Rick Schwartz’s post yesterday morning resonated with me because his outline is essentially how I went from hobbyist domain investor to someone who buys, sells, and monetizes domain names for a living. The one “flaw” I could find in the post is that there isn’t much in the way of guidance about how to actually buy and sell the domain names for significant amounts of money. Hopefully, I can provide some insight based on my experience.

When I first started out selling hand registered domain names around 2003, I didn’t do much domain industry research. I created domain names that I thought would be interesting to buyers and hand registered them. I didn’t really think big. I was looking to turn $10 into $50 or $100 quickly, and if I made an extra $500 or $1,000 a month, I was psyched. This worked back in 2003, but I don’t think it would work well today and it certainly wouldn’t be enough money to make a living or make much of a dent in my expenses.

The smartest thing I did when I first started making real money was reading everything related to the domain industry. I figured there was no way I’d have the foresight to buy a $10 or $100 name and quickly turn it into $100,000, so I decided I would reinvest my smaller $100 profits into a higher value domain name. I figured I could have the same profit margin, but with higher values, it would be significantly more money.

I still remember the first time I made a $1,000 domain purchase. I was visiting my brother in Maryland for a weekend in 2006, and after buying a net/org/biz/info set at DN Forum for a few hundred dollars, I eyed the matching .com which was listed elsewhere. Sending the $1,000 Paypal payment was scary since I had only previously been willing to spend a few hundred at most.

So what made me comfortable buying the name for $1,000? I did a lot of market research. I learned that similar (but superior) names sold for 6 figures, according to comps I read. Even a typo of the best name in that business sold for mid 6 figures. I felt that although the name I bought wasn’t ideal, it was still worth far more than $1,000. I also figured that if I was wrong, I wouldn’t lose anything on the deal because the set had to be worth a couple thousand at the very least.  Long story short, I sold the full set within a month for over $10,000.

I spend a lot of time researching domain sales. As soon as Ron Jackson publishes his weekly report, I read it. I look at every auction and try to memorize reserve prices and later, the sales prices. This is like a database I’ve built in my head. For sales I can’t remember, I use Google. I learn about why certain domain names sold and what gave them their value. I find out if a certain company has a marketing campaign geared around the term, if it has high paying clicks, if the exact match term has strong search volume in Google…etc. It’s a lot of legwork, but knowing why certain names sold for lots of money while other names aren’t worth very much is critical to making a living in this space. Clearly there is a HUGE difference between RealEstate.com, EstateReal.com, and TheRealEstate.com, and knowing the differences and valuations is critical.

When I am looking to purchase a domain name, I do similar research. I think about who potential buyers could be, what companies would absolutely want the name if the price was right, and I pinpoint a valuation. If I can buy the name for a lot less than my valuation, I buy it. When I buy a name, I know I am not going to take a loss. At the very least, I could sell it to someone for what I paid. That’s what happens when you do your homework. I primarily buy names for quick flips, so I haven’t done much in the way of long term investments in non .com extensions.

I don’t use Estibot or any other appraisal tool to value domain names. I may look at what others value a name at, but I don’t give it much influence in my decision making process. On occasion, I will ask business colleagues what they think of a particular domain name. I want to make sure that my thoughts are accurate, and I want to get perspective from someone else.

I firmly believe that anyone can make a few great deals. However, a few great deals isn’t going to get you very far unless you have a full time job or live somewhere cheap. You need to make a lot of very good deals every year to make good money as a domain investor these days. I suppose there are other ways aside from selling names quickly, but you either need to have very deep pockets or have very little legal risk aversion.

I would give some advice for people looking to become multi millionaires with domain names. Become knowledgable about a topic or maybe more than one topic when you want to make a major domain investment. Know all of the big keywords and buzzwords. See who owns those .com domain names. See what similar names have sold for. If any of the primary keyword names are for sale, inquire. Get a ballpark price. Use your intuition to determine a valuation. Negotiate with the owner to try and get a price that you can afford that is less than your valuation. Buy it if you can afford to buy it.

Keep in mind who the buyers of this name may be after you’ve bought it, and possibly have a back up plan if your re-sale plan fails. It’s critical to know whether your potential buyers have bought expensive domain names before. For instance, if you think you are going to sell an awesome sports team .com domain name to a public high school of the same name, you’re probably not. Look at companies that have made big purchases in the past and see if they’re buying descriptive domain names. Brandable names are hard to predict because they are replaceable, have to be an exact match, can’t have trademark issues, and the buyer needs to have a big budget.

When you’re looking to sell your domain name, be realistic. If you get a strong offer that’s profitable, say no if you can afford to lose out on the sale. If you need the money, there’s no harm in leaving some money on the table. Rick Schwartz can afford to turn down every offer up to the offer he takes. Many people can’t. Take every negotiation as a learning experience and see where you erred and where you succeeded. Review the buyer’s responses to your replies. Strategize about what you can say the next time to make it better.

Everything you do today should be with tomorrow in mind. Think about how purchases and sales will impact your business tomorrow and the next day. Don’t be afraid to take big chances because that’s how you will succeed. It’s very unlikely that you’ll make a lot of money by dabbling or by making “safe” purchases. Sure, if you have a long time horizon, you may create future value. That’s a gamble, although it may cost less up front.

Turning $1,000 into millions of dollars is not easy, it won’t happen over night, and it’s not a certainty. Without a doubt, if you listen to others, read the news, become knowledgable, and make wise decisions based on knowledge you’ve accumulated, becoming a domain millionaire is certainly achievable – even starting out today.