After reading Rick Latona’s announcement today that he realized he’s been selling his domains at too low prices, I decided to point out a few flaws in the evaluation process.
At the same time, I will be offering a few guidelines regarding how to proceed with domain investing.
Rick’s method involved a simplified model, whereupon one owns a portfolio of 1,000 domain names.
This model assumes the following:
- All domains were acquired at $100 a pop. Why no smaller acquisitions and manual registrations?
- All domains must be sold tenfold, at $1,000. In reality, a 10x ROI is far from great. How about 50x, 100x or more?
- Sales to portfolio quotient must be 1% – in other words, in a given year you sell one domain out of 100 that you own. Surely, that’s way too low.
Why are those points simplistic and non-representative of what one should strive to achieve with domain sales?
First off, there are domains out there that can be acquired for far less than $100. You can find them at domain forums, dropping auctions or you can attempt to buy them from their active owners.
Not everyone was lucky to have owned quality .com/.net/.org domains since day one. I recall going through thousands of such domains in 2001-2003 and hand registering them for $7 a pop. My margin is therefore much higher; that’s the same case for even moderately priced domains in the aftermarket.
Regarding the return on investment: surely 10x for a $100 domain doesn’t seem too exciting. When I get offers, I tend to aim for a ROI in the 50x range or more. A domain I acquire for $500 will go for $xx,xxx.
Being a long term investor and not a domain flipper, I decide when to sell – not when I get an email with a random number that does not much my pragmatic expectation for the domain.
When you sell one out of 100 domains in your domain portfolio, that rate is too low. How about 5% or 10%, is it achievable?
From my experience, it is, given the number of venues available to domainers these days. There are auction houses, brokers, forums and newsletters. Oh, and don’t forget your own piece of work, the cold-calling and targeted emailing.
Regarding renewal fees; like death and taxes, one cannot avoid them but one can surely write off the cost as a business expense. Form a corporation specializing in domain names and you will be able to write off every penny of renewal costs, year after year – until you sell the domains.
The cost of acquiring a domain – including its registration fee – will be subtracted from the sales price and taxed as capital gains when you sell it – as long as you hold it for a year plus a day. You can’t do it earlier, so make sure you have enough cashflow to renew your domains every year, otherwise you need to reassess your portfolio.
Lastly, when it comes to selling one needs to aim high. If you ask for $1,000 you will most likely get this much. If you ask for $10,000 you can probably get close to that asking price. It’s a scalable practice that I’ve used, time and again, to turn $20 dollar acquisitions into four and five figure sales.
Great to see a little blogpost rebuttal! Can you please elaborate on the 2nd to last paragraph? Specifically You can’t do it earlier,… Does “it” refer to expensing the domain registration fee? or the cost of acquiring the domain? or both? Thanks for the clarification.
Thanks DomainFuze – The reference is to expensing the cost of registration or acquisition; it is subtracted at the point a sale is achieved, or if the domain is otherwise dropped or even lost in a UDRP.
Do you care to share some of the $20 purchases that were sold for $XX,XXX?
And did you buy these recently or in 2001 time frame?
Interesting stuff! thanks for posting your thoughts (about Rick Latona’s post).
There are many strategies to building wealth with domain names, and another “factor” is how quickly you reinvest your $ to scale up or “trade up” to better domains. I first thought about this after reading one of Rick Latonas posts a couple years ago talking about the “velocity of money”. In a nutshell, his concept was that the the faster you turn a profit and reinvest that profit (and repeat), you will build wealth faster (i.e more cash or better quality domains). The more you use your money to grow incrementally (velocity), the faster you will increase the amount. This could mean accepting a lower selling price, as long as it was profitable, and quickly reinvesting and repeating the process. I agree with that, and it begs the question – is it better to wait and sell for a higher $ amount, or is it better to sell for a lower profit and quickly reinvest that (and repeat) to quickly build a better portfolio or more cash?? I don’t know if there is a right answer, since both strategies can get you where you want to go, just a different approach.
Cheers!
Craig – Obviously the exact domains must remain confidential 🙂 Acquisitions made later than 2005 required more capital but as they say, one gets wiser with age 😀
Jim – Good points. In a healthy economy the velocity of money paradigm works well. When liquidity is low, however, one needs to learn to hunker down for the storm until it passes. Trimming down one’s portfolio is essential. The economy goes around in circles.
Great post Theo! I completely agree with everything you said. I’d love to hear about some of the domain sales you’ve had in the past that you haven’t written about. 😉