This might sound strange coming from me, but as a domain investor, domain development often brings up a dilemma for me. In order to generate the majority of my revenue, I rely on the sale of domain names that were usually recently acquired. I buy domain names at great prices, and I sell them for fair prices in the aftermarket.
Most of my acquisitions would be considered “ripe for development,” and most people could immediately imagine what should be developed on these domain name. For example, I recently sold MountainBikers.com and CDStore.com, and it’s fairly obvious what type of content should be on those sites.
For the most part, I look at a majority of my domain names as pure investments. Aside from a vested financial interest, I have very little interest in being the developer. I buy them specifically as investments and hope to re-sell them at a profit without adding content. However, there are times when I do want to develop a website on a particular domain name, and that leads to internal business conflict.
When I buy a $10,000 domain name and hope to sell it quickly, the $10,000 investment is in the form of a salable asset, which hopefully will be converted back to $10,000 + profit in short order. When I keep a $10,000 domain name for development, that $10,000 is no longer liquid. I can’t pay my bills with a domain name. I also feel added pressure because my bank account holds $10,000 less. Additionally, I need to spend time and money researching and building a website.
I am counting on building a revenue generating website on that $10,000 domain name, which would not only earn more from advertising along the way, but it will also increase the value of that asset. As most people can tell you though, development isn’t easy, and there’s no guarantee that the domain name will earn more in advertising revenue than you would had you kept the money in the bank and were earning interest.
Holding domain names right now is smart due to the economy, but because of my business model, I need to be selling to pay most of my bills. Whenever I get a domain name I have a particular interest in developing, I always have to think twice about whether it’s worth putting that investment funding on the sidelines. In some case it’s not, but in some cases it sure is.
I just acquired another domain name in the aftermarket after some internal (and external) debate, and I hope to be able to share the finished product in a few weeks. In the meantime, I will feel added pressure from taking some liquidity out of the business for a period of time while developing, but I think it will pay off.
Sounds like you need leverage.
It’d be nice if you get a loan to buy your development domains, so then you’re only needing to make the loan payments from the profits from development. That way you’re not tying up your cash.
This is the same approach people take when buying lots of real-estate.
Of course, I don’t think you’re gonna find a lot of banks lending you money for this, right now.
It’d be interesting to hear from anyone who has gotten a loan to buy an “investment-grade” domain.
— jorge.
O.P.M, my friend, OPM
@ Mike
LOL… I like using my own 🙂
You have a very similar business model to myself (federer over at NamePros). This is without a doubt a WINNING model that can only drive revenue and profits up over time. Each domain (especially if generic, product/service-related) is a unique piece of real estate that will, at some stage, catch the eyes of a motivated investor or end user. Developing allows you to raise awareness concerning your digital asset (ex. higher ranking in the major SE’s) whilst enjoy residual income. Development is best when targeting just handful of nicely searched terms/domains that you don’t mind holding onto for quite some time. Good things always come to those who wait.
Or maybe the best approach is to develop all of the premium domains, immediately adding the value onto the domain, while monetizing it at the same time to create an income stream from it. At the same time, listing all of the assets for sale endlessly for premium prices until a buyer comes along. Its a buy and hold approach, however, each asset still has an acquirable price tag which the seller will accept. At the same time, live frugally (like Warren Buffett) to minimize any damage personal expenses can have on ones own personal business venture.
Elliot,
Stick to your “bread and butter”, buying and selling domain names which is bringing you money. Developing is fine, but if it takes time away from what makes you the most amount of money than it’s not productive.
Thanks, Jim