Do You Want to Get Started in Domain Investing?
If you’re ready to enter the exciting world of domaining—buying domain names and selling them for profit—then this article is for you.
Investing in domain names is a simple concept but once you dig in, there’s a lot going on.
At its core, domain investing means buying domain names and then selling them for more than you bought them for. Domain investors search for domains that meet their investment criteria, buy the names, and then sell the domains to other domain investors or people who want to use the domains for a website.
You need an inventory of domain names before you can sell them. In order to build an inventory of good names, domain investors turn to a number of different sources
- Expired domains – One of the biggest sources of domain name inventory is expired domains. Every month, millions of domain names expire when their owners don’t pay to renew them. These domains then become available for anyone to register.
Most decent domain names are registered the second they expire by companies using technology to snap up the domains. This means that domainers (another word for people who invest in domains) need to use these so-called “dropcatching” companies in order to acquire domains.
Sites like NameJet and DropCatch help domainers get these domains. Most dropcatching services charge a minimum fee to acquire a domain when it expires. If there’s more than one person interested in a name, then it is auctioned off to the highest bidder.
- Direct purchases – Buying domain names directly from their owner is time-consuming but can be one of the best opportunities to buy a domain at a good price.
This involves reaching out to the owner of a domain to ask if they will sell it and then negotiating a price. A good resource for finding the owner of a domain name is the Whois database, although recent changes to this database mean that many people have private Whois records that exclude their contact information.
Domainers will tell you that the more work you put into acquiring a domain, the better the deals are. Contacting domain owners one-by-one takes a lot of time. That’s why most domainers turn to expired domain auctions—all of the domains can easily be obtained. There’s no rejection and sending out 100 emails only to receive a single response. But when you buy domains in expired domain auctions you’re competing against many other domain investors. Hard work pays off in domain investing.
- Marketplace purchases – Millions of domain names are listed on marketplaces including Sedo and Afternic. Domain investors search these marketplaces for domains they like and then submit offers or buy the domains at fixed prices.
- Live domain auctions – One of the most entertaining ways to acquire a domain name is to bid in a live domain auction. Like expired domain auctions, there’s a lot of attention on these auctions so it can be hard to find good deals.
- Hand registration – The cheapest way to build an inventory of domain names is to hand register them. Domainers use the term hand registration to refer to registering a domain name that’s not currently registered. All you have to do is go to a domain registrar like Namecheap to register the domain at standard prices.
Of course, it’s difficult to find good domains that aren’t yet registered. This method usually works with up-and-coming terms that aren’t popular today but might become valuable in the future.
Compared to other inventory sources, this is the cheapest domain inventory available. However, many new domain investors hand register a bunch of domain names, only to later realize they are bad domains. Start slowly and focus on a mix of hand registrations as well as expired domains and marketplace or direct purchases.
Types of Domains
Domainers invest in three main types of domains: descriptive, brandable and short.
- Descriptive – Descriptive domains describe a product or service. For example, HoustonLandscaping.com describes a service of landscaping in Houston. BlueWidgets.com describes a company that sells blue widgets.
Descriptive domain names used to be very popular because they helped sites rank high in Google search results. Google has pared the advantage of owning these “exact match” domains so these aren’t as popular anymore.
However, short descriptive domains—particularly ones that define an entire industry—remain popular.
- Brandable – A brandable domain is one that can be marketed to stand for something other than the dictionary definition of the word(s). A good example is Amazon.com. Amazon.com doesn’t sell jungles or rivers like the name suggests. Amazon is a brand rather than descriptive of the products the company sells.
One word domain names that can be used as a brand are particularly valuable but obviously difficult to acquire. Two and three-word brandable domains can be profitable for domainers.
Another type of brandable domain is made-up words and words with strange spellings. These can be difficult to sell, however.
- Short domains – In recent years, a market has developed for short domains. These include domains with just a few numbers or letters.
Domain investors use shorthand to describe these domains. For example, LLL stands for letter-letter-letter like DNW.com. NNNN stands for number-number-number-number. Get it?
You might also see these written as something like CVCV, which stands for consonant-vowel-consonant-vowel.
Short domain names are particularly popular among Chinese domain investors. Short domain names tend to be the most liquid domain investments because there’s a ready market of domain investors looking to trade them.
After building an inventory, it’s time to sell your domains.
Many real estate and equity investors are happy to get a 10% or 20% return on their investments. 100% is incredible.
But domain investors expect much more. They typically sell domains for 10 times or more their original purchase price.
This is for two reasons.
First, domain names are an inefficient market. Inefficient markets give rise to big profit opportunities.
Second, most domains are illiquid. This means investors have to hold onto them for a long time before selling them. By selling just a small percentage of their inventory every year, cash flows are limited. The economics require outsized gains on domains that do sell.
Domain investors that specialize in short domains (which are more liquid) or very high-end domains might settle for smaller percentage profits.
Three Ways to Sell Domains
There are three main ways that people sell domain names. Two are passive and the last one is active.
1. List the domains for sale on marketplaces such as Afternic and Sedo. These marketplaces let you set a price for the domain or leave it “make offer”. Buyers can search the list of domains for sale on the marketplace.
These marketplaces also syndicate listings to other websites. For example, domain names listed with a fixed price on Afternic will show up on Namecheap when someone searches for the exact domain name.
2. Add a “For sale” message on the domain name’s website. This is fairly simple. There are many services out there that help you create landing pages that say your domain is for sale. Efty and DAN.com are popular options. When someone visits your domain name they can inquire about buying the domain.
Most domain investors do both of the passive selling techniques above and this accounts for the vast majority of domain sales.
3. Do outbound sales. This active sales technique takes a lot of work. Usually it means researching the right contact at a company that might be interested in buying the domain. As with all sales, there’s a lot of rejection.
Outbound sales also includes trying to sell domains to other domain investors. While the profit opportunities aren’t as high (because those investors want to turn around and sell the domains to someone else at a profit), it can be a good way to sell domains for cash quickly.
There’s a particularly active market for short domain name sales between domain investors. Brandable and descriptive domains are more difficult to sell to other investors unless they are very high quality, such as one word .com domain names.
Rinse and Repeat
Domain investing is not a one-time thing. Like investing in real estate, it’s important to continually refresh your inventory.
Domain investors have varying philosophies about selling domains. Some hold out for top-dollar and sell very few domains. Others focus on the volume of sales and continually reinvest profits in more domains.
One thing all domain investors will tell you is that domaining can be addicting. There’s a huge thrill when you sell a domain for a big profit.
Try hand registering a domain investment at Namecheap today.