Hoarding lots of domains or just a few.

[VURG]

When I talk to people who don't know a lot about domains, I tell them about the hoarders who buy thousands of names. There definately is a lot of money in hoarding large volumes of the right names. In the last few months we have seen the buyouts of the following domains L-L-L.com, LLLL.com, LLL.in, N-NN.com, NN-N.com, Premium LLLL.net and NNNNN.com. As everyone keeps jumping on the boat of the next buyout I thought I'd do some small calculations to estimate what returns I would expect after 10 years in order to buy domains in bulk or not.

Here are my assumptions for my calculations:
Todays price of .com - $7.10
Annual growth of .com price - 7%
A good average annual return on investment - 20% or more
Traffic revenue of domains compared - $0

Domainers have been spoilt for too long and so many domainers complain when they only get 100% ROI per year while the majority of the investment community considers 20% growth per year large. I think that this is a good long term goal for an investment.

I compared 3 alternative investments. A reg fee domain, a $100 domain and a $1000 domain. The minimum value for these domains after 10 years (with my assumptions) in order to reach 20% growth rates are approximately:

$300 for the reg fee domain
$990 for the $100 domain and
$7700 for the $1000 domain.

You can see that the reg fee domain has to increase in value over 4200% while the $1000 domain only has to increase in value less than 800%.

When I set a lower goal of 15% growth the following results occured:

$230 for the reg fee domain
$660 for the $100 domain
$4850 for the $1000 domain

The reg fee domain required >3200% growth in contrast to less than 500%

When I set a higher goal of 25% growth the following results occured:

$390 for the reg fee domain
$1480 for the $100 domain
$11,900 for the $1000 domain

The reg fee domain required >5500% growth in contrast to less than 1200%.

Personally, I think that there is a lot of great long term opportunities for buying reg fee domains but I would recommend asking yourself the question "Is this domain going to be worth more than $300 in 10 years time?" The phenomenal growth (4200%) required is not to be sneezed at and it may be a lot easier to find the $1000 domain that will rise in value 800% over 10 years than $1000 worth of reg fee domains that will rise 4200% in value.

It is important also to consider that the reg fee domains requires a larger long term commitment to paying renewal fees. The domainer who buys the reg fee domains will be continually investing more money into renewal fees while the domaining investor who buys the more expensive domains can have more flexibility in future investments and is under less pressure to find money for renewal fees.

I think that in the long term the opportunities for reg fee domains are going to get more and more difficult to determine but they will always be there.

 

[Phronesis]

Are you talking about ROI or annual returns? If you assume they are all growing at 20% shouldn't that make their growth rates identical? I don't follow the math. A $7 domain growing at 20% per year would be worth $43.34 in 10 years.

 

[-REECE-]

VURG added in the costs associated with renewing registration (and compounding interest on that) each year.

Very good analysis and I agree 100% that in most cases we'd be better off with expensive names.

Renewing an LLL.com in example costs only about 0.1% of it's purchase price.

Are you talking about ROI or annual returns? If you assume they are all growing at 20% shouldn't that make their growth rates identical? I don't follow the math. A $7 domain growing at 20% per year would be worth $43.34 in 10 years.

 

[Phronesis]

I agree. This is a good lesson too as a lot of newbies head down the path of hand-regging names because the cost is lower but barriers to success are greater.

 

[accent]

Well, I agree, to a point.

Firstly, though, I do not think you included the opportuntity cost of the money that is not used until the later part of the term for reg fee domains. In the ninth year the renewal money would have been earning interest or other returns for 9 years before being involved in the domain investment.

The big value of reg fee domains is finding what I call price wells, for lack of the technical term. The domain market is inefficient, and that inefficiency is greatest in the lower price tiers. While you may, with searching, find a $2000 domain for your $1000, you can often find $100 domains for reg fee. This head start will greatly improve your ROI.

Errors at the $1000 level are difficult to dig out of, while reg fee errors can be sold cheaply or simply dropped - you are not commited to the other nine years.

The domain market is going to get a lot more efficient - that is normal as a market matures, so in a few years reg fee bargains will be much more difficult to find.

 

[Shasta]

While I agree that most domains are not worth their registration fee. I don't think you can really go wrong with rare domains of 4 or less letters, characters or numbers. Historically, each year they go up in value substantially, meanwhile there is always that chance you might get a big deal.

I was a "Noob" in August of 2007. Investing in domain names or selling them never even entered my mind. One day while browsing the web, I stumbled across Namepros and Vurg's thread extolling the virtues of 4 letter domains. I read up on them for about 2 days and then downloaded the list of 27,000 available names and took 2 days to choose my favorite 300. Had I not jumped on the opportunity, even as a Noob, I'd have missed out. For example, the name I sold for $100 tonight on eBay, I got for just $7 in August. Where else can you make this much return on your investment? In September I took another chance and registered 300 3 letter words with a 1,2 or 4. I'm now selling those for 2 to 7 times my investment to pay registration fees, my highest sale thus far was for $295!! My last purchase was 150 L-LL.coms for a cost of $1,050. So far I've sold 25 of them from $19 to $29 each.

Noobs need to be cautious, but at the same time you need to understand that if you don't take a risk, your probably not going to make any money. If you registered a really good cvcv.com in 2004 and sold it today for $1,000. You'd pay $28 in registration fees and make $972 profit. If you registered 100 you'd pay $2800 in registration fees and make $97,200 profit. The same is true with LLL.coms. Had you registered a lot of them back when they were cheap, you'd probably be retired today.

Disclaimer: NEVER invest what you can't afford to lose. Vurg and Reese are correct when they say it's probably better to buy one good domain worth a few thousand, than to buy a whole lot worth ZERO as I did and taking a chance. (Especially if your a Noob.)

 

[VURG]

I agree. This is a good lesson too as a lot of newbies head down the path of hand-regging names because the cost is lower but barriers to success are greater.

Thanks for your comment.

The big value of reg fee domains is finding what I call price wells, for lack of the technical term. The domain market is inefficient, and that inefficiency is greatest in the lower price tiers. While you may, with searching, find a $2000 domain for your $1000, you can often find $100 domains for reg fee. This head start will greatly improve your ROI.

Errors at the $1000 level are difficult to dig out of, while reg fee errors can be sold cheaply or simply dropped - you are not commited to the other nine years.

Finding the price well domains quickly and consistently is easier said than done. For those who have the spare time and skills to dig them out, this is a great opportunity but many of us are lacking in at least one of the two.

The domain market is going to get a lot more efficient - that is normal as a market matures, so in a few years reg fee bargains will be much more difficult to find.

The disorganised elements of domaining are what I consider the most exciting. So many opportunities for improvement.

I was a "Noob" in August of 2007. Investing in domain names or selling them never even entered my mind. One day while browsing the web, I stumbled across Namepros and Vurg's thread extolling the virtues of 4 letter domains. I read up on them for about 2 days and then downloaded the list of 27,000 available names and took 2 days to choose my favorite 300. Had I not jumped on the opportunity, even as a Noob, I'd have missed out. For example, the name I sold for $100 tonight on eBay, I got for just $7 in August. Where else can you make this much return on your investment? In September I took another chance and registered 300 3 letter words with a 1,2 or 4. I'm now selling those for 2 to 7 times my investment to pay registration fees, my highest sale thus far was for $295!! My last purchase was 150 L-LL.coms for a cost of $1,050. So far I've sold 25 of them from $19 to $29 each.

I think the huge growth in LLLL.com in this mid 2007 to mid 2008 period is the exception rather than the norm. I wouldn't get too excited. Great to hear of your successes.

 

[ojm]

Saw this thread a few days back, but was just thinking earlier about something..

I have say around 100 LLLL.com's and 100 L-L-L.com's. I've been thinking lately of selling the majority of say my LLLL.com's, and buying a CVCV.com or similar instead of sitting of a large bunch of domains.

Would this be a wise move? Or do the mostly "rubbish" LLLL.com's have more room to grow than say the CVCV.com's?

Owen.

 

[-REECE-]

It would really depend on where each and every one of us see the market going.. Personally, I think you're better off shopping for a bargain on 2 good quality CVCV than 100 bad LLLL.coms at this stage in the game.

Unlike the lower quality LLLL.coms, for which value is fairly well understood, there are plenty of arbitrage opportunities still available in the higher quality LLLL.coms. I wouldn't be surprised whatsoever if you landed an absolute gem for 2-3k with a bit of searching/inquiring.

There's no reason you can't get at least 2 nice CVCVs if you cash in your 100 bad LLLL.coms for full or near full market value.

Saw this thread a few days back, but was just thinking earlier about something..

I have say around 100 LLLL.com's and 100 L-L-L.com's. I've been thinking lately of selling the majority of say my LLLL.com's, and buying a CVCV.com or similar instead of sitting of a large bunch of domains.

Would this be a wise move? Or do the mostly "rubbish" LLLL.com's have more room to grow than say the CVCV.com's?

Owen.

 

[Pound]

Lots of names and a few good names for me. More likely to hit those large end user sales that pay for all your reg fees and more.

 

[VURG]

Just a quick comment.

Most of my domains are hand regged domains. I'm not saying that they are bad buys. There are bargains in every budget. I just think that buyers need to be thinking years ahead and not just trying to flip for 200% ROI.

My rule of thumb from this thread

"If you don't expect a hand reg to be worth more than $300 in ten years time, don't get it."

 

[RSK2000]

The way things are going, a business looking for a domain name for itself in 10 years is going to face some really hard decisions.

3, 4, 5 and 6 letter combination .coms will probably be long gone. So will meaningful two word combinations and probably three word combination domains.

Anything that looks like an average / so-so domain at the moment will be highly sought after. This is because the alternative to that 2007 so-so domain, will be to hand reg some four or five word domain in 2017, or pay $300, (more like $3000) or whatever to get something more reasonable.

I say if you own generic domains hold, hold , hold.

 

[Slick Domains]

I would prefer to just hold a few valuable ones that pay for themselves with parking. Unfortunately, I was a little to late into the game, so I'm stuck hoarding average quality names. :hehe: