This blog gets about 1/4 of it’s traffic from Google and was getting about another 1/4 from type-in traffic prior to this domain’s development. I don’t know how many readers out there are new to the domain name world, however I felt it was about time I wrote an introductory post about investing in domain names. If you’re new and would like to see more posts written like this one, please leave me a comment or send me an email. If you’d like to see any or more of a particular type  of domain name related post, I can probably work that in sometime in the future as well.

I often get asked by new domainers what they can do to start making money with domains. Now there’s a lot of things a domainer would need to learn in most domain name segments — how to value domain name traffic, what revenue multiple to use on different kinds of domains, how to go about getting finding good domains to register, how to track expiring and expired domains and where to buy or take part in domain name auctions on expired and aftermarket domains. Then, if you want to make money with your domains through other ways then selling them, you’ll need to learn how to park domain your domains and once you have a decent domain name portfolio,  you’ll need to find a good domain name parking company that’ll pay you a respectable revenue share on the money your domains earn through parking…

I wrote a introductory guide about 18 months ago on investing in domains –not nearly enough to make you into a domaining superstar, but the information is still accurate today, as it was back then and should at the very least give you a glimpse into some of the knowledge you’ll need to acquire if you want to be the best domain name investor you can be.

If you buy a domain like Sex936.com (which by the way is registered) and ask for an appraisal on a domain name forum, probably the first thing people are going to tell you is that letters and numbers don’t generally mix in keyword domains. Same goes for L33tspeak — some people think “it’s cool” to register domains with numbers replacing the letters.. The only person who will most likely find these types of domains “cool” is your domain name registrar — as far as they’re concerned, “it’s cool” that you’ve decided to register your domains with them! Exceptions apply with everything of course — a name like N00b.com would certainly be worth registering if available, but a term like that pretty much borders on being a word.

Some people choose to invest in foreign languages.. My advice: Proceed with caution unless you speak the language yourself. I speak French and find it quite funny some of the words domainers have registered thinking they meant something else. As a general rule with popular languages (not talking about Internationalized Domain Names here), if it’s supposedly a category killer term and it’s available in .com, it’s probably because it isn’t actually a category killer term. If we take French as an example, a verb may have many different tenses, so even if it does mean what you think it means, it isn’t the term commonly used, and hence is likely of little value. Think of it like synonyms in English — I could in a sentence say: “That’s good, great, excellent, incredible, fantastic, phenomenal, prodigious”… They can all mean more or less the same thing — that someone is happy or very happy with the outcome, or that someone is impressed or very impressed.. As a domainer however, one isn’t just concerned about what something means in a dictionary, — as a domainer, we’re concerned with what it means to your everyday person and more importantly, what they’d be most likely to use if given the choice, because they always have that choice when doing a search on a search engine like Google or when typing in a web address. Ultimately, we’re hoping they end up landing on our site.

You know, I started this post with the title “Becoming a Better Domain Name Investor”, however this has really morphed more into a post about what not to do if you want to be a good domain name investor — I guess it’s stuff you’ll have to learn just the same and if you learn it now before buying 50 or 100 worthless domains like most domain newbies do, then it was well worth reading. So on that note, I’ll add one more thing not do when first investing in domain names and that is: Don’t invest in speculative domain name extensions. Some experienced domainers have made a lot of money investing in extensions like .mobi and .tv and I’m sure in time we’ll hear about a few who had similar success in .tel, however these are not newbie-friendly domain name extensions. Avoid them at all costs until you get a much better understanding of how to invest in these markets. Similarly, be careful with ccTLDs. A lot of people (including me) like to turn domaning into some sort of statistical science, where one can analyze data, calculate probabilities, and attempt to predict outcomes. That’s all fine and dandy, but what we do have to remember are the circumstances under which those domains were sold. Most experienced domain name investors will tell you that final prices seen in domain name auctions are a much better proxy of the market than private sales, and they’re right. If someone comes along and offers $100M for Sex.com next year, that doesn’t mean similar adult domains are also going to see similar price rises (it doesn’t mean they won’t, it just doesn’t mean they will) — this may have been a highly motivated enduser who has a vision for this particular domain. The big problem with ccTLDs is that we don’t see a whole lot of sales in most of these extensions, so what ends up happening is that people start mixing private sales data together with auction data to arrive at conclusions of where the market is at, and that’s a dangerous path to go down. If we take a short domain name example, last year iREIT (a domain name company) sold several LLL.coms for under a grand when the going rate was about $7500 — this obviously doesn’t mean LLL.coms overnight fell by $6500, rather, it means that whoever priced out these domains either made a typing error, or was utterly clueless about how much these domains had appreciated over the past few years. This is basically why a private sale means nothing.. If iREIT would have accidentally put these domains on auction for $500 each, they would have all ended up with $7500+ prices, because that was what the worst of the worst were going for and someone would have been willing to pay it. Another thing to remember with ccTLDs is that even when there are big sales, in some of the more obscure ccTLDs, they may be few and far between. In dotcom, it’s pretty easy to think of one domain as being better than another, and so on.. If you can find enough sales data in a small window of time, you can get a pretty good idea of the value of that domain which has yet to be sold but whose quality you estimate is somewhere sandwiched in between.  In ccTLDs however, it might be years before you see similar names sell — even more popular ccTLDs like .ca don’t see a whole lot of reported sales outside the short domain name segments like CC.ca and LLL.ca.

Not having a lot of domain name sales data out there can be both a good thing and a bad thing. As a newcomer to the domain name industry, it’s most certainly a bad thing, however as you become more familiar with this extension, you may be able to profit from the fact that some people aren’t clued in to what domains are worth. If we take short domains as an example, it’s very easy to price cheaper LLLL.coms, up to the $500 or so range — I’ll be pretty much give or take 20% one hundred percent of the time. Why? Because I’ve observed thousands upon thousands of past sales for domains selling in this price range, so I have a fairly good “feel” for what a particular LLLL.com is worth. But as the price starts going higher and higher, there start being fewer and fewer sales. CVCV-type LLLL.coms which are greatly overrepresented in $1000+ LLLL.com sales make up but 2% of the LLLL.com market.. I’m working with 50 times less data than I am with the sub-$1000 group. This in itself explains why sales data is all over the place — how does a domainer clue himself in to what a domain is worth when there’s so little data out there. This is exacerbated by the fact that pronounceable LLLL.coms are already the most difficult ones to price.. If any segment should be having 50 times more sales data than another, it’s CVCVs, because there are so many more factors to consider in this particular segment than in other ones with many of them such as brandability and pronounceabilty being entirely subjective and opinions varying greatly from one English speaking domainer to the next.

While all the things I’ve mentioned above are important and it’s unlikely you’ll be a successful domain name investor unless you understand at the very least most of them, there’s one thing a domainer really can’t go without knowing, and that’s domain name sales comps. How would you go about appraising estimating the value of a domain otherwise? Like pretty much everything we do in life, we learn from experience and that means you’ll probably pay more for a few domains than you should have and sell a few domains for less than you could have gotten — was it just an expensive mistake will you learn something from this experience that you’ll remember while domaining in the future? If you aren’t already familiar with these 3 sites, you best familiarize yourself with them now: DN Journal, DN Sale Price, Namebio. The large majority of reported domain name sales can be found on one of those 3 sites. There’s not much that can be done about private sales — if you want to learn more about domain name sales in a certain market segment, try to become buddies with someone already investing and having success in the market segment you’re interested in and see what you can learn from him.

Perhaps the biggest mistake that newcomers to the domain name world make is trying to tackle everything too quickly. Things take time and there will still be money to be made on the Internet a month from now just as there is today — the only difference between whether you start investing on day 1 or whether you put in a solid month of research is that the person jumping in with both feet is probably going to lose a very significant portion of what he invested and worse, is likely to learn very little because he doesn’t even have an idea about what there is to learn out there. This is the kind of guy that when you give him a low appraisal on his domain, he thinks that you’re just saying that because you want to buy it… Try to do the guy a favor and that’s what you get! Bottom line is that all the information is out there, all you need to do is read, read, and then read some more. And as I said about jumping in with both feet, the same applies to domain name extensions — start with one, preferably .com as it’s the one where you’re most likely to see at least some of your money back even if you do screw up when investing. Find yourself a domain name niche, a way to make money, and repeat what works for you. I was talking with one newer domainer about this earlier today — even in a very small niche such as LLLL.coms, other short domains, or geo domains, you can most certainly make a living off of it if you know what you’re doing. The great thing about these smaller niches is that they’re so much easier to become an expert in than something broad like trying to understand the value of all .coms. If you go that route, all I can say is good luck, because you will need it! I talked earlier about how some people are having significant success even in extensions such as .mobi and .tv which many domainers have written off as failed extensions — there’s money pretty much anywhere in domaining if you’re at the top of the game.

Don’t fall into that circa 2007 trap that being a good domainer means you have to own 10,000 domains — whatever amount of domains you choose to invest in at the end of the day, just make sure you’re fully aware of the renewal fees that’ll accompany those domains each and every year. Like I said earlier in this post, this isn’t anywhere near enough information on domaining to make you a successful domainer, but it’s a start — hopefully you know more now than you did at the start of this post. If you found this long and boring, I’m afraid domaining probably isn’t for you, because you’re going to need to read 100 articles this size to really understand most of what is out there — every domainer is still learning and never stops. You can’t just put in a few hours your first month and stop — you’ll have to constantly keep up with sales results to make sure you aren’t paying too much or selling for too little. I’ve made a lot of money in the past buying domains from sellers who offer to sell their domains for too little. I’m not a lowballer — I don’t go around making cold calls or sending mass spam via email hoping to find a non-domainer I can score a quick buck off, however at the same time, I’m not going to offer to pay more for a domain than the person currently owning it is asking for it. Economically speaking, you must value a good as being worth more than the amount of money it cost, else you wouldn’t buy them. If you’d be willing to pay an 5 bucks for the good, would you give that consumer surplus of yours to the producer just because you would have been willing to buy it if his price were 5 dollars more? I wouldn’t either.

Do yourself a favor and enumerate some of the things I mentioned as being crucial to domain name investing (second paragraph) and make it your goal to understand at least one of them to a level where you could have a casual conversation with a seasoned domainer without him “dumbing down” every sentence to make it comprehensible. Within a couple months, you’ll know most of what you’ll need to know. Some things you do need to learn through experience, however you can learn a lot from the experiences reported by those who came before you. As I’ve said many times in this post, all the domain name information you could imagine is freely available. Nobody is going to hold your hand, however plenty of domainers are happy to help. Have a question? Namepros has over 3 million posts on domain names — make use of their advanced search function and key in words such as “parking”, “backorder”, “expired domains”, “traffic”, etc.. You can find pretty much any information related to domaining you want between Namepros, DN Journal, DN Sale Price, and Namebio.

Add this blog to that list if you plan on investing in short domains

Related posts:

1. Short Domain Name Liquidity and Saving for Renewals
2. Domainer Availability Heuristic
3. Supply, Demand, and Short Domain Names