What makes real estate valuable?
If your answer is “location,” you’re on the right track. As any successful investor or industry professional knows, the three most important factors for a piece of real estate are location, location, location.
But location aside, there are plenty of other factors that impact a property’s value. Scarcity and demand are two that come to mind. The more rare a piece of real estate is, the more demand there will be. And with demand comes an increase in value.
Similar characteristics hold true for other assets, including gold and silver, stocks, bonds, and mutual funds. The levers of supply and demand have a direct influence over asset valuation.
But assets don’t have to be physical. As the digital world expands and more of our daily lives become virtual, it’s clear that digital assets have value as well.
A website is basically a piece of virtual real estate. Once you own a website, you have complete control over how you leverage your little corner of cyberspace. And, as is the case with physical real estate in the real world, your domain is unique to you. It can’t be replicated or reproduced.
A New Domain name supply is finite – there are only a certain number of names and character combinations. And the demand for domain names is only increasing. Thus if you own an attractive domain, it’s almost certainly increasing in value. And if you want to buy an attractive domain name, it can be pretty expensive.
Depending on which side of the marketplace you’re on, you have the ability to leverage resources for or against a domain name. As a buyer, you can secure financing to acquire the new domain name that you want. As the owner, you might be able to lend against your D Name to unlock money that can then be used to grow your website or business in other ways.
The world of domain name financing is still relatively unknown and untapped. Few outside of this niche know about it or have any experience utilizing it. But that’s about to change. As domain names become seen as more than web addresses and recognized for the valuable assets that they are, more people will tap into the leverage and power that financing provides.
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Want to Buy a Domain? Here Are Your Options
Let’s begin by understanding how domains are purchased. If you’re interested in buying a domain name, the process traditionally goes something like this:
- Choose a domain registrar that has the power to help you find and acquire a domain name.
- Use a domain availability search tool to see if the domain you’re interested in is available.
- If the domain is available, you can purchase it and register the address to your name.
- If the domain name is unavailable, you can search for other variations until you find the one that’s right for you.
- Finalize your order and complete the required information.
- You can either park the domain name (meaning you own it but aren’t actively serving a website), redirect the domain name to another website, or connect the domain name to a web host and build a new website.
In a perfect world, the domain you want is both available and inexpensive. Non-competitive domain names can often be purchased for less than $15 for the first year. But what happens if the domain you want is taken and commands a high price?
In certain cases, you’ll find that the domain name you want is currently owned and parked by someone else. It may have a sale price attached to it, or you might be able to contact the owner and ask about purchasing the website.
Other domain names can be bid on or purchased for a hefty price tag.
Here’s a look at some of the most expensive domain names of all time:
- In 1999 – at the height of the .com bubble – Business.com was sold for $7.5 million. That was (and still is) a massive sum of money for a domain name. But the story doesn’t stop there. In the years that followed, large companies like The New York Times and Dow Jones made unsuccessful attempts to purchase it. But in 2007, just eight years after it was sold, RH Donnelly bought it for $345 million. That makes it the most expensive domain name of all time.
- In 2005, LasVegas.com was purchased for $90 million by a travel agency that already owned Vegas.com and wanted to ensure they capitalized on all online traffic for those search terms. Stephens Media, who originally owned the domain, took a $12 million payment upfront. The remaining $78 million was financed on a 35-year loan.
- The auto insurance market is extremely lucrative. And in 2010, the Quinstreet marketing company purchased CarInsurance.com for a whopping $49.7 million. This purchase, combined with a handful of other attractive domain names, has made the company one of the market leaders in online insurance leads.
- As mentioned, Quinstreet purchased a few other domains. One of them was Insurance.com, which was purchased for a cool $35.6 million.
- If there’s one thing people love to spend on, it’s vacations. So in 2009, HomeAway CEO Brian Sharpies decided to make one of the company’s biggest investments of all time: A $35 million acquisition of VacationRentals.com.
These are just a few of the most expensive domain names ever purchased. And while you’ll probably never be in the market for a seven-, eight-, or nine-figure domain names, it’s possible that you’ll find yourself in a situation where you need to buy a five- or six-figure domain names. And in these cases, you have a few options:
- Cash purchase. If you have the cash to make the purchase, you might consider paying for it all upfront. In this case, you own it right away without any sort of options, contingencies, interest, or other fees.
- Payment plan. Maybe you have the cash flow to purchase the website, but you can’t and don’t want to pay for it all upfront. The seller might be willing to set up a payment plan where you make a payment every month or year for a set period of time.
- Lease to own. This isn’t always an option, but you might be able to structure a deal like this. With a lease to own contract, you basically rent the domain names – paying monthly or annually – with the option to purchase at a future date. The specifics can be complicated, so you’ll need an attorney to draw up the details of a contract like this.
- Domain financing. Finally, you have the option of financing the purchase of a domain names. And this is the method we’ll focus on in the following section.
Reasons to Use Domain Name Financing to Acquire a Domain
Domain name financing looks like almost any other form of financing – whether it’s a house or a car. You work with a lender who pays the full purchase price to the seller. The lender then takes possession of the domain names – giving you the rights and use of it – and requires regular payments to satisfy the remaining portion of the debt. (You basically make a mortgage payment on your domain name.)
There are a variety of situations where financing the purchase of a domain name makes sense:
- Lack of cash. If you don’t have the cash to buy a domain, but you need the domain in order to grow your business or accomplish a specific objective, you have no choice but to borrow. And, unfortunately, you won’t be able to finance a domain names with traditional lending sources. Domain name financing is one of the few options.
- Better use of cash. You might have the cash…but do you really want to deplete your liquid resources on the purchase of a domain names that might not generate an immediate cash-on-cash return? Many entrepreneurs choose to invest their cash in assets that will provide an immediate return, while using cheap financing to secure other long-term assets. A domain names would fall into this latter category.
- Seller demands. We outlined the different ways you can buy a domain names above – including payment plans and leasing to own. But here’s the deal: Most sellers aren’t very interested in these options because of the unpredictability and the lack of upfront payment. With domain name financing, they get all of their money at the “closing table.” This offsets the risk of not getting paid. The seller doesn’t care if it’s you paying in cash or some sort of financier paying in cash. It’s all the same to them.
3 Tips for Using Domain Name Financing to Acquire a Domain
If you find yourself in a situation where you need to finance the purchase of a domain names, it’s imperative that you do your research. This industry has a lot of small players, and you want to be sure you know exactly what you’re entering into. Here are a few tips:
1. Know Your Price
Just because you’re financing the purchase of a domain names, doesn’t mean it’s free money. Sure, it’s not all coming out of your bank account today, but it will. The monthly or quarterly payment matters, but consider the overall price as well. Set a budget, stick to your guns, and don’t let financing options cause you to pay more than you should.
2. Shop Around
There aren’t a ton of domain names lenders, but there are a few. Shop around and look for the best rates and terms (much like you would when taking out a mortgage to buy a house). A slight difference in rates or fees could end up saving you thousands of dollars.
3. Consider the True Cost
You might enter into an agreement to buy a domain name for $25,000, but that’s the cash price. If you’re financing the purchase, you’re going to pay interest rate over time. Depending on the interest rate, the length of the loan such as domain name loans, fees, and other factors, you could end up paying an additional 10 to 20 per cent over the life of the loan. (There’s nothing wrong with this interest rate – it’s the price of doing business – but it is something to factor into the equation.)
Borrowing Money Against Your Own Domain Names
Now let’s switch roles. Up until this point, we’ve discussed domain name acquisition and financing. But what if you’re the owner of domain names? Did you know that there are ways to use your domain names to increase your borrowing power?
Rewind to our discussion of assets at the beginning of this article. As mentioned, a domains name is a virtual asset with tangible value. And much like you can borrow against a physical asset – such as your house – it’s sometimes possible to borrow money against domain names.
The key word in that last sentence is “sometimes.” Not every domain names has enough value to be leveraged. Most domain names are worthless and have a maximum value of several hundred dollars. And nobody is going to lend you money against an asset that doesn’t have considerable value.
But if you have a website that’s worth something and you need some cash to invest in another area of your business, this could be an option worth pursuing. However, it’s not as easy as driving down to the local bank or credit union and asking for a loan.
“Commercial banks are not equipped to make domain name loans” UnusualInvestments.com mentions. “Unlike lending against real estate, there is not a highly accurate and government-regulated process when it comes to appraising domain names. Loan officers and loan committees don’t understand domain names, and their high fixed costs don’t lend themselves to fooling around with small loan sizes. Banks have to comply with regulators that might question a loan against something they consider an intangible or blue sky.”
In other words, you’re going to need an alternative lender or private lender – someone who understands the marketplace for domains and can accurately evaluate your digital asset.
Two of the most popular private domain name financing companies are Lendvo and Domain Capital. Both domain capital and Lendvo offer very similar services and options. Loan terms usually run for up to two years, and monthly interest rate may fall in the one to three percent range (depending on the state of the market).
Here at SEO.co, we also provide domain financing options. Please contact us for more detail!
One of the best parts about these types of loans such as domain name loans is the flexibility. You’ll have to read the fine print, but in most cases, you can do with the money what you please. This may include buying another domain names, enhancing your website, investing in marketing, or even taking the cash to buy an investment property.
As is the case with other forms of secured loans – like a home mortgage – you commit to repaying the loan according to the payment schedule. Should you miss payments and default on the loan, the lender has the ability to seize the domain and take ownership. (In fact, registration is usually changed to the lender when the loan is taken out. This assures the lender that they can take immediate access to the website should something go wrong. Once you pay off your loan in full, ownership is transferred back into your name.)
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