Want to Invest in Domains? Here Are The 7 Golden Rules

By Guest Author

This is a guest post by Andrei. If you want to guest post on this blog, check out the guidelines here.

Look, the Internet itself is still in its infancy and out of all online industries, the domain name industry is definitely the one which resembles the wild west the most. You see a domain being sold for hundreds of thousands of dollars today, and the next day a similar domain is being sold for 4 figures.

iReport.com, remember that one? You know, the domain CNN.com uses? If you don’t remember the domain name deal, let me ask you this: how much do you think the domain sold for? Maybe it sold for $15,000? Maybe even for something like $30k?

Nope, It Sold for $750,000!

Yes, 750 grand. And you know what’s funny? Most of the people who invest in domain names have at least a handful of domains which are obviously a lot better than iReport.com. And again, it’s not Report.com that sold for $750,000, it’s iReport.com (it’s not a typo, “Report” followed by dot com and with an “i” in front of it sold for $750,000).

It seems that the Web has been around for ages but, in fact, it’s only about 20 years old! There are practically no rules yet, most domain name owners would have taken $15,000 or even less than that for iReport.com without even blinking. In this case, however, the domain was owned by an investor who was sitting on a lot of cash (Rick Schwartz) and who was in a great position to negotiate with CNN. Rick Schwartz is one of the people who has managed to retire early thanks to his domain name investments. Do you want to follow in his footsteps? Here are 7 golden rules which might just help:

1. Quality over Quantity

Domains are cheap so if you want to, you can hand register over 1,000 domains for less than $10,000. Would that make you happy? Would you consider yourself a “big shot domainer” if you were to own 1,000 domains? Wake up!

Most of the people who are just starting out as domain name investors make the mistake of hand registering worthless domains. For example, lots of people thought they would make it big by hand registering as many five letter domains as they could afford. Needless to say, practically all of them ended up learning a fairly expensive lesson. If you want to invest $10,000, buy a handful of domains which are actually worth it for 2 simple reasons:

a) A domain with inherent value will always be in demand
b) If you own about 1,000 domains, you’ll end up having to pay around $10,000 yearly in registration fees. If you own 10, you’ll only have to pay roughly 100 bucks per year in order to keep them all.

2. Stay Away from Over-Hyped Extensions

Do a bit of research and you’ll understand why. Dot mobi domains are one of the best examples: people have initially paid a lot of money for them but as time went by, these domains started losing more and more value for one reason: the fundamentals just aren’t there, dot mobi is an extension which has been over-hyped and nothing more.

The rule of thumb? .com is king.

3. Avoid 4 Letter Dot Coms, 5 Letter Dot Coms etc.

At a certain point, 4 letter dot coms were available for registration and at the beginning, a lot of people started to register domains live mego.com, tevo.com and so on. In other words, domains which were extremely easily pronounceable. Personally, I’m not a huge fan of domains like those even if the fact that they are easily pronounceable does give them at least some inherent value, nobody can deny that.

After a certain point, most of the 4 letter dot coms which are actually worth it have been registered but there were a lot of people who wanted in on the action. Since the good domains were all taken, they started to register the remaining 4 letter dot coms, domains which are anything but pronounceable. Seriously, try it yourself: pronounce FYQV.com, now say it ten times and faster. Needless to say, as soon as renewal dates got closer and closer, people who owned awful 4 letter dot coms started becoming desperate. Some of the sold them in bulk for like a dollar or two per domain, some have simply let them expire and the same principle is valid when it comes to five letter domains.

4. Always Go with Reputable Registrars

Remember what happened with registerfly? If you want to avoid situations such as those, stick with companies which have proven themselves and understand that if something seems too good to be true, it probably is.

Personally, since I own lots of extremely valuable domains, I prefer to stick with Moniker (the safest domain name registration company in my opinion). Even if I have to pay a bit more, I know that my valuable domains are in good hands and it’s definitely more than worth it.

5. Sell to End Users

You can buy lots of amazing domains on the cheap through domain name auctions and sell them for 10-20 times more to end users. Buy domains through auctions, sell them to end users: this is a strategy which works for quite a few people.

A lot of times, you will have to explain why domains are valuable in the first place, so you need to understand that being patient is extremely important. Even if it seems that some of the questions end users usually ask are ridiculous, don’t lose your temper and calmly guide them through the process. A lot of times, an end users who does initially not understand why you ask for so much will end up reaching for his wallet after understanding why the domain name is valuable.

6. Take Advantage of Type-In Traffic

Most decent domains have at least some type-in traffic, so don’t just let them stand there and do nothing. Park your domains and if possible, make sure to also include a “this domain name is for sale” message on the parking page.

Most parking companies offer something like this and it’s definitely worth it. Some domains will generate more than others via parking but why not squeeze as much money out of them as possible?

7. Develop A Strong Position to Negotiate

If you rely on domain sales in order to put food on the table, you’ll never be in a great position to negotiate. Remember the iReport.com deal (the domain Rick Schwartz sold to CNN for $750,000) I told you about at the beginning of this article?

Well, he managed to obtain $750,000 for the domain because he was in a great position to negotiate (he already had a lot of money, so putting food on the table was definitely not something he had to worry about) and as I’ve mentioned previously, most domainers would have accepted $15,000 or less for that domain with a smile on their face.

Develop some websites at the beginning, offer some services online at the beginning or if you have a day job when you’re just starting out, don’t quit it just yet. A person who has to worry about paying off the mortgage and things like that is NOT in a good position to negotiate, be sure to keep that in mind.

Andrei owns dozens of top notch domains, and he is organizing a domain name auction which will end on Tuesday (tomorrow), together with Moniker and SnapNames.

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24 Responses to “Want to Invest in Domains? Here Are The 7 Golden Rules”

  • SupremeF

    I looked at some of your domains and it’s easy to sell them if you own domains like yours (necklace.net, armchair.net, dullard.com etc. have active bids now along with others). Everyone wants a good domain like those but what if we don’t own domains which are so valuable? Would you recommend flipping low value domains or something else to get the money to buy domains like yours?

  • David Walker

    Thanks Andrei for the tips.

    I’ve learnt a lot about domain investing, something I usually thought was risky business. I think cases like those of Rick Schwartz are rare and investors shouldn’t take it as a given that they would make as much. Lots of hard work and smarts needed, as in every enterprise.

    Good luck with your auction tomorrow.

  • love-me

    You know how I always imagine it a few years from now? Big hedge funds which pool money to invest in domains, that’s where I see it going. The prices of today will be so small they will seem a joke once the big corporations start investing heavily. What this means is that like you put it, the ones who are buying domains now will cash out big in the future but the ones who will want to buy domains in the future will have a hard time doing that because a few years from now the prices will be very high.

    I like your domains, saw the auction and I hope you get a fair price. The prices you are auctioning them at are low compared to the real value of the domains, congratulations for your courage. We will be getting to read at least a few other posts from you here right?

  • Muzi Mohale | AlreadyInspired.com

    Powerful pointers Andrei, especially about quality over quantity, selling to end users and developing a strong position to negotiate.

  • Bernie (aka Smithie)

    One day, I hope to become a domain investor in the true sense of the word. Right now it’s just a dream but this post is inspiring because it shoes the true face of the landscape. I can’t believe the internet is still so young, do we even imagine what opportunities this brings?

    We are just like the first people who invested massively in oil and look where they are now. I found a domain on your list at the auction which would be great for a friend’s business and to my surprise, it’s cheap so I’m going to bid right after coming back from breakfast. He has always been a good friend, so it’s the least I could do, who would have thought domains can be presents too?

  • Andrei

    I’m glad you like the guest post guys and if you have any questions about the auction, feel free to post them here and I’ll get back to you asap. And a special thanks to Daniel for publishing the guest post on such short notice (since the auction ends tomorrow at 3 PM EST, the guest post had to be published today), I really appreciate it man.

  • Andrei

    @SupremeF: I’d advise against flipping low quality domains, in other words domains with hyphens and things like that. Buy a decent domain for $500 – $1000 and take it from there.

    @David Walker: Rick Schwartz is probably the most popular domainer out there but there are actually quite a few people who have made it big but are not in the spotlight and the interesting thing is that a lot of them have not started out in let’s say 1996. There are examples of people who have started a couple of years ago and are now millionaires.

    There’s definitely work involved but it’s a great industry to be in, especially now. Prices have never been so low since the dot com bubble burst back in 2000 – 2001. There are probably only a couple of months of “pure opportunity” left, afterwards prices will increase according to pretty much everyone who has enough data to make educated guesses. The recovery of the worldwide economy will drive prices up again, so take advantage of the fact that it’s a buyer’s market while you still can. If you’ll miss the train, too bad. Opportunities don’t last forever: you can either stay on the sidelines or make things happen. It’s all up to you.

  • Rebecca

    Do you have any ethical qualms about this? In some ways, it’s like buying an empty lot in an area which you figure might some day be valuable to someone. You earn money by forseeing the value when others are missing it.

    But in other ways, it’s like being a dog in a manger. After all, you’re getting something for $10 which you don’t actually intend to use. Then you charge the end user $1600 or so when you’ve produced nothing and created nothing.

    I hope I’m not being offensive here — I’m honestly interested in your point of view on this.

  • Agent Deepak

    Awesome tips Andrei. I have few domain names lying there. I have to see if I can sell them.

    Next time I buy any domain I will keep this article in mind.

    Bookmarking this article.

  • Gabe | freebloghelp.com

    Great list. Another reason is that as soon as search engines index pages on the domain, it starts to build rank and PR. That’s pretty useful if you’re trying to sell a site years later and it has matured nicely over that time.

  • Steven Richardson

    I’ve seen people buying and selling domains, I’ve tried my hand at it but wasn’t very successful.

    Does the longer you own a domain potentially increase the value?

  • Andrei

    @Steven: play the buy and hold game, that’s where it’s at. Always keep tip #7 in mind. In my case, for example, I have to basically auction my entire portfolio in order to generate 6 figures fast but if I were to hold on to the domains and sell them individually, there’s no doubt in my mind that we’d be talking about 7 figures and definitely not 6.

    It’s all about being in a good position to negotiate. I need 6 figures for my upcoming project, so I basically had to make a difficult choice: hold on to the domains and sell them one by one at a far greater profit or sell everything and invest in the new project?

    I choose an approach which is somewhere in the middle. I’m auctioning my entire portfolio on the cheap and will be keeping the domains which do not sell for a long, long time. So on the one hand, I will be selling lots of domains on the cheap in order to generate the 6 figures I need for my project and on the other hand, I will go with a long-term buy and hold approach for the domains which will not be sold.

  • Andrei

    @Rebecca: I can assure you that nobody got great domains for $10. Keep in mind that back when Network Solutions was the only game in town, you could definitely not register domains for 10 bucks and also keep in mind that as I’ve told Steven, it’s all about buying and holding. All of the people who own great domains have either:

    1) Bought them right from the beginning (’98, ’99 etc.), it took a lot of courage to hold on to a portfolio and pay the registration fees (again, registering and renewing domains for 10 bucks/year was, unfortunately for them, not possible back then) year after year. Some of them succeeded, some went bankrupt.

    or

    2) Bought them from the initial owners (that’s what I did in order to be able to have such an impressive portfolio) for a lot of money. I’ll tell you this much: when auctioning domains (what I’m doing now), you sometimes have to even sell at a loss for the sake of liquidity and that says a lot about what I’m doing with the auction if you know what I mean.

  • Rebecca

    Thanks for responding!

  • David Walker

    To echo Rebecca; Thanks for responding Andrei, and at length. With a major auction tomorrow, this is very kind of you.

    As for your response to my comment above, I must say I’m pretty green about the domain selling industry, and like Rebecca, believed the domains were bought for $10 and resold for thousands more.

    I see I still have a lot of learning to do. Thank you for posting about this today. I’ll get to work and try to get through that door before it shuts.

  • Daniel Scocco

    @Rebecca and @David Walker, I really don’t see how investing in domain names could be an unethical thing, and keep in mind that my line to divide what is ethical and what is not is quite steep.

    Even if someone bought a domain for $10 (when the Internet was nothing), and sold it years later for millions. So what? The person was smart to see an opportunity while others were still blind to it. There is nothing wrong with that, and in fact that is what makes capitalism work.

  • Sriraj

    Absolutely. Domain reselling is just a steamy business for many companies and there is nothing wrong or unethical about the stuff. I’m sure, once people taste any success in this, it’s hard to refrain from doing it again and again.

    Great tips Andrei..

  • H2P

    I’ve thought much my domain that will buy. I often forget to take care of few domain, not to mention promote and improve the rating. Is it very efficient for us to buy the domain and sell it back? I think this is like buying stocks. You can fall and rise without known for certain.

  • nba

    “Quality over Quantity”. i agree.
    I want to put industry keywords in url. 🙂

  • David Walker

    @ Daniel.
    Sorry, I meant to say that like Rebecca, I had thought the domain names were bought for $10 and sold for thousands later but didn’t mean I found it unethical. I don’t, and should have included that in my response.

  • Web Marketing Tips

    Certainly if you know how to invest your money on domain than you can earn very good amount of money.

    But for this you need two thing one is selection of proper word and second one is getting such kind of buyer who can give you that much money.

  • Debojyoti

    Also do not go for domains with hyphens or things like that. Usually if the non-hyphened version is already registered, be sure they will steaappreciable type in traffic.

  • Eric

    This is a great article. I purchased what I think is a very high potential domain last year that I hope to sell at some point. I appreciate the tips here and hopefully I can turn a decent profit.

  • Jerrick

    Analyze the domain well before you buy . Not short domain name mean good. Look for domain name that able to bring organic traffic, find domain name that will help in SEO, find domain name that will easy to show in search result, get domain name with do have certain keywords.
    If you smart enough you may estimate what the future market famous thing is, then look for the domain name that related. It will help.
    You may know that ipad 3 or 4 maybe next famous product, you may look for the domain name that relate to it.

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