Alternative Investments

How to make money trading domain names [2020]

Back in 2009, Quinstreet bought the domain name ‘insure.com’ for a whopping $16 million. This has raised many eyebrows and attracted people to buy and sell domains -even those who are not tech-savvy-. Even lengthier domain names are routinely sold for thousands of dollars every day. According to GoDaddy, the average sale price for a domain at their auctions was $2,344.00 in 2017. In today’s tech-centric world, domain names are considered hot commodities that can prove to be extremely profitable. In this article, we will understand what the term ‘domain flipping’ means, the risks involved and whether it is a profitable-part-time business opportunity or not.

Source: OnlineCourse

What does ‘domain flipping’ mean?

For those of you less tech-savvy, you might have never came across the term ‘domain flipping’. Domain flipping simply refers to buying a domain name such as ‘www.financialstories.org’ as cheaply as possible and then selling it at a higher price. The leading domain name marketplaces for buyers and sellers are Sedo, Flippa, Afternick, GoDaddy Auction, NameCheap, eBay and Namepros. Most of them allow you to easily list your domain portfolio for free.

What makes ‘Domain Flipping’ So interesting?

Domain flipping is very interesting because you can buy a domain name for a few bucks a year and then resell it for thousands or even millions of dollars. For instance, Hotel.com and Business.com have been reportedly sold for $11 million and $7 million respectively. Although it is extremely unlikely that you’ll find a domain name with 1 noun or verb, lengthier domain names are sold daily for thousands of dollars.

What is also very exciting is that it is, theoretically, possible to make a profit within hours. However, it takes most people month if not years to sell their domain portfolio. So if you decide to trade domain names, be patient!

Strategies to making money with domain names

One famous strategy is anticipating which domain names are likely become popular in the future. One example could be buying ‘www.2022olympicchampions.com’ and then offering it for sale prior to the olympic games in 2022.

Another strategy consists of buying business names. Business names could be ‘www.dentistincairo.com’ or ‘www.lawyersincairo.com’. The goal here is that hopefully a new law office might offer a huge amount of money to buy this website.

Other strategies include buying geographic names or generic names. It is worth noting that there is no optimal strategy that will guarantee you a profit. Therefore, most domain traders have a portfolio of domain names.

Be aware

Make sure to avoid any copyright or trademark issues. This could lead to domain forfeiture. According to Investopedia, forfeiture is the loss of any property without compensation as a result of defaulting on contractual obligations, or as a penalty for illegal conduct. So make sure to do your homework before buying a domain name!

What are the risks of domain trading?

There are 3 main risks involved with domain trading. These are: Liquidity, Subjectivity and Legality.

Liquidity

Unlike stocks and bonds which are traded on a daily basis, domain names can sit in your portfolio for years. Although there are various marketplaces which attract millions of interested buyers on a daily basis, selling your domain will usually take several months or even years.

Subjectivity

How do you value a domain name? You can’t use a DCF approach or a multiple approach like in stocks. Assigning the value of a domain is very subjective. Nevertheless, there are various domain appraisal sites out there that use machine learning to determine the price of a website based on various features.

Legality

Choosing domain names that are too close to a trademarked name could result in a lawsuit and a court order to forfeit the domain name for free. Stolen domain names are also sometimes sold before the buyer realizes that they’re not the true owner.

will Domain trading make me rich overnight?

No. Well, most probably not. There is no free lunch in investing. There are only a dozen six figure domain names out there. So, chances of you selling a domain name for millions of dollars is very slim. If you want to make a profit, you will have to put in your time and energy to buy good domain names and then actively seek out prospective buyers.

As of 2019, there are 137 million .com domain names are registered. Of these, roughly 1/3 are in use, another 1/3 appear to be unused, and the last 1/3 are used for speculative purposes such as domain flipping. But that does not mean that all the good names are already taken!

Where can I buy domain names?

You can buy domain names from domain registrars, such as GoDaddy. You can also use the specialized websites mentioned above, such as Sedo, to purchase websites.

Evaluate the domain name

Once you find a domain name that is appropriate with your budget, you should spend some time evaluating it. There are different factors that make a domain name potentially extremely valuable, including: Length, Relevance and Search friendliness. Although the assessment of these factors is very personal, it is a good start to becoming a successful domain flipper. You should also use Google’s Keyword Planner where you can research a specific topic and learn which keywords seem to get the most searches.

Final Remarks

Domain names offer investors a unique way to diversify their portfolio of investments. If you’re still starting out, I strongly encourage you to begin with a small budget until you gain relevant experience in the field.

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