A look at the flip side of investing in domain names.
Earlier this week I wrote about why domain names may be a better investment than traditional real estate. Of course there are two sides to the story, and here are reasons that traditional real estate may be a better bet.
1. Easy financing. Sub-prime worries aside, there are thousands of companies that provide financing to buy real estate. In fact, I can see three places outside my office window that will gladly finance your real estate purchase (Wachovia, Bank of America, and Washington Mutual). You don’t have as many options to leverage your domain purchases. (Thankfully we now have companies like Domain Capital.)
2. Title insurance. A couple years ago I suggested the domain name industry needs title insurance. Much like with real estate, this insurance would save you in the event there’s a lein on your property, it has been stolen, etc. The equivalent for domain names is perhaps a legal letter of opinion, but this is far more costly and less structured than title insurance.
3. No “Support” middlemen. Domain names are registered at a registrar. The top level domain is managed by a registry. What happens if one of these fails? It’s happened at the registrar level (RegisterFly) and almost at the registry level (Tralliance for .travel). If you buy a rental home in a neighborhood, and the homeowners association gets into a legal battle, that likely won’t hold up your ability to sell your house.
4. Your tenants are your tenants. In my article about why domain names are better than traditional real estate I noted that you don’t have to deal with “tenants” in the form of advertisers. But there’s a flip side to that. If you rent a house you likely pay an agent commission, but that’s it. With parked domain names you have Google or Yahoo taking a slice, your parking company taking some of what’s left, and then you get what’s leftover. I suppose that’s the cost of not having to fix your tenant’s broken toilet.
5. No one is going to twist the law and steal your house. It would be difficult for someone to sneak in at night and steal your house. It would be hard for them to take it away save for foreclosure. But domain names are subject to all sorts of legal shenanigans, from reverse domain name hijacking to outright theft. Throw in some clueless senators and your investment could shrivel up overnight.
Did I miss anything?
Steve M. says
6. Value predictability and certainty. Thanks to normally easily-available nearby comparable sales, real estate is far easier to determine the value of; providing greater certainty of value to both buyer and seller…
…the flip side of this being, of course, that it’s almost impossible to buy a house one day and flip it in less than a year for 3-10+ times what they paid for it (without putting money into it), as happens on a regular and consistent basis with domains.
7. You can live in your house. With domains, not so much.
And another way domains are better than real estate…is that realty value go up and down…domains virtually always up.
Andrew says
Good points Steve
DR. DOMAIN says
Point number 5 kinda creeps me.Just not enough to make stop playing domains.
Patrick McDermott says
“No one is going to twist the law and steal your house.”
Read about the Kelo decision.
Politicians in Connecticut twisted Eminent Domain law
to allow a Private Developer to “take” private property
belonging to others.
The case went to the Supreme Court.
A national outrage occurred and many local politicians
enacted laws to prevent this misuse of Eminent Domain from happening in their backyard.
Even President Bush signed an Executive order “instructing the federal government to use eminent domain ‘…for the purpose of benefiting the general public and not merely for the purpose of advancing the economic interest of private parties to be given ownership or use of the property taken.'”
http://en.wikipedia.org/wiki/Kelo_v._City_of_New_London
Patrick
Andrew says
@ Patrick – that’s true. Notice how when that ruling came down people were outraged and started passing laws (the State of Texas being one) to limit Eminent Domain.
If only more people owned domain names and realized their value, we’d get the same outrage with the Snowe bill.
Pete Kosednar says
Hello Andrew:
This comment raised a red flag: “What happens if one of these fails?” This statement was a very scary statement.
I am watching large real estate companies going out of business in Arizona. These are not domain name companies though it raised my concern.
My domain name anydomainname123abc.com is registered with “any domain sales company 123abc” for one year. Next week this company goes out of business due to ? Does this domain not have any value and is gone when the company I registered it goes out of business?
Andrew says
@ Pete – ICANN is beginning to require registrars to “escrow” their data so as to regain control of domains quickly when a registrar goes defunct.
gpmgroup says
“ICANN is beginning to require registrars to “escrow” their data so as to regain control of domains quickly when a registrar goes defunct.”
Wouldn’t it be easier to have a centralised registry (like .info & .biz) and then have the registry escrow the data?
Jeff Schneider says
I find it a very interesting comment “that knowone will twist the laws and take your real estate”. We are currently on one of the greatest land grabs by banks and other institutions in recent history. Lets revisit this statement one year from today.
You have no idea of the scope of the coming carnage that will befall real estate investors. The problem runs not in the billions but trillions. Unless you pay cash for real estate the sales agreements everyone signs are designed to separate you from your property under certain conditions. This will not be the first fleecing of property rights and it will not be the last.If you like those odds when investing your money. Look into the history of land ownership down through history. I assure you you will find little comfort.
Andrew says
Jeff, I don’t understand what you’re saying. Are you talking about banks taking homes in foreclosure because the owner didn’t make his/her payments?
Jeff Schneider says
Andrew there are many ways legally that your property rights can be taken. Imminent domain, Foreclosure, War, Government laws,Government overthrows, you name it. Ask native American Indians about this very question.My point being you can have any asset taken away from you.
There has never been a time in recorded history where you could own and control letters of the alphabet. That is why you can make thosands of percent gains in compressed time periods of days not decades. This happens every day to domainers and has nver happened for land owners. These are facts not fiction. So I ask everyone are the risks worth it? Damn right they are!
Andrew says
@ Jeff – thanks for clarifying. I don’t agree that foreclosure is an illegitimate taking of property, but I get your point.
And I agree with you, domains are worth the risk…that’s why most of my money is in this business!
Phoenix says
Each market has it pros and cons, money can always be made in each. Youll always make more money and be more successful in the market you enjoy.
Temecula says
Wow I had no idea people even invested in web domains.