didn't directly compare with such a portfolio, but you did say the app is "the equivalent of saving $150,000" - again, if this is true it's in a very limited sense only: the app and the cash face a very different set of risks.

This is fair, but as a milestone in long-term self-sufficiency, creating a $500/mo app is significant achievement.

Saving $150,000 is, too.

Which is more likely to lead to true self-sufficiency? Barring other possibilities, the savings. But given human response to positive feedback loops, a successful dev often becomes a more successful dev overtime. Hence, I favor the "first app I wrote that made $500/mo" is more significant.

Didn’t really want to go down this route but since you guys wanted to I would also point out the OP likely hasn’t been making $500/mo for a full year yet so to make that kind of projection is premature. I think at best he will make that for a few months then it will taper off within the year as the app gets less popular.

You can’t just say your app makes $500/mo without giving the time period for how long it has been making that. Generally if it’s not revealed it’s because it hasn’t been very long.

The app made $300 last month and $500 this month. It indeed hasn't been very long, and I agree that $500/mo is a bit of a generous take. However I do plan on adding extra paid features which I think will push that even further.

I don't even know what 5/3/1 is but I was planning on joining a gym this month, so your getting my signup.

For the SEO could you go after Gym Noobs like me who know nothing about different programs, teach them what 5/3/1 is and then lead them to your app? Or is that too crowded and difficult?

That’s a good idea. Basically having a blog saying what 5/3/1 is. It’s a narrow line to walk on as I didn’t write the book and want to respect the author, but I think that I could probably do something like that.

Have you reached out to the author? Since you have the best app maybe he would want to make you the "official app" for a revenue share. And his promotion of your app could grow the pie big enough that you make more even with a split.

The market is massive, play your cards right and this could be just the beginning. Do you speak to users in person much and have an idea of what people want?

I speak to a couple of users directly through email. An Apple Watch companion seems to be what people want the most so that’s what I’ll be working on next

So basically you have no idea.

Mandatory XKCD on the dangers of extrapolating : https://xkcd.com/605/

I think a better comparison is what similar apps would sell for. 2-4x annual revenue seems to be common. So $12-$24k which is not bad!

Since $500 are almost 100% profit, I guess OP can sell it for about $30,000 which is not bad at all.

I made the valuation at 5x yearly profits.

This is a business, it's not passive income. It requires maintenance, support, etc. If he were to just let it ride, income might increase for a while but ultimately wither out and die.

Will this app pay 6000 a year for 25 years?

It's an impressive creation but this is not a good way to value it.

I think the comment more so referred to the returns that $150,000 would yield at a 4% SWR, not necessarily that it'll generate that much eventually, just the equivalent SWR return amount.

Normally web apps like this would change hands at around 3x annual earnings, so OP has built the equivalent of more like $18,000, which is still impressive!

I've seen many being sold at 5x profit, which is not 5x earnings in general but in this case is close to it.

It's a good point, but I think they're talking about lifetime value rather than current value.

I think its a great achievement in itself but your post does push people in the thinking of 'i can just make a no work sustainable something as a service app and become rich'.

I don't think it works.

I think the best bet by far is either to optimize your job salary (switching after 2-3 years, being proactive, trying leetcode, persuing FAANG) or following FIRE.

$500 would be 5h per month freelancing.

And to be really fair, he would first calculate all hours invested and he needs to calculate/estimate further time involvment.

For creating your own small company/business, thats probably a doable thing but still much more high risk than anything else.

This is just an example of what a person has accomplished in a limited amount of time by himself. Noting stops you from pushing your hamster wheel at a FAANG or thinking about FIRE. You can even do this and a small app at the same time because it doesn't need a huge amount of time.

You don't even have to do a small app. You can do the next Uber or Airbnb. Or you can do something that yields the same monthly amount you get from your FAANG but have the advantages of having no boss and working for yourself. And if you decide you want to do something else, you can sell it for a nice amount, while quitting your job doesn't yield you any money.

I 100% agree with you from a purely financial perspective.

But after having failed at a startup, I realized that there is an inner sense of validation that can come from being able to successfully create a small business.

And I won't ever be able to remove that goal from my bucket list no matter how financially successful I am.

Yeah leaving you job at Google to do this is not recommended in 99% of the cases. Especially in a recession.

Despite the valid criticisms against the specifics of your comment, I found this perspective interesting.

You could model the specifics differently, of course: maybe we assume the $500/month is a peak and it tapers off exponentially somehow. What sort of capital returns does this correspond to?

I haven't done the maths, so I don't know, but the fact that I can even ask the question means I've learned something from your comment that I didn't know before!

Asset valuation is a rich pre-existing field that doesn't need to be reinvented. The real cash-equivalent value of this app is, of course, the market value you could get trying to sell it, but that just offloads the value estimate to the potential buyer(s). The computation is extremely straightforward for a perpetuity, which is where the estimate here is coming from. At a 4% annual discount rate, a perpetuity that pays $500 a month forever has a net present value of $150,000.

However, as others have hinted at, assuming this app will continue to generate $500 a month forever at roughly the same risk premium as a perpetuity from any remotely reputable seller is dubious at best. Major banks and insurers that have existed for several centuries have histories of selling instruments like these that actually have paid out their promised coupon value for many decades and even centuries in some cases. In contrast, the Apple App Store has existed for almost 14 years. The 5/3/1 strength program has existed for 13 years.

What are the chances this app can generate the same revenue for the next 30 years? You can't rely on just keeping the existing users due to the way lifters tend to program-hop eventually. Anyone doing 5/3/1 today is unlikely to be doing it in 30 years. Then you have to factor in the possibility of competition. I'm kind of surprised the author of the 5/3/1 books has never bothered to commission an app and apparently only distributes official spreadsheets for generating a program template and workout log. If he ever does, any unofficial app seems unlikely to survive.

Not to take away from the work. I think this is the right idea. The developer wanted something that didn't exist and made it. Whether or not you ever acquire a single customer other than yourself, I think that is worth doing. But if anyone in this comment thread truly thinks it is worth $150,000, offer him $150,000 and I'm sure he'll be glad to sell.

Why it's 4% a safe withdrawal rate? Is it safe in the current economic context? Isn't affected by inflation?

Taking out 4% is usually considered the safe bet on keeping the original money at the same value year after year with the remaining excess returns accounting for inflation.

Even if that amount is too much for 2022 and 2023 due to higher inflation, during other years, it will be too conservative. So it evens out. Plus there’s recessions too. So the 4% is an average.

Can you breakdown this calculation? I'm familiar with FIRE and SWR but how do you get to the $150,000 number?

[EDIT] Thanks got it!

6000/0.04 = 150 000

Essentially, those 6K a year is the equivalent of a 150K portfolio

I want to push back against this a little. He gets $500/month now, there is no guarantee he will keep receiving that number when he stops maintaining and improving his app. I would assume the number will go up if he keeps improving it, but if he stops it will eventually become 0$/month.

Doesn't time value of money decrease this effect? Assuming a fixed revenue over time, future revenue is much less relevant, so is its loss.

That's what the 4% is. A perpetuity that pays out $6000 a year is valued at $150,000 assuming a 4% discount rate. Without a discount rate, the value of any perpetuity would be infinity.

There's no guarantee $150k invested will have 4% returns either.

No, but if I had to bet on one over the other, I'm going with 4% returns.

To be fair: It will probably be easier for him to go from $500/mo to $1000/mo much easier than it will be to go from 4% APY to 8% APY.

No it’s not it’s the equivalent of a $6,000 a year part time job.

$150k in 20 years is still exactly $150k and produces returns.

A 20 year old mobile application has no value whatsoever.

Difference is apples and hand grenades.

$6,000 / 0.04 = $150,000. in other words, if OP had saved $150,000 and was withdrawing 4% per year, they would have the same $6,000 as what the app is generating.

the analogy is imperfect, because presumably the OP is spending some time to generate that app income; it's not totally passive.

4% of $150k is $6k, which is $500 * 12.

You wouldn’t get $150k on flippa though. Maybe $15k?

Thank you!

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