Should you build a domain name portfolio? There are many reasons to consider investing in a domain portfolio. We look at some of the reasons why it is a wise investment.
What Is a Domain Portfolio?
A domain portfolio is a combination of domain names that are owned by you or your business. It is an investment strategy that involves purchasing high-value domain names to later sell them off at a profit.
Why Do People Invest in Domain Names?
All businesses need domains, no matter how big or small they are. In 2021 Christmas.com sold for $3,150,000 to Gordon Companies in New York.
Thousands of domains are sold every day at completely varied price points. With the right knowledge and an effective strategy, anyone can build a domain portfolio to turn a profit.
Investing in domain names is becoming increasingly more prevalent as more and more businesses are moving online. This upward trend doesn't appear to be stopping any time soon, so it makes a lot of sense to invest as early as possible.
Domain names are in limited supply, but the demand for them is huge. For this reason, high-quality domain names are extremely valuable as they cannot be replicated or copied. If you can get a hold of good domain names, you would have no shortage of opportunities.
There is no real alternative to domain names, and they are likely here to stay for the future. Because of this, domain names easily maintain their value, and you can hold onto them for as long as the name is relevant. Like purchasing real estate and land, domain names appreciate over time as much of it is being claimed, but none of it is being created.
The process for selling domain names is easy and accessible. In some cases, you can even sell domains for cash or stock.In terms of maintaining a domain, the process is different from physical assets.
All you need to do is pay a renewal fee, and your domain stays unusable for anyone else. There is a lot of flexibility in the domain name markets. Bidding, renting, financing and escrow services allow you to sell your domains in a way that suits you and your buyer.
Steps to start building a strong domain name portfolio
which investment strategy matches your personal style?
There are three strategies for building a domain name portfolio: quick-flip investing, long-term investing, or a combination of the two.
Through research and experience, you will find which of these strategies matches your personal style
Buy and Hold
This strategy involves holding onto domains for an extended period of time, which will give your domain time to appreciate.
With this strategy, you're offered more time to ignore and decline offers whilst you wait for one that is significantly higher than your investment.
Long-term investing yields the highest profits but can be too slow for some people. Buy and Hold strategies are better for people who have less time to dedicate to managing their portfolio.
Quick Flip
If you like seeing results quickly and are not too focused on maximising yield, a quick flip strategy may suit you.
This strategy involves purchasing a domain and actively hunting for potential buyers. You can use the quickly acquired profits to reinvest in the markets and repeat the process.
Combination of both
Depending on your portfolio, it may be best to incorporate both strategies. Let's say you have a few domains, one of which is very generic and timeless such as Flights.com.
For a domain like this, you may want to hold onto it for a long time as you will receive many offers over the time you have it.
On the other hand, if you own a domain that is particularly relevant at the time, such as one that contains keywords from current trends, you may want to sell it before it loses value.
The 1,000-day rule
It is easy to become frustrated and regretful after a few months have passed and you're struggling to sell your domain. Some investors claim it takes 1000 days (or an average of an hour a day, six days a week, for three years) to understand the markets fully.
There are many factors to understand and hurdles you must overcome to become a successful investor. Investing in a domain name portfolio requires time and patience, but it can pay off immensely in the long run.
Never overpay for an asset
The most important first step when becoming a domain name investor is to never overpay for assets. Each domain has a wholesale value and a retail value, and it is important to distinguish them to make informed purchasing decisions.
Wholesale Value
This is the amount a domain name investor might pay today for a domain name. Often, readily available domains to buy at wholesale can be found on auction websites.
Retail value
On the other hand, retail value is what a company owner might consider paying in the next one to five years for the domain name. They may base their purchase on recent comparable sales and the state of the economy.
The difference between the retail and wholesale values of domains will often be a factor of two to 20. The average multiple is around 10, with a return on investment (ROI) of around 10,000%.
Keep your costs as low as possible
It may not seem like a big deal to slightly overpay for registration, pay an extra sales commission, or buy unneeded software, but it adds up quickly.
By addressing unnecessary spending early on, you can save money, which will allow you to invest in more opportunities. Smart considerations like this will determine your success as an investor
Don't rely on a single domain name investment
Let's say you have an initial budget of £500. You could choose to buy and register a £500 domain to sell it for a lot of money later on; however, if you struggle to sell that registered domain, you will be out of luck.
A smarter strategy would be to distribute this budget across five, even ten, well-researched domains. Diversification grants you more flexibility and is, in general, a lower risk investment strategy.
Study and improve your knowledge and skills
As domain name investing is relatively new, there aren't as many planners, and advisors available compared to stocks and bonds. There is a significant amount of information online that you can use to better your own skills, as you will have to be more self-reliant when it comes to this type of investing.
There are free articles and news online about domain marketing, security and protecting your domains, hosting, posting to auction sites, and other related domain name information.
By doing the proper research and being smart about your investments, you will see a lot of success in this hot new market. Make sure you aren't registering existing brand names as they may force legal action due to copyright.
You should also research domain name extensions, also known as top-level domains (TLD). For example, ".IO" is for British Indian Ocean Territory but has in recent years become synonymous with technology and start-up companies. Research which domain name extensions your country uses in order to sell domains more effectively.
Are you ready to buy a domain name?
Contact our domain name specialists today to discuss the purchase of your next domain name.