10,000 reasons why you don’t need ‘liquid domains’

This year marks the 10th anniversary of my first five figure sale.

I still remember the feeling of crossing the number “10000”, up from four figures. The German buyer still uses the domain, which makes me feel good about the sale.

In the years since, not much has changed in how I attack domain investing, and five figure sales have become very common.

Unlike many players in the field, I do not share information about my sales, and acquisitions, unless there is a reason.

I don’t believe in exposing the buyer’s plans, particularly when they just acquired the domain, and I don’t need to undermine my own strategy by disclosing what domains I bought or registered.

Having said that, I closed on yet another five figure sale for a two word .com domain. These types of two-word composites are my forte, along with dictionary word domains, and brandables.

Onto something related.

An extensive discussion that occurred yesterday at Domain Name Wire brought forth plenty of arguments about the so-called “liquid domains.”

There is a perception among certain types of domainers, that a liquid domain is one which can be sold at any given moment. The question one needs to ask, is at what price will those domains sell.

My non-liquid, five figure sale involved a domain acquired for less than $150. It took six years to sell at a price that I found fair, all while ignoring or countering several small offers over the years.

By investing in domains that have a much higher profit margin and ROI, I can safely say that liquid domains exist for the sake of indulging in trading them like coins or collector’s cards; flipping one and moving to the next.

I do not consider the current domain market to be forgiving to those that might invest their capital in acquiring a group of domains and treat them as “liquid.”

Even the gold standard, LLL .com domains, aren’t liquid, unless one wants to lose a substantial amount by offering them on the cheap. Let’s not forget that brokers or other venues keep on average 15% of that amount, every time.

If you found a niche market that generates quick, small profits when selling domains, good for you. A few hundred bucks here and there can definitely add up.

For the big bucks, you need to focus on a long term strategy that involves acquiring assets with potential, and that quality can’t be found in domains that you might want to flip next week at a marginal profit, or loss.

Comments

  1. You are absolutely right!
    I have 10,000 reasons as well. 10,000 domains!

  2. Kosta – LOL good point. I hope you get some large sales going on an annual basis.

  3. You need liquid domains:
    – When you need quick cash, there are many reasons for that.
    – When you want to get a loan against domains (lenders want liquid domains).

    If you have a large porfolio and statistically make enough sales annually to pay renewals, register/buy new ones and generate enough profit to make a living then you do not need liquid domains.

    But unfortunately you cannot control the reasons you may need quick cash: a death, a divorce, unexpected taxes, unexpected expenses, … and when this happens if you do not have liquid names you will be unable to get quick cash or it should cost you so much in portfolio loss and poor revenue got that should make not sense.

    Conclusion: Having a percentage of liquid names in your portfolio is the insurance to can react if something goes wrong.

  4. Francois – When you need quick cash, or when you take a loan against a domain, you lose money. As long as this is clear, then by all means have some liquid domains in your portfolio. But don’t expect to make money from these transactions, on the contrary, anticipate to lose plenty.

    With that in mind, you might as well put your money in a low yield account with short notice withdrawals. You will be able to get out as much as you put in, and maybe some interest.

  5. Curious why you say you have to lose substantial money to move a liquid domain. That’s kind of the point, that there is always a deep pool of buyers looking to acquire these domains at the going market rate.

    If I buy an LLL.com today and don’t overpay, if tomorrow something happens and I need to raise cash, I can probably sell it for the same amount that day and not lose anything. Whereas if I buy a portfolio of 100 domains for the same price, if I need to get my money out quickly I’m SOL.

    Plenty of ways to make money in this business. Your strategy of buy and hold is a good one, I make a decent living from flipping liquid domains, others develop, some buy portfolios to make money breaking them up.

  6. Michael – We both know the days of buying an LLL .com at prices allowing you to flip it for profit are long gone.

    Even reseller prices are to the north of $20k.

    Assuming you found a good deal – most likely from an owner who has been under a rock for the past 5 years and hasn’t been contacted numerous times by the serial emailers of LLL combinations – your margins are still slim.

    Will you be able to repeat the feat? I doubt it. Definitely not for the sake of an emergency. You’re better off putting that money in a savings account to begin with.

    Those that have held assets long – including owners of LLL .com portfolios – are reaping the seeds now, e.g. Elequa is liquidating his LLL .com portfolio at the peak of the market.

    I highly doubt he will buy others at $25k a pop, when he’s selling assets he bought at $1k a piece. That’s the issue with liquidity, it’s a transient thing.

    Those that push certain types of domains as “liquid” are doing it for their own agenda. Again, nothing wrong with making $200 here and there, one might eventually get a good amount stashed up. But is it worth the risk and effort?

  7. I think the point is liquid means there is the pool of buyers and it does not have to associate with profit. You are right and I would hope most people know the big money is waiting out for the perfect buyer, that is always going to bring the maximum value.

    I think a guy like Andrew Rosener does well with liquid domains, I think some worry about having money tied up and want to know they can at least get some value for their domain. See I never looked at liquidity as being synonymous with profit but the fact you know you can sell it.

    Another point is that it is more a $200 here and there type game unless you are playing at Media Options stakes.

    If someone picks up a deal on a no vowel + v 4L.com they can sell that just about any time day or night. For the maximum value like you just achieved on your sale ? NO and congrats on your sale. You have been doing this for a long time and have built up a portfolio and contacts and experience over a long period of time.

    A lot of those new don’t have those assets, and some not so new just like the thrill of the trade.

    Is it worth the time and effort ? That is for each person to decide on their own.

  8. Leonard Britt says:

    Liquidity of an individual asset particularly a domain name normally means selling it at a price below what could be acquired by waiting for the right buyer who has a perceived need for that particular asset and thus is willing to pay a premium price for it.

    Individual domain names tend to not be liquid at attractive prices to the seller. A domain portfolio however should generate either regular sales or income via parking / development. With new TLDs that is not likely to be the case and so a negative cash flow position needs to be filled from other sources. Many individuals loading up on new TLDs will not be able to renew their current holdings to see a possible market maturation years down the road.

  9. I’m sure many people said that same thing a year ago when prices were half what they are now but still crazy for resellers to be paying. And now they’re selling for double what they paid on the wholesale market (not just from original registrants), and during the entire hold could have gotten out at any time within a day or two.

    That’s the point, as Raymond and I both said… knowing that you can get out for most or all of your money tomorrow if you have to. Having a liquid domain doesn’t mean you have to liquidate it in short order, you can hold it long term, it just means there’s always a deep pool of buyers ready to pay market prices.

    Trying listing a middle tier KeywordKeyword on the forums and see how many offers you get. Then list an LLL or LLLL and watch people get in line to make you an offer. That’s the point, not about holding periods or profit margins.

  10. Raymond – I think I pointed out the “thrill of the trade” approach, albeit in different words. πŸ˜‰

    There are extremes in every example, and I would not classify Drew as the rule – more like the exception to the rule.

    Yes, he’s very successful in leveraging large sales and to do so he has been able to locate and acquire domains sold at a much lower price, although still large in terms of pure numbers. But these acquisitions are based on their overall potential, not their liquidity.

    It’s like saying a Renoir painting is liquid, all while ignoring the primary element of the painting is its starting price: rather forbidding for the average Joe to acquire.

    When you attempt to turn domain investments into quick cash, it’s almost certain you won’t get a going “fair” price, but a rather discounted one.

    Look at it this way: if you’ve always had Example.com up for sale, why would someone buy it at the same price you’ve always listed it, e.g. the “fair market” price? They expect a discount, particularly when you are facing an urgent cashflow situation.

    From my argument’s example, I set aside assets that were acquired very cheaply; those can bring a healthy profit regardless of the urgency of the sale.

  11. Michael – I’m both a buyer and a seller, although on different venues: my buyers are end-users, and my acquisitions are typically from domainers. I’ve found this model to work perfectly: those that don’t compete with me – your lineup example – ensure my acquisition costs remain low. Whether I buy domains at forums or auctions, I maintain a long term plan that will allow me to maximize my investment.

    The approach that certain genres of domains are by default more liquid than others, does not work anymore, for the reasons I explained above. Unless you have a steady source of LLL .com’s for $5k – $10k a piece, in which case I will tip my hat to you. πŸ™‚

  12. Again, liquidity had nothing to do with being a flipper or holder. It has to do with being always having a pool of buyers ready to pay a fair wholesale price. You can hold liquid domains long term waiting for end users, which Nat does. You can churn and burn liquid domains, which Andrew does, although he also holds some as well.

    Imagine you have $100k to invest. You can buy 5-8 LLL.com of varying quality, or you can buy 100 $1k KeywordKeyword domains. Both have similar prospects with a hold strategy, although the latter will produce more regular cash flow while the former will result in irregular large sales.

    But if you needed to get your money back out in a pinch, which situation would you rather find yourself in? Trying to sell 100 domains where each one might only get 2-3 offers on the forums, if any. Or trying to sell 5 domains where dozens of people will be fighting over them.

    You can hold a liquid domain, you can flip domains that aren’t very liquid. Has nothing to do with strategy other than that you can more easily divest liquid domains. I think the point you’re trying to get across is to stop wholesaling and wait for end users, which has nothing to do with the liquidity of your portfolio. You can employ that strategy with liquid domains too.

  13. Michael – Please define “fair wholesale price” as a percentage of your initial investment. Are you saying you’re hand-registering domains that have an endless pool of buyers at any given time?

    Nat’s assets can’t be referred to as liquid, because he never acquired them to flip them next month for a basic, $500-$2000 profit. He invested in them anticipating they would appreciate, years later, and they have. That’s what Elequa did, and he’s selling dozens of JKY .com’s and other letters to the Chinese currently. These, are not domains acquired last week, they were held for years and never on the logic of “liquidity.”

    My point is that if you find yourself in a pinch, no domains which weren’t acquired at a considerable time ago would fully recover your investment. These classes of so-called liquid domains have greatly appreciated in price, that their current range makes them far less tradeable. Unless you’re saying you can flip a $30k LLL .com for $60k in a few days. Maybe, but can you do this with *every* LLL .com in the market?

    When you’re in a pinch, you’re desperate for cash. You will accept decent offers, but when people are in a pinch they more often choose to lose a bit of money and get as close to their investment as possible – because you cannot eat domains, obviously. πŸ˜‰

  14. I think you’re completely wrong there. If you bought an LLL.com for $20k today, then tomorrow you had a family emergency and had to sell it, I guarantee you that you can list it on the forums and get your $20k back the next day as long as you didn’t get carried away and overpay. That’s liquidity.

    It has nothing to do with what you paid, it has nothing to do with your margins, it has nothing to do with how long you plan to hold the domain. It has to do with being able to move it quickly *without* having to discount or firesale it. If you want to move your 100 domains quickly you’ll definitely have to sell them really cheap to attract interest… because they aren’t liquid.

    If I had to sell my entire portfolio of short domains tomorrow I could, and I would get whatever the going rate is and be perfectly happy with the prices. If I had to sell a similar number of keyword domains tomorrow, I probably couldn’t, and if I could I would probably be upset about every sale price.

  15. Michael – Let’s be realistic here, you can’t buy an LLL .com for $20k now. The game rules changed, and the numbers aren’t what used to be. I know, as I bought “liquid” LLL .com domains when they truly were, in the $1k – $5k range, and resold them, some too early. One of them, to Nat. Yes, I wanted “liquidity” at the time, so my profit was marginal, even in 2004.

    The margin is dictated by the length of time holding an asset, no question about that. So your investment of $25k will be liquidated with a risk of losing or a marginal profit, if you decide to proceed in days or weeks.

    If you’re happy with your domains’ sales potential, that’s good to hear. That means you invested wisely and acquired them at prices that differ a lot from those of today. Profit margins are important, and the rule applies to every domain type.

  16. http://namebio.com/?s=gMyYTM2YTM

    Those are the latest public LLL.com sales. You can absolutely still buy them for less than $20k. But again, you’re missing the point…

    There’s practically a never-ending stream of buyers ready to buy an LLL.com at whatever the current market rate is. If you need to sell it quickly you can, maybe you’ll lose a little money, maybe you’ll break even, but that isn’t the point. The point is you can get out quickly and easily and be relatively unscathed. That’s liquidity. It’s less risky to buy a domain that is highly liquid and in demand, but usually that comes with less reward. To each his own, it’s like buying blue chip stocks… you aren’t going to get rich but you aren’t going to get screwed either.

    Do I think you can buy an LLL.com today, hold it for a year, and sell it for a profit that justifies locking up five figures? Absolutely not. Generally you try to buy domains that you can sell for 10x to an end user. I think the prices people are paying today are not only far from being 1/10th what an end user would pay. I think they are *more* than most end users would pay. But I also would have said the same thing last year, and look where we are now. Nobody knows, and if anybody did know they’d be multi-multi-multi millionaires and wouldn’t be telling anyone else about it.

  17. Michael – I see mostly NameJet sales, which means one thing: a domainer selling their asset, and another domainer bought it. I’m pretty sure the seller set a reserve, based on their acquisition cost.

    There is a never-ending stream of buyers for anything – when the price is right. And the price is right, when it’s lower than the average selling price.

    I made exactly the same point, that today, you can’t risk holding such “liquid” assets for a year, at the going prices. These sales that you quoted, involve domains that were acquired at much lower prices, and were sold on the obvious margin – even if it’s a couple of thousand bucks, or maybe more. Without detailed reports I can’t tell how much money every sale recorded made. Some might have lost money as well.

    Investors need to understand they can’t go to sleep thinking that a LLL .com would be liquidated immediately at a healthy profit at the push of a button. And I’m not going to even touch the four letter domain range, that’s akin to saying penny stocks are great to own.

  18. To me, liquid domains are a category that doesn’t change much based on market conditions, LL, LLL, LLLL, NN, NNN, NNNN, CCC, etc. These categories of domains were liquid two years ago, and they’re liquid today… you can sell them quickly for a predictable price.

    Two years ago (and in retrospect), buying these liquid domains was a genius move, and those that did are reaping huge rewards. Today I think liquid domains are overpriced and in a bubble, and I definitely wouldn’t buy them as a long term play, and even just trying to ride the wave for a few months and get out with a few grand profit is risky. Who knows where the top is and when the bubble will pop. Nobody.

    But I disagree that you’d have to take a big loss to sell a “liquid” domain quickly. The whole point is that you wouldn’t.

  19. Theo I am not arguing with you, what I am saying is that liquidity is not tied to profit. you are correct the 3L.com train has left the station, but not the 4L.com train or the 5N.com train.

    I had a bunch of 4L.com no vowels + v, I at anytime and I sleep very little, so even at 3 am could find buyers for those names at $300 to $400, is that life changing money ? NO, could I still hold them and wait for an end user ? sure.

    I can’t do that with brandable names, I need the right buyer to come along, if I try to flip them or contact buyers in that niche that I know there will be $20 offers.

    So I agree with you it is not optimal for maximizing value, but not everyone wants to hold domains for a long time.

  20. Michael – It’d be a fun discussion to hold at a domain conference, preferably over drinks. Maybe we’d understand each other’s arguments better.

    I referred to the increased potential for a marginal profit, or loss, at current prices, when investing in domains that are perceived as “liquid”. So I believe we’re saying the same thing: current prices generate lower margins. I will add that overhead costs such as venue percentage and broker fees lower the margins even more.

    Raymond – I am not trying to disrespect your modus operandi.

    Everyone does things differently and I’ve seen a lot of things change over the course of 15 years of active domain trading.

    In the old days, I would “kill” for a $300 sale.

    These days, I have to focus on bigger fish, or I might risk wasting the time I spent acquiring a life’s knowledge.

  21. What people need to recognize is this:

    Liquid Asset Class Thinner Profit Margin

    LLL.com’s are a good example of that. You cannot buy those for $150 to sell at $50,000. The wholesale price is much higher as a percentage of the retail price.

    And don’t forget this either:

    When a business liquidates its assets,
    then it’s going out of business.

    Usually that means selling at a loss or, if not that, then at a fraction of potential value – simply because the seller is in a hurry.

    Time constraints and cash flow ups and downs are a reality, though. So liquidity does matter. But we can’t pretend there aren’t tradeoffs.

    In the long run, liquidity can be improved for all quality domains. But even there, that does mean higher wholesale purchase prices, which will often shrink the profit margin in exchange for higher sales velocity.

  22. Argh! My “if and only if” symbol was deleted when the comment posted. Should read as follows:

    Liquid Asset Class
    if and only if
    Thinner Profit Margin

  23. Market efficiency is what we lack. Its remains too hard to sell a domain name for its maximum potential. Many market places, rules for bidding, the escrow process is not clear to many non-internet/tech savy types, even basic things such as reaching a domain owner is not as simply as it could be.

    Market Liquidity we have. You can sell a domain at any hour of the day. There are always buyers at X price point.

    I think 3L,3N ect… have taken off in value in part because they are starting to be viewed by many as commodity type assets. That’s a good thing and those are much more Liquid than generics, common words, brandables ect…

    One of largest common factor that used to bind generics, common words, brandables ect… in value was PPC income, search volume ect… now that has become unpredictable those assets don’t share similar traits and therefore prices are all over the place. I think this will not change only get worse with wider and more confusing ranges in price.

    Longer term holders that want to find that right end user should be OK, but this is bad for short term flippers that need to justify a value to a potential buyer.

    The selling platforms are getting much better and everyone will benefit from more market efficiency which is nice though.

  24. Bill – I agree that domain venues catering to domainers aren’t fully efficient. But it’s not their fault when a domain won’t sell at the seller’s expected price. It’s the seller’s fault, for not realizing that by selling to other domainers, they aren’t reaping the maximum potential for that domain.

    As a fun side note:

    From LiquidDomains.com: “The lower the price, the more likely a transaction.” πŸ˜‰

    Meanwhile, the registrant of Liquid.Domains wants 4,999 euro for it. Very ironic. πŸ˜€

  25. Agree 100%

  26. I’d like to thank everyone who commented. While we can’t agree on everything, such discussions can help identify underlying issues in the domain industry, such as valuation and pricing models.

    I appreciate the challenge many of the comments offer, in order to improve my understanding of other investors’ processes. πŸ™‚

  27. Liquid domains are “classed” as a quick flip to keep funds moving. Although you could keep them for a few years anbd probably make a lot more money.

    As said though, two word brandables are really rocketing this year and will continue to as they make ‘perfect’ brand sense if the words fit, more so than made up words unless they are radio proof and very short.

  28. Excellent point! (And a great blog, first time here!).

    All of my sales above 10,000 were domains I held onto for 5 years or longer with the exception of 1 or 2.

    Also, just like you for most domains I sold at 10,000 or more I received several lower offers from the same buyer before but never accepted them. It usually takes around 5 months to a year before they finally decide to make a reasonable offer.

    So, what you are pointing out in this article is great advice: Hold onto names and don’t trade them. It’s just like the stock market, you have professional day-traders and you have value investors who hold for 5 to 10 years or longer. Pick a side, you’re either a trader or you’re not. I’m certainly not a trader.

    For research purposes, I recently tried to acquire some funding from domain lending site lend.me that uses domains as collateral. I submitted a ~$5-10k domain name (Business Lessons dot com) but it was declined because it was not considered a ‘liquid’ domain / low wholesale value. Many domains like this are worth a great deal (I would never sell it for less than 50k btw) but it simply takes time before you find a buyer who sees the true value.

  29. Ken O'Brien says:

    Gentlemen,
    It does not matter whether you buy a LLLL.com, keyword-keyword .com or a NNNN.com domain name. If you buy any of these assets at the right price there is liquidity in them.
    Cheers

  30. Ken – That’s like saying “if you build it, they will come.”

    I thought there were classes of domains that are by default “liquid,” what happened to that notion?

    Your liquidity is dependent on the profit margin you’re willing to take. When you bought an asset at X but want Y, all while buyers are expecting a much lower Z, then you have a liquidity problem.

    Ever heard of the term “liquidation?” It’s a reference to a bargain sale, essentially.

  31. Great post!

    This is why it is so important to understand that this industry is about investing and long term vision of continuous growth vs quick flipping.

    You are definitely right if you can consistently sell domains at a 100 to 300 profit they are going to add up and these can happen often.

    Do you experience consistent small sales like these as well?

    – Will

  32. Sorry I’m late to the party. Great discussion in the comments !

    btw Acro I found these 2 quotes funny

    “It’s the seller’s fault, for not realizing that by selling to other domainers, they aren’t reaping the maximum potential for that domain.”

    “and my acquisitions are typically from domainers.”

  33. Adam – Why are they funny? I buy from domainers, and sell to end-user buyers. Not everyone does this, however.

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