Domain Investing Strategies

Published on:
domain investing blog post banner

If you want to diversify your assets beyond stocks, bonds and real estate, domain names can be an excellent investment option. Like physical property, domain names can appreciate in value over time and be sold for a profit.

In this beginner’s guide, we’ll walk through the step-by-step process for investing in domain names, from setting goals to taking ownership. By the end, you’ll understand how to set your domain investing strategy to maximize your return on investment. 

Set Your Domain Investment Goals

Before spending any money, you will first need to decide what you want to accomplish with domain name investing. 

Here are some options to consider

Long-Term Holds

The most lucrative domain investing strategy often requires immense patience. Long-term holds involve acquiring a domain name with strong potential then holding onto it for an extended period of time. 

We’re talking 1-10 years or even longer.

The goal is to allow the domain to appreciate significantly in value over the years as the internet grows. Then eventually sell it for a big profit to an end user business when the time is right.

This long-game approach offers the possibility of a massive return on investment, however, it requires strong foresight and the willingness to wait things out for the big payday down the road. 

Let’s look at some tips for successfully executing long-term domain holds.

Spot Future Potential

Choose generic, keyword-based domain names that are likely to become more valuable over time. For example, Cars.com would have been the perfect investment in the early days of the internet before the auto industry caught on.

You need to identify domains that can attract high search volume and traffic in the future. In this respect, when choosing the keyword of your domain, the broader the appeal, the better. 

For example, loans.com has potential for any financial company, not just a single player.

Buy at Wholesale

Scoop up domains well below market value if possible. This may mean grabbing recently expired domains or negotiating good deals. 

The lower your basis cost, the greater your profit margin over the long haul.

Be Patient

Once you identify and acquire a promising long-term domain investment, your next job is simple; wait. Sit back and be patient. 

Keep a close eye on industry trends related to the keyword, but don’t even think about selling until the domain has reached at least close to its full potential. 

Great things come to those who wait.

Time the Sale

This is perhaps both the most critical and challenging part. You need to identify the optimal window of opportunity to sell your long-held domain for top dollar.

Sometimes it’s when a new competitor enters a space and wants to upgrade from .net to .com. 

Other times it’s when a company rebrands and needs a new domain. Study the target end user industry carefully and be ready.

Executed well, long-term holds represent the absolute best risk-reward ratio in domain investing. 

While quick flips churn out small consistent returns, long-term holds can lead to absolute home runs.

If you have the discipline and patience, long-term holds offer the greatest profit potential. Just be sure to target domains with massive future potential and wait for the payday patiently.

Flipping Domains

The fastest way to profits in domain investing is flipping. This means buying and reselling domains quickly to turn a fast buck. 

Instead of waiting years, the goal with flipping is to turn around domains within days or weeks.

This active approach requires constantly being on the hunt for flip-worthy domains and motivated buyers. 

Here are some best practices for flipping domains. 

Buy At Bargain Prices

Your profit margin is smaller with quick flips. So you need to master buying domains at ultra low prices.

Look for deals like expired domains you can snap up for cheap. Negotiate with motivated sellers. Think long and hard before exceeding a wholesale valuation.

Work Your Sales Skills

Flipping isn’t a passive activity. To turn domains around quickly, you need strong sales abilities. 

Cold email, network, pitch frequently and close deals.

Many quick flips happen simply by contacting likely end users for that domain. You may have to send a lot of outreach emails before one bites.

Stay Realistic

It’s easy to get dollar signs in your eyes. But most quick flip profits are modest; maybe a few hundred to a few thousand dollars. 

Massive margins are rare.

If you spend $500 on a domain and sell for $1,000 in a few weeks, that’s a solid win. Just don’t expect to get rich quick with every flip.

Adapt and Diversify

Not every great domain you find will sell fast. That’s OK. Be ready to shift a flip’ to the long-term portfolio if needed.

Diversify your time between long-term holds and quick flips.

Flipping requires hustle and skills far beyond long-term holds. But you can generate recurring income without waiting years. The profits on each flip won’t be enormous, but they add up over time.

Hybrid Investing

The ideal domain investment strategy for many investors combines both long-term holds and quick flips. 

This balanced hybrid approach provides diversity while minimizing risk.

By maintaining a mixed portfolio, you can enjoy some of the benefits outlined below:

Steady Cash Flow

The quick flips offer recurring income month to month as you buy and sell domains rapidly. This covers costs and provides some funds for future investments.

Big Reward Potential

Long-term holds can provide the huge upside of major profits years later. These are the home runs that can really pay off big time.

Adaptability

Not every domain you acquire, even great ones, will flip immediately. With the hybrid model, you can adjust and shift domains between short-term and long-term buckets as needed.

Risk Minimization

Diversity helps smooth out the highs and lows. If one domain doesn’t pan out as hoped, it’s just a small blip in the overall portfolio.

Skills Development

Flipping domains regularly will sharpen your sales skills, while long-term investing requires patience and foresight. Doing both makes you a well-rounded domain investor.

Decide what percentage of your time and portfolio to allocate to each strategy based on your own risk tolerance and preference. Many investors stick to a 50/50 split.

Set Your Domain Portfolio Budget

Now that you have the strategy plan, it’s time to start searching for potential domains you can acquire.

However, before spending a dime, you need to establish a specific budget for domain purchases. This preserves your capital and prevents impulse buying.

Invest only what you can afford to lose. Domain names carry risk like any asset. So start small, and eventually you can build a portfolio of domains over time.

Here are some tips to get you started:

  • Split your investment budget between long holds and flips
  • Set aside funds for services like escrow
  • Limit yourself to avoid overspending
  • Increase your budget as you gain experience

Discipline and calculated risk lead to success. Never risk money you might need for other priorities, as this can put you in a situation where you need to panic sell at a lower price and incur losses.

Choose the Best Domain Names

Picking lucrative domains to buy and flip takes skill. Check out our detailed guide on the most important factors that make a domain valuable

Here is a short summary of what to analyze when considering whether or not to buy a domain.

Traffic and Search Volume

Look for domain names that attract site visitors. Online traffic equals money.

Use Google Keyword Planner or one of the many keyword tools on the market to estimate search volume and traffic for domain names you’re considering. 

Generic Keywords

Generic words and phrases make prime investment domains because they appeal to a wide range of potential buyers.

For example, ‘books.com’ or ‘auto.com’ could appeal to almost any company selling books or cars. The more generic, the better.

Brandable Names

Made-up words like Entyx.com can work for a startup looking for a catchy brand name. In this case, short brandable names work best.

Use domain name generators to brainstorm creative business names. Made-up words are riskier but can pay off big.

Avoid Trademarks

Do your research to ensure the domains you buy don’t contain trademarked terms or brands. This helps you steer clear of legal issues down the road.

Do a Google search, or and use the USPTO database to double check trademarks. It’s worth the minimal effort.

Where to Find Domain Names

So where do you find high-value domains to invest in? There are four main options you  an turn to. 

Expired or Deleted Domains

When someone lets a domain registration lapse, it eventually expires and drops. This restores it to the available pool for anyone to register.

Expired domains with strong backlink profiles and history can be very valuable for their SEO benefits. Use domain name drop lists and expired domain tools to snap them up quickly.

Domain Marketplaces

Sites like Sedo, Afternic and Flippa operate domain marketplaces where investors can buy domains listed for sale.

Use domain name appraisal tools to identify reasonably priced domains worth investing in. 

When calculating the cost price, make sure to factor in escrow fees and transfer fees.

Domain Name Auctions

GoDaddy, SnapNames and NameJet run domain auctions, allowing you to bid on domains as they expire and drop.

Make sure you set your budget beforehand and bid only up to your estimated valuation minus fees. Avoid getting caught up in bidding wars.

Registrar Drop Lists

Major registrars like GoDaddy and Catchtiger publish lists of newly expired or dropped domains available for registration.

For a small fee you can register for a drop catching services to monitor and quickly catch valuable domains that have recently expired. 

Cast a wide net by checking auctions, marketplaces and drop lists frequently. You will need to move fast on domains that look promising before someone else snaps them up.

Understand the Domain Lifecycle

How does a domain go from registered to expired and deleted? 

Understanding the domain lifecycle helps you acquire domains at the optimal point.

Registration Period

When a domain is first purchased, it enters a registration period which can range from 1 to 10 years, depending on how long the registrant paid for.

Expiration

When the registration expires, the registrar enters an ‘expiration’ status for the domain. This is sometimes referred to as the ‘redemption period’.

During this period, the registrant can typically renew the domain name and keep control of it.

Pending Delete

If the domain isn’t renewed, it advances to ‘pending delete’ status, which can last 5-45 days. This is the final stage before total deletion.

Deleted

After the pending delete, the domain becomes available for anyone to register again. This moment presents a prime opportunity for investors.

Understanding this process lets you grab domains as soon as they become available. Move fast to beat competitors to the best expired domains. 

Use Backordering Services

Backordering services automatically attempt to register domains when they delete and drop. This ensures you don’t miss any valuable domains you want.

Domain name drop catching works like this:

  1. You identify a domain worth investing in.
  2. Watch it expire and enter pending delete status (but don’t try to register it manually yourself).
  3. Use a backorder service to attempt to register the domain automatically as soon as it drops.
  4. If successful, the domain is all yours (or you may have to enter an auction if multiple backorders were placed).

SnapNames and NameJet both offer reliable backordering services for a reasonable fee. 

Make sure to place backorders strategically though, as you don’t want to drive up auction prices unnecessarily.

Backordering provides peace of mind that you won’t miss out on the possibility of acquiring domains you want just because you were not there at the time of auction. 

Bid Wisely at Auctions

When bidding at expired domain auctions, set a budget ahead of time. Consider:

  • How much do similar quality domains sell for?
  • What is the projected value once in your portfolio?
  • How much can you resell it for realistically?
  • Research recent sale prices of comparable domains in advance. 

Factor in fees and commissions when bidding, and set a firm upper limit you won’t exceed.

You want to avoid getting caught up in bidding wars where price is driven up not logically, but due to emotions and ego. Remain calm and don’t get overly invested in any one domain. 

If the price surpasses your reserve, be ready to let the domain go for whatever the market bears. Sometimes it pays to wait patiently for another opportunity rather than overpay for a domain. 

If another investor wants a domain bad enough to pay crazy money, be ready to walk away. Rash decisions lose money.

Use a Trusted Escrow Service

An escrow service protects both the buyer and seller during a domain transaction by securely holding funds until the domain transfers successfully.

Escrow usually costs 1-2% of the total transaction amount. While optional for smaller deals, we strongly recommend using escrow for any deal over $1,000.

Here are some benefits that make the small fee you pay for an escrow service worthwhile:

  • Prevents fraudulent payments and fake transfers
  • Covers you if either party tries to back out of the deal
  • Adds legal protections and accountability
  • Provides recourse if anything goes wrong

Large marketplaces like Sedo integrate directly with escrow providers. 

If you’re entering into a private domain transaction, use a trusted third-party escrow company like Escrow.com for optimal security and peace of mind.

Take Proper Ownership of Domains

After finalizing a domain purchase, take time to properly take ownership of the domain name.

Transfer it to your preferred registrar account and update the domain details accordingly on the registrar.

Update the name servers to point to your parking platform or sales page, and remove any old auction listings or stale sales pages.

These simple steps save major headaches down the road. 

It’s important you don’t leave domains sitting under old accounts or registrars you don’t control.

Track Your Investment Portfolio

Once you start accumulating a decent amount of domains in your portfolio, it becomes important to keep a ledger, or organized spreadsheet listing all the domains you own. 

In this spreadsheet take note of the key details for each domain. 

These include:

  • Purchase date, price, fees
  • Sales date, price, fees
  • Current valuation
  • Parking revenue
  • Registrar and expiration date

This helps you monitor domain performance and make data-driven decisions. 

Most importantly, calculate your ROI on each domain and overall. This determines profitability and compares success between different investment strategies.

Conclusion

Investing in domain names offers a way to diversify your portfolio beyond standard assets. With a methodical approach, it can also deliver outstanding returns compared to stocks and real estate.

Like all other business ventures, success in domain investing requires strategic goal setting, financial discipline, and mastering the art of domain valuation. 

Start slow and focus on buying quality domains at good prices. Most importantly, stay patient. 

The long-term holds often turn into big winners over time even if quick flips don’t always pan out.

Now you have a solid overview of how to invest in domains, in the next knowledge article we will look at how to sell domain names for a profit.

For the full list of knowledge articles head on to our Domains Investment Hub.

AUTHOR

I am a branding and naming consultant with 16 years of experience. I believe in building a strong brand name that identifies your visions and that of your business. A brand identity motivates you and your team to achieve success.