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?