Why Invest in Domain Names?
Here are 10 reasons why you should be investing in domain names.
1. Internet Growth: The internet is large and growing. Worldwide retail ecommerce sales will reach almost $2 trillion in 2016 and it’s projected to grow by double-digits through 2020, where sales are expected to top $4 trillion. Now, while total retail sales in 2016 are expected to reach $22 trillion, 9% of all retail sales in 2016 growing to 18% by 2020 is a trend that we cannot ignore. And domain names are where that ecommerce is happening.
2. Limited Supply, Massive Demand: A premium domain name is like prime real estate — they’re in limited supply, many people or companies would love to own them, and they’ll maintain their value over time.
Think about it. If you ran an online casino, would you rather own PokerNow.com or Poker.com? PokerNow.com is going to take you millions of dollars to promote and brand, while Poker.com is going to be top-of-mind immediately from your customers, likely have type-in traffic, and will be an asset that always maintains it’s value.
3. Capital Appreciation: Good domains appreciate over time, like land in a desirable location. A friend of mine bought a piece of property with a tear-down house in Beverly Hills, California, about 10 years ago. I couldn’t believe it when he paid $750,000 for the property, when he knew the house was unlivable in it’s then-current state. It would take another $1 million to build a house, so he would be in it for $1.75 million at the start of his investment. But he knew that land appreciates over time and there was scarcity in that part of Los Angeles, where everyone wanted to be and where the public school system was great. Fast forward 10 years and in addition to being able to rent out his house for more than $10,000 per month — you heard me right, more than $10,000 per month — he recently sold it for $4 million.
On DomainSherpa, I host a series of shows called Profitable Flips where domain name investors see where appreciation can happen and invest their dollars. I’ve seen domain name purchases that have phenomenal ROIs: an $81 purchase lead to a $12,500 sale, a $99 purchase lead to a $9,000 sale, and a $1,500 purchase lead to a $20,000 sale. I’ve personally had a low five figure purchase lead to a low six figure sale. And, I’ve turned down a mid five figure purchase of a two-letter domain name that today would easily be worth seven figures. Yes, hindsight is 20-20.
4. Minimal Holding Costs: With physical real estate, you have to maintain the property. That might include landscaping, maintenance, repair and monitoring the property to ensure there’s no undesirable use of it. With domain names, you only have to pay your yearly renewal fee, which is about $10 per year. No one can use your asset because you control the DNS of your domain name — where it resolves and who can send email.
5. No Taxes, Insurance: With domain names, there are no taxes or insurance to pay. Unlike physical real estate where you have to pay taxes to the city based it’s the location and valuation, with domain names you pay no yearly taxes to own the property. And there are no insurance requirements. No one can trespass on your domain name, for example, break their leg and sue you.
6. Domain Name Leasing: You can lease a great domain name like you do with physical real estate. With physical real estate rentals, the owner of the property always has to deal with the 3 Ts: tenants, toilets and taxes. While the returns can be good, you always have headaches.
With leasing domain names, you maintain control of the domain name and simply allow the website address and email address to be used by the lessee. And as long as the monthly rent is received, the lessee has use of the domain name.
7. Domain Name Parking: In some cases, premium domain names will have natural type-in traffic — which means real people are typing the domain name into their browser to see what’s there, buy a product, or search for a service. There are companies that easily allow you to display advertisements which generate revenue if the user clicks on them. It’s not uncommon to make tens to hundreds of dollars — in some cases thousands of dollars — per month from that traffic, without having to build a site, maintain a single line of code, or ever worry about having to upgrade your technology.
8. Upside Potential: In addition to the option of simply selling a domain name for capital appreciation, you can also potentially sell a great domain name for cash and stock. Rick Schwartz, a well-known and long-time domain name investor, has many times sold a domain name and taken a small piece of the company — like he did with Candy.com and Bobbleheads.com — which gives him both cash on closing and upside when the company grows, generates a profit, and potentially sells someday.
9. Hustle = $: Companies inherently have baggage. They have bureaucracy, move slower, and require multiple levels of approvals. Individual investors, on the other hand, can move faster than companies, and can often accept more risk when it comes to speculation.
For example, unless a company has decided on the name of a new product or business line, they are not going to invest in a premium domain name. But if that asset can be purchased for a fraction of what multiple companies may pay for it, then that’s a smart, long-term investment that an individual investor may bet on. It’s no different than doing your research on a company that’s about to take off, buying the stock while it’s low, and then selling it to other investors who want to get in later. Yes, it’s speculative, but it’s also less risky than a lot of other investment opportunities if you’re smart about it.
10. Unlimited Opportunity: Even through the most expensive domain name sales of all time — with the top 20 each selling for more than $5 million — are all in established industries like gambling, travel, investing and the like, in the next 20 years to come a whole new wave of innovation will provide an opportunity for newer investors to make their mark and have their sale be in the top 20 or 100 domain names of all time. Just think about what’s new today that didn’t exist when the internet was commercialized in 1995. Drones, virtual reality, autonomous-driving cars, the list is endless and continues to evolve every day. Innovation never stops. And that’s an opportunity for domain name investors.
BONUS: The people. Finally, after all the others reasons, I always come back to the people. Once you actually get into domain name investing, understand where to find deals, how to buy low and sell high, you understand who you can trust, who you can lean on, and who you can ask for advice. There’s a camaraderie amongst the small group of investors around the world that understand this asset class. They support each other, provide guidance, and a helping hand when needed. It’s a great industry.
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