DomainInvesting.com

This is part three of a series of five with one piece of advice from some of the most successful domain investors, domain developers, domain monetizers, and others involved in the domain industry. I asked them for one piece of advice they would give to a part-time domain investor looking to build his business. I believe there are quite a few people who are part time domain investors, and I also believe just about anyone involved in the industry can apply some of this advice to their own business models.

I really appreciate all of the contributions from the industry leaders who contributed, and I hope the advice contained within is helpful to you now – or will be helpful to the growth of your business in the future. As an FYI, I intentionally did not put these posts in any particular order.

If you haven’t read them yet, I recommend viewing part one and part two, and part four will be posted tomorrow.

Thunayan Khalid AL-Ghanim, Future Media Architects:

Never hesitate.
Have a long term plan.
Take a risk, that can be handled.
and just go with the flow.
Make sure you are enjoying what you are doing.

Ted O’Keefe, Internet Venture Holdings:

We started domain investing out of frustration with stock investing. In the past fifteen years the stock market has been through some very tumultuous times. With rapid corporate fraud from Worldcom to Enron to Citibank. We didn’t want all of our money tied up in stocks and real estate. This has been great foresight with the unseemly mortgage backed securities debacle destroying stock and bond portfolios over the past few years.

Domain investing offered a different type of appreciating asset that had some liquidity, minimal expenses, and the potential for high returns which made it attractive. There was significant legal risks but varying ways to minimize this risk with development which was becoming very easier with the varying tools available for non-technical people.

The approach to domain investing should follow the same principles as stock investing except, a new investor should only invest in domain names with the ‘true’ speculative portion of their portfolios. Think of this as the mad money portion of your portfolio except it’s not for fast trading. We believe domain investing is still a buy and hold strategy. Some have had success flipping higher quality domains and if this is your strategy be sure you have a buyer or else it’s like owning a rental home with no renters.

We’ve seen random offers for some of our domains increase five fold in just a few years. That tells us we’ve made good investments. When a better investment comes along we’ll know it’s time to sell.

The same rules should apply as stock investing; 1) Don’t put all your eggs in one basket 2) Diversify 3) Know what you’re buying.

A good rule might be not to invest more than five percent of your overall portfolio and certainly not more than you can afford to lose. As the domain investor develops more confidence in the industry they can gradually expand this portion of their portfolio. If you have some early successes you might decide to make domains twenty-five percent or more of your overall portfolio. Early success are not unheard of – early on we made thirty thousand on a domain we owned less than a year. The buyer had success in online commerce with other ventures so in buying our domain investment he had a business already planned behind the purchase. We opted to immediately invest these funds back into other good domain names.

A good rule of thumb when domain investing that we continue to live by. Don’t buy a domain that you could not sell yourself via auction for the same price. If at any time you need to liquidate for any reason you want to minimize the downside. By owning the domain hopefully, you were able to enjoy a monthly dividend by parking your domain with advertisements so you still made money.

Now here is where domain investing is different from stock investing. We like to invest in domains when we ‘find a situation.’ Having a direct line to a current domain owner or eventually finding the owner will allow the new domain investor to talk to the owner and and get an understanding of the motivation for selling. If the domain investor is not interested in selling don’t beg. Often a domain owner will say a price that he/she thinks is high but might pose value to you as a domain investor. Most often negotiations are over the phone so let the domain owner just talk…

Every higher quality domain we’ve purchased has been one of the following scenarios; business bankruptcies or liquidations, health and or sickness, or just a change in a persons life – need money, moving, job loss, retirement etc. etc. If we don’t have one of these situations we walk away or record it for a future phone call. Without motivation to sell the current domain owner is likely in love with his domain and thinks someone is going to come along and give him a million dollars. Not to say this won’t happen but he might be holding it for a long time. The great thing about domain investing is there is always another great deal just down the road you just have to find it which is part of the fun.

Another strategy to keep in mind – unique to domain investing, keep your end user in mind. After all dot com stands for ‘commerce’. The movement to commerce on the internet is a revolution that is happening rapidly before our eyes. Informational type websites are helpful but they seldom motivate a potential buyer to spend alot of money for a domain. If there is not some type of business plan behind the domain purchase the buyer probably won’t spend alot of money which is what your trying to achieve.

Remember that many of the dominant domain investors in this young industry used type writers and went to the library when they were in high school or college. Computers in the home or office were scarce and only few know how to really use them for actual communication. There is still many opportunities in this industry.

Ron Jackson, DN Journal:

LOOK BEFORE YOU LEAP! I think the most common mistake that newcomers make is diving in head first before they know where the dangers below the surface lie. At first glance, this business looks easy – register a few names that you think sound cool and promptly resell them for 10-100 times what you paid for them. If only it were that simple! Unfortunately, there is a fairly steep learning curve involved and if you start throwing money at domains before you understand what makes certain ones valuable and others worthless, you are going to be throwing your money away. Since many come into this business with limited capital to begin with, leading with your wallet instead of carefully acquired wisdom could be a fatal mistake.

Among other things you have to take time to learn about keywords and which ones have value to the investors or businesses who are going to be your source of income. Generally speaking, you will do best with domains that define a commercial product or service or represent a reasonably sized locale (geodomains). It is those types of domains (especially in .com) that generate type-in traffic because people are always searching for the products, services and locations those domains represent. If you really want to go for the golden ring via full scale development, those kinds of domains also give you a head start because the name defines your business category – they are essentially unforgettable and that is a huge asset for an online business.

There are almost endless resources available today to help you learn about domains. So, take your time and learn from others with a track record of success. Don’t start buying things until you understand why they are likely to produce a return on your investment either through PPC, affiliate income, resale or development. Being in a hurry will get you nowhere fast. Take the time to learn what constitutes quality and then buy the best you can. This is even more important if you venture away from .com. There are opportunities in other extensions, but since the pool of buyers you can resell to is smaller it becomes even more important to accept only the best keywords if you decide to diversify into other TLDs. If you do diversify, remember that quality rules with extensions too – first world ccTLDs like .de and .co.uk are proven winners but there is almost no chance of finding buyers for third world ccTLDs like .ws and .cc. I still firmly believe that this is a great business with many paths to success. Though it is a unique business, it also has one thing in common with just about every other industry or investment – those who take the time to study before buying in are the ones who end up making the smartest choices.

Nat Cohen, Telepathy:

My advice would be go for quality. It’s the same advice I was given as a kid by an old-timer when I was getting into stamp collecting. Don’t spend your budget on several mediocre domains, spend it on the highest quality domain you can afford. The higher the quality, the more sought after it will be. A high quality domain should hold its value better when things are bad, and increase its value most when things are good.

Seabass:

When analyzing domains for parking, only buy domains when you know you are “shooting the fish in the barrel”. What I mean is that some domains are obvious winners and you already know this when analyzing them. Buy domains like MadridHotels.com or less expensive ones like PearTrees.com.

There are many other domains that look great and your knee-jerk reaction is to think would love to own them. However, you may not know for sure if they are great or not. Pass on the latter domains. These are like MadridHotelDeals.com or PearTreeSeeds.com . These domains may very well make money, but do you know this for sure? Why would you take a chance if you don’t have to? Pass on them, there are so many domains in the world to own. You want prime property. Take your time and keep looking.

Great domains will appear eventually at prices you can afford. It will make for a more secure foundation in a domain portfolio in almost all respects. You will also get all kinds of emails from potential buyers while you park these prime properties. All these potential buyers allow for an escape route, or exit strategy, if you should ever decide to leave the business. You don’t want to get stuck with tons of unsellable or slow to sell domain properties if you get in a jam.

This method is actually cheaper or equal to what you would spend buying a boat load of mediocre properties. You may have less domains only buying great domains, but you will make more money and have lower monthly renewal fees.

Morgan Linton, Domainvestors.tv:

Never stop learning. Read every blog, article, and book you can find – the moment you think you know it all is the moment you stop learning!

Eric Borgos, Impulse Communications:

My advice to aspiring domainers would be to try a little of everything and see what works. Too many people come up with a plan, spend weeks or months getting things setup and dreaming of all the money they will make, and then things don’t go as they expected. It is not always that their plan is bad, but sometimes other things go wrong, like web hosting problems, website errors, cash flow problems, partnership problems, copyright issues, programmer delays, affiliate program issues, etc.

I would suggest trying a little of everything to see what works for you. Do some minisites, try flipping domains, try putting blogs on your domains, try some SEO, try brokering domains, try hand registering domains, try buying expired domains, try setting up real websites on your domains, or try starting a website about the domaining business or start a service to domainers. What works for you is not always what works for other people.

Ammar Kubba, Thought Convergence:

Four words: Go With Your Gut!! This is especially true for “part-time” domain investors, as they have the luxury of having a “day job” to support their domaining habit. In this regard, part-time domainers have both an advantage and a disadvantage. Their advantage is that they don’t spend all of their time in the industry, thereby giving them an invaluable outsider perspective on potential opportunities within the space, one which full-time domainers may be missing. On the other hand, part-time domainers may not fully understand the many intricacies and machinations of our complex industry, thereby causing them to miss out on potential opportunities that they may unknowingly already have access to.

This “Go With Your Gut” philosophy also helps in getting past all of the naysayers that we’ve all encountered along the way… people that don’t understand our industry will never understand or support the seemingly risky investments in “virtual real estate” that we routinely make every day. It goes without saying that we’ve all made mistakes along the way… some more than others, but we’ve ALL had to learn through trial and error. Without a strong constitution and an iron will, most of us wouldn’t be here today. This same requirement holds true for current part-time domainers that are looking to make the transition to the big leagues.

Alan Hack, Names Plus Marketing:

My advice would be to have patience and faith in yourself and your vision. Too many people give up if they don’t have success in a short period of time. I would also advise that people network with and learn from others who are succeeding in the business. One great idea or contact can make a significant difference in your business.

Alan Dunn, Newfound Names, LLC:

Do not consider yourself an expert on anything – there is always someone who knows more and will teach you things any “expert” should know.

Always listen more than speak.

Do not follow trends. Trends are usually short lived and not a means to long term financial security.   If you can ride a wave then bring a good board but know when to head back to the beach and look for another wave.

Stop reading domain blogs.   Check in once a week, very little news will ever make you any money. Focus on developing.

Only believe 20% of what Rick says. This 20% is more than enough to help you understand the industry – the other 80% is just going to help you become a better car salesman …   peace, Rick   🙂

Stop thinking in cents – anybody can make a buck.

This is part two of a series of five with one piece of advice from some of the most successful domain investors, domain developers, domain monetizers, and others involved in the domain industry. I asked them for one piece of advice they would give to a part-time domain investor looking to build his business. I believe there are quite a few people who are part time domain investors, and I also believe just about anyone involved in the industry can apply some of this advice to their own business models.

I really appreciate all of the contributions from the industry leaders who contributed, and I hope the advice contained within is helpful to you now – or will be helpful to the growth of your business in the future. As an FYI, I intentionally did not put these posts in any particular order.

If you haven’t read it yet, I recommend viewing part one, and part three will be posted on Monday.

Rick Schwartz, RicksBlog.com:

Don’t quit your day job.

Don’t buy crap.

Don’t settle for trading low quality domains.

Don’t buy to double your money. Buy to make 10x minimum. If the domain you are buying is not worth 10x what you paid, don’t buy it.

People lie, numbers don’t.

Rick London, National A1 Advertising:

Try and buy the best. Instead of buying 20 domains for 1K each try and purchase one for 20K.

JBlack

Vince Lombardi, arguably the most successful football coach of all time, placed constant emphasis on fundamentals, not complex strategies. There is a reason why he started off with the opening line, “Gentleman, this is a football” in the movie. That line stresses the point of fundamentals, to start from the beginning. He knew intuitively that basics, honed to precision by relentless emphasis, then applied win over all other methods. Today, our world is full of distractions like never before in history. But when one filters the noise and examines successful companies and individuals the common denominator always is the persistent application of fundamental principles.

In that vein, if I had to offer a single piece of advice it would be define in precise terms where you want to be. I see this basic necessity, this fundamental, being ignored almost across the board. Many jump into domains with no end state planned. Its my view that one has to write the objective down, be specific, and describe it in sufficient detail as to provide a navigable roadmap to the destination. When you take the time write your plans down you start to become serious rather than a dabbler. When you become serious you learn and apply proper business applications like incorporation, intellectual property, law etc. Only when the objective is written out do the holes and assumptions make themselves apparent.

Writing compels one to think, to fill those holes and address the assumptions with plans and action. (The planning method also greatly helps select which domains should be bought and which domain names should be sold or advanced well beyond parking or notional development.) The detailed, written goal that includes a final valuation figure provides the tangible anchor point which almost prohibits one to veer off course with endeavors that do not lead to the singular goal. (“Gentleman, this is your goal”.)

Most seem to start in domains with an ill-defined but implied objective of “being successful” or to “make a lot of money”. Ok, but how successful, by what measure, by what date, by what final net value? Without these questions being adequately answered one does not just risk but is guaranteed to end up exactly where they planned, in an undefined, unfulfilled, lost place.

Michael Sumner, MiniSites.com:

I think the best piece of advice for someone starting out is to learn how to appraise a domain before investing a dime. People should read DNJournal sales reports from start to finish every week, and go through NameBio.com data on a daily basis to get a feel for what domains sell for, this should help fine-tune their instincts. Until they have good instincts, they should check exact search volume using the Adwords Keyword Tool, check CPC using the little-known Adwords Traffic Estimator Sandbox, look for businesses who might be interested in the domain, check comparable sales at NameBio, etc.

I have found that if you’re really good at appraising a domain, you rarely get yourself into trouble, and when you do get into trouble the damage is minimal. That was the approach I took for the first four months after I found domaining, I read everything I could get my hands on trying to figure out how to value domains and rarely bought anything. Then I jumped in head-first with a friend of mine flipping relatively high-value domains, and within our first year we had sold almost $350k   in domains and only lost money on one deal, and the loss was very small.

Fred Mercaldo, Scottsdale.com:

Although I own over 300 generic domain names, I am primarily a geodomain .com investor and developer. When looking at a potential purchase, numerous things come to mind: in my opinion, is this domain undervalued? Even if it is not undervalued, what can I do with it? If properly developed, what is the conservative potential for monthly/yearly income? Is there an end user out there that can benefit from this name? My main goal is to monetize the domain on a yearly basis for what I have purchased it for, after development.

For example, I purchased www.nofeecreditcard.com for $3300, and am only making $300 per year; however I have simply used a second party provider and we did not develop it internally….I believe we will develop it in-house in the coming year. I purchased www.FountainHills.com for $14,000 and we are making $60,000 per year on it; these are 2 examples of the “so-so” return versus the “home run” return.

I look at domains as potential “businesses” rather than just names, and here is why….and let’s take a hypothetical example….Domain “A” purchased for $30,000…..spent $10,000 developing it….presently making $30,000 per year. I now have a “package”…meaning “domain name PLUS yearly income” that is arguably worth 3 to 7 times income…plus the inherent value of the domain name itself…meaning I can sell Domain “A” for anywhere between $90,000 to $210,000…a great return on my original investment, however I had to develop it properly, and obtain advertising partners to monetize it.

I firmly believe an end user or investor will pay $200,000 for a domain that is bringing in $30,000 per year presently than pay $80,000 for the same domain name that is both undeveloped and non performing. Why? Because it a proven entity and already has a financial return attached.

As you can see, my strategy is completely based upon buying, developing and monetizing, and not just buying and reselling. My advice for the new domain investor? You need to decide on a specific strategy and become an expert at it. Like real estate, where there are many kinds of specialties…shopping center investors, land speculators, residential development, commercial development, apartment developers…all of these real estate specialists have different skill sets and talents; same in our industry. The person that buys and develops is so different than the investor that buys and flips, and so on. Decide on 1 or 2 strategies and stick to it; don’t try to do a little bit of everything. I would also recommend quality over volume….one good name is better than 100 mediocre names.

Mike Cohen, WannaDevelop.com:

Do not register all those unnecessary gTLD’s and ccTLD’s in addition to your primary domain(s)!! If you are into domain investment, you gotta be careful with what types of domains you acquire during bulk purchases because the fees can quickly add up to large sums before you realize this. If you want to be successful in this business, you need to be real picky and not carry any extras or duplicates, in other words real long shots that aren’t going to make you a whole lot of money no matter what angle you look at it.

Forget buying the .net, .org, .info, .biz and all those other second tier names if you have a .com domain because they are simply worthless for the most part. Domain registrars such as GoDaddy will always try to upsell you all those gTLD’s and ccTLD’s in addition because that is how they make their profits but do not fall for it even if they have offer special discounts. Register only one domain per topic / idea… Because if you register 5 or 10 identical keyword domains, but in various other extensions… You will end up getting stuck with them all. Instead you should diversify x5 or x10 different other topics / ideas. It’s a numbers game… 😉

Patrick Ruddell, ChefPatrick.com:

My number one piece of advice is to buy niche domain names. I’ve been able to take my personal real estate experiences and register hundreds of good domains. On top of the “insider” information I had for registering domain names of quality I also had a source to sell them. Now, if the new investor is not lucky enough to have the already established connections then they should still pick a niche. Having a single niche makes it easier to create those contacts (buyers list) and give potential buyers options. Make yourself the authority in a niche like dental domain names. If you create a ton of contacts in the dental industry (example) then other domain professionals would be wise to broker the name with your help.

Craig Rowe, WhyPark.com:

Focus on quality over quantity. Too many new domainers get caught up on building a large portfolio. For the same cost, focus on buying a few good names from auctions or drop catching services and set clear goals for each of those names (development, ongoing revenue, flipping, etc.) After achieving those original goals, buy more quality names or go after a small number of even better quality names. Owning a smaller portfolio will be easier to acquire, manage and ultimately sell or develop. There is no lack of bargains out there these days, so it’s the perfect time to work on building a quality portfolio.

Howard Neu, World Association of Domain Name Developers:

Best advice I can give – get a category-killer domain and develop it.