Hello and welcome to another MBA Monday! Yes, I know it’s Tuesday but I know that many people were focused on keeping themselves and their loved ones safe from Hurricane Sandy so decided to move this post to today. I hope that everyone impacted by the hurricane is now safe and sound, I know the clean-up process can be a complete nightmare but the most important thing is that you and your family are okay, never forget that!
Now onto the topic for today, assets vs. liabilities. First let’s talk about the definition of these two words, according to Investor Words an asset is:
Any item of economic value owned by an individual or corporation, especially that which could be converted to cash. (Investor Words)
When it comes to Domaining I think we can adapt this a bit to be:
Any domain name that has a high likelihood of selling for more than you paid, or generating revenue greater than the price you paid based on your own past experience.
Notice that I say your own past experience. Just because you see a four-word .COM selling on Sedo for $25,000 doesn’t mean that all four word .COMs can sell for that much. If you find that an end-user bought Housing.com for $1M this doesn’t mean that you can sell Housings.com for the same price. Domain Investors get easily mislead by past sales by other people who have completely different experience and names than they do. Look at your own past experience and make sure you have a track record either selling or monetizing the type of domain you’re considering an asset.
I’ll come back to assets but let’s talk about liabilities first and then tie the two together. The definition of a liability is:
moneys owed; debts or pecuniary obligations (Dictionary.com)
You may think that once you buy a domain name it immediately becomes an asset, but in many cases nothing could be further from the truth. Sure, each domain only costs about $9/year to renew, but multiply that by 1,000 and you can see how it can add up. Now extend this out by 5-6 years and you can easily see how domains can be a huge liability.
This is where the problem stems from for most new domain investors. Many people enter this industry hand-registering domains and thinking, “Wow, I can’t believe THAT was available!” Then three years later they’ve spent $1,000+ on registration fees and $3,000+ on renewals and they conclude, “All the good domains are gone, I should have bought in the 90’s!” The problem is that they could have spent that $4,000 on four $500 domains and had a much better chance of selling one of them for $5,000.
So let’s get back to the comparison between assets and liabilities so I can bring this all together. Don’t be fooled by the endlessly long list of sales that Sedo publishes every month, remember, they only sell about 0.1% of the domains listed on their system so you are looking at needles in a haystack. Pick a niche and get really good at it, this is one of the best ways to make sure you’re only buying assets. Here’s an example:
Suppose you are a doctor who is starting to dabble in domains. Pick medical related names and start small. Once you’ve sold a few names and know what you have a good chance to sell then keep buying these. Every time you want to expand into a new market, start small and make sure that you can prove you have true assets before betting the farm. Don’t fool yourself into thinking that because you have a lot of domains you are sitting on a huge amount of assets. I know domainers that make seven-figures a year with portfolios of only a few hundred domains, but they’re all assets.
The point here is simple, looking at past sales can trick you into thinking that all of your domains are assets. Focus on buying domains that you have sold or monetized well yourself to identify real assets. If you have a mentor that has experience with a certain niche you can leverage their expertise as well but the shotgun approach to Domaining that many new investors start with tends to leave you with a portfolio full of liabilities.