Is Domain Name Investing Profitable?

Domain names have been compared to digital real estate. I profited over $30k from a domain deal but I made a ton of avoidable mistakes along the way. That sounds sexy but there's a lot to unpack in the high risk speculation of domain names...

‍

Digital Assets With Variable Value

99% of domain names are not objectively valuable to all domain investors and buyers. For example, WildFlowers.com may not be worth $5 to you, but $50,000 to the right buyer. This is where there is excellent opportunity for return on investment but perhaps even greater risk for losses. The real estate analogy is a false equivalency.

I started researching and speculating on domain names when I was about 12 years old. With zero understanding of the business world and investing I must have "invested" 1,000 hours just researching different niches, watching the expired domain auctions and the domain name sales reports.

I bought maybe something like a dozen domain names over the next 2 to 3 years which for the most part sat collecting dust and annual renewal fees. I would share with my dad and brother what I would buy. One day I purchased (foolishly) AlertLoans.com or AlertLending.com - something along those lines...

An hour later my younger brother informed me that he liked the idea and that he had registered LoanAlert.com for about $8!!! Oh boy, was this trouble...

Fast forward some year or two later and he sold LoanAlert.com on Afternic for $2,750 at the ripe old age of maybe 10 years old.

I was simultaneously vindicated because I felt like the lending niche was a great space for speculation but absolutely crushed that his variant sold and mine did not. Tis, tis, tis...this is one of the occasions that sparked my fascination with domain names and made me curious why and how are domain names are valued at such dispraportionate levels. Why do some domain names sell for 1,000X but most not at all?

Developing Portfolio Investment "Strategies"

By the time I was in college I was convinced that buying domain names with the "right" investment strategy could produce significant return on investment. Buy domains for $8 and even if I sell them for $100 a year or two later, the only way I could lose is if I just bought "bad names" right?

Well, while that is somewhat true it certainly makes it seem much easier than it is to find and buy "great names" at great prices...

I started evaluating niches more carefully and looking at domain name sales reports looking for trends and patterns that I could turn into rules for my own domain name investing approach. The biggest risk I saw at the time was that with too small of a domain name portfolio I would have a larger risk of randomness which I recognized gave me an outsized likelihood of no sales at all.

A friend of mine a couple of years later had accumulated thousands of domain names and seemed to be fairing well focusing on specific geo domain names. i.e. MiamiLandscaping.com or NashvillePlumbing.com with most of his focus being around local services niches and the bulk of the strategy revolving around local home services niches. At the same time more TLDs were being pushed by domain registrars and the power of exact match domains on local SEO was weakening...

In that time and I had chosen a couple of service niches myself to focus my local domain portfolio around. I probably bought some 100 to 200 domain names around pet services. Think CharlestonPets.com or DecaturDogWalkers.com...I maybe was around $1,000 invested into this niche portfolio as well as senior care including names like ProvidenceSeniorCare.com and the likes. I also went in around 100 local betting domain names the day they announced sports betting would be allowed federally in the United States and was up to each state to regulate independently.

Now over 3 to 4 years I probably sold a dozen or so domain names all for the most part for under $250.

I was frustrated because here I had set them all up for sale on Godaddy with prices that I thought were reasonable around $1,000 and then I would get approached by Godaddy broker buying team and end up selling them for around $200 out of fear of losing the sale.

The model was clearly not working but the sunken cost fallacy was keeping me from cutting my losses.

I eventually looked at the list of domains, the amount of inquiries I had and the sale prices and determined that objectively this was not heading on a path to profit more than $1,000 per year and much more likely that I could lose up to $1,000 per year. I dropped the domain names to $100 buy now, sold a few and let them expire.

My niche validation of the pet services niche was horribly flawed thinking that it was an easy niche for individuals to start their own business from home. I hypothesized that all the freelancers on Rover, Wag and these others would want to start their own site which could be no better than {City}Pets.com or {City}DogWalker.com and so forth. The writing was on the wall the whole time but I missed it looking for evidence that supported my theory rather than disproved it. All you have to do is google any city + pet sitting service and you'll see all sort of "brand" focused domain names like Fu Fu's Furry Friends Walking Company...

Oof...turned out pet care providers were more emotionally driven in their business branding. They I either didn't know about or didn't care to leverage old (soon to be irrelevant) SEO tactics or the implied credibility that may have came with being CharlestonPets.com in Charleston, SC then Fu Fu's Furry Friends Walking Company...I theorized a rational market with prudent operators would want credibility, direct relevance to Google searches and implied understanding in the marketplace of what they do when they tell pet parents at dog parks...boy was I wrong!

My niche validation of local sports betting was on the idea that sports bars, casinos and the likes may focus heavily on monetizing through offering sports betting. I focused on the cities that had NFL, NBA and MLB teams as that validated the markets were large enough and fans of the team would want to gamble. Sold a couple for less than $500 but local state regulatory process was slow and many states limited the ability to run sports betting to a handful of players which constrained number of potential buyers. One of the biggest miscalculations here was focusing on cities rather than states...many of the state abbreviations sold for +$2,000 in the subsequent months while very few local domains did. I still hold 5 to 10 domain names like DallasBetting.com that I wouldn't likely sell for less than $10,000. Ate my humble pie because I thought I was sitting on $250,000 portfolio that would be able to be flipped in the following 12 months...ah, youthful naivety.

Beware Of Self-Serving Bias

It's Easy To Defend Your Own Hypotheses But Can You Attack Your Own Theories To Disprove Or Weaken Them?

Afterwards I put together a Google Sheet compiling all the logical, prudent reasons I could have identified these were average niches for domain name investing in advance. It was lengthy and humbling...

I was grateful to have sold any of them and that my loss was probably only $200 to $500. A cheap lesson in validation really...much cheaper and permanent in my memory than perhaps an MBA case study would have been.

I should have spent more time poking holes in my theories than imagining that I could "flip them, rank and rent or offer marketing services with them as lead generation microsites."

All I would have had to do is reach out to 10 business owners in each niche and I'm sure they would have said "so what?".

LESSON: Don't hide behind the computer screen drinking your own kool aid...

Revising Criteria For Better Domain Investments

At this time I should have accepted the advice of many others I had read online that stated domain name investments was too risky of speculation to be worth the time and money investment. However the fear of missing out drove me to continue because I had family and friends that had domain name wins and in the back of my mind I knew that if I had the right domains that the numbers could work out.

Below were some of my "new criteria":

• No more than 2-word domain name
• .COM TLD only
• Must be able to price 50X higher than acquisition price
• Must be domain names that I could see myself developing
• Preferably self-service, leveraged niches
• Names that could represent networks
• High ticket transactions and high earning opportunities
• Rarely buying geo domain names unless it's a high dollar, category killer around home ownership like SavannahRoofer(s).com

With this in mind I acquired about 100 domain names around medical jobs.

I reflected on all the inquiries I got before and realized that in each occasion the buyer had the control. They had many names to choose from and they would send low ball offers which having lost $750 offers in the past I would then accept thinking that a bird in the hand is better than 2 in the bush right? Well, this was a guaranteed way to break the model because for this to work I had to have a small percent of high dollar sales that made up for the 99% that would never get a bite in a given year. I decided to take a gamble...I removed all of my domains from being listed for sale on Godaddy and Afternic. Sounds foolish but I realized that the way I was doing things had the odds stacked against me and I'd rather sell 1 domain name to a highly motivated buyer that reached out to me despite it not being listed for sale than to continue on the old path.

I got crickets for months. But I did get a couple of people reach out anyways through Godaddy brokers and one reached out utilizing ICANN's requirement to forward communication to the domain registrant.

That one inquiry was for a medical job related domain name that I had acquired for less than $500.

2 or 3 days later I closed a deal that resulted in +$30,000 profit via Escrow.
‍

Sell Your Vision Or Be Sold On Lowest Value

If You Don't Have A Vision For Why The Domain Name Is Critical To Dominating A Specific Market Opportunity Than Why Would A Buyer Ever Pay A Premium For Your Domain Name When They Could Buy Somebody Else's For Less Than $500?

When that email came in asking if I was interested in selling my domain I remember thinking this is fake. I was so disenchanted with domain names that I almost marked it spam and went on with my day.

Thankfully I opened Google and did a little research finding out that the buyer was in fact legit and knew instantly this was the exact scenario where I can achieve outsized reward for my investment.

That said, I knew to get somebody to invest more than they intended in a domain name requires salesmanship and that I was going to have to have this individual doubly sold on the value of the domain for their own vision of success.

I explained how that by having {Medical}Jobs.com they had a truly category killer domain name. I explained that the field was growing, in high demand and was a multiple six figures career opportunity for those professionals.

Then I explained how their are multiple types of these medical professionals and that having this specific naming convention they would be positioned as the highly relevant for the entire profession as a whole which nobody else could have as much implied credibility, trust and relevance without this specific name.

Within this context I replied that "you are welcome to make an offer."

The buyer offered $12,500.

I explained the domain name was worth $100,000. I explained I had an inferior name that could still work for the same opportunity that I would sell for $12,500 but that I could't sell this one for less than $25k.

He made an offer to buy both for $30k. I countered with a higher amount. He accepted. A few short days later and the transaction was completed seamlessly through Escrow.

Luck met preparation that day...I'm convinced I would have not sold that domain for more than $1,000 without communicating the bigger opportunity the domain name unlocked. Also I should note that maybe I could have sold the domain name for $100,000. I suspect I would have had a 1% to 5% chance of doing so but a very high chance to agitate the buyer into looking elsewhere. For me at that time the risk was not worth the added reward.

‍

High Risk Speculation Needs +100X ROI

‍

My biggest takeaways were you must have an irreplaceable category killing opportunity by owning this specific domain name or you will be commoditized. You must be able to communicate and sell that vision or odds are they will not see that vision. You must have the fortitude to expect most deals will fall through but that you would rather sell 1 deal out of 10 for +$30,000 than 10 deals for $1,000. I also decided that owning a large portfolio staked on the vision you see in the market that may be undervalued (i.e. State-level sports betting becoming legalized, medical career recruiting becoming more decentralized from "the big guys" etc etc) exposes you to more risk than the reward. In every case I would rather have the best 1 or 2 domain names than the next 100 best combined. Plus the next 100 best is where you expose yourself to the cost that eats away at your upside. If you have 100 domains you may have around $1,000 per year in renewals. If you have 10 domain names you may only have $100 per year in renewals but know that that $100 cost per year is in the context of much larger transaction potential.

These days I am pairing down to keeping only a dozen or so domains that I either would like to develop or wouldn't mind selling at a +1,000X multiple. I don't need to sell them, I'd like to build them over time and that's precisely why they may be worth +$10,000 to somebody else one day too if they see the same business opportunities that I do. Being in the top 1% of Godaddy clients with a Godaddy account manager and all was an interesting experience but I'm much more interested in being in the top 1% of domain transactions. The leverage is not in volume of domains but in how preeminent the best domain would make a buyer in their market, creating a bigger business opportunity for them.