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Houses with no mortgages
January 6th, 2008 by 
Jay Westerdal
Imagine if when people purchased houses they were not allowed to have mortgages. Sit back and just ponder that for a minute before reading the rest of the article…. Now that you have thought about it, I will walk you through what would happen in a world that did not have mortgages. The result would be that 95% of the people that currently own a house would not able to purchase that house in our current world. Those people that need houses, truly need them would not be able to own them. Who would own them then in this alternate reality? The answer is the same people. Are you confused yet? The market would adapt, the cost of a home would be less. Perhaps houses would be made cheaper as well. The law of supply and demand is the equilibrium of this world that sets prices. If multiple people demand something then it is sold to the person that can pay the most. The mortgage is a tool that allows people to stretch their purchasing power and afford the expensive house. We see a lot of domain sales for mid caliber names right now that range from $50K to $2M. Where are all the $5M to $50M dollar sales? The answer is simple, there are no mortgages for domain names right now. Once this happens the price of domains will skyrocket upwards. Owning a generic domain right now is like owning property at the turn of last century. The tools are just not available for people right now to own the truly signature generics. Leveraging third party capital is the smartest way to own any asset, it does not matter what the asset is. If the appreciation rate on an asset is cheaper then the interest rate of the asset then those assets will increase in value and it is an easy decision.
When people can purchase $10M dollar domains for $500K down with a 5 percent interest rate that is when we will see the most valuable of domain names start trading hands with the smaller investors. The small investor right now doesn’t have the full $10M in cash and it would be stupid to put that much on one investment. Before the big banks step in with their 5% interest rates we will not see much movement in these marque domains. Until real banks give loans I expect double or triple that interest rate from early investors that act as bankers.
Travel.com is easily worth $50 Million. However not one domain investor has a wallet big enough to afford swallowing it in one bite. No one buys assets that big with all cash. Domains like these will never trade hands until institutional money starts backing our industry.
In 2008, I predict we will see more financing options appear, but still no major institutional money with mortgage rates as low as houses will appear. It will get easier for domainers to afford great generic domains this year, however until institutional money emerges the giant names like Travel.com will be off the table. The good news is that some giant domains will trade hands this next year. Everyone wants liquitity and some can’t wait for the golden day to arrive. So those that sell these premium domains will do it at a deep discount of what the real value should be in the future. There is a lot of room to invest in domains right now. The price of domains is not going down anytime soon and when institutional loans arrive the price is only going to go shoot up.
Now for my disclaimer for all the people that have low value domains, Let me state this clearly so people are not confused, some domains have no value or little value. A great domain is not a great domain just because it has 95% of the letters of a great domain. Truly generic signature domains are the ones I am talking about. Money.com, Travel.com, Sex.com, France.com, and others of this caliber. The less desirable domains will still trade with 100% cash and have no financing available even when institutional money arrives in a few years.
If you can afford a domain like Travel.com for $10M right now, you will be laughing all the way to the bank in a few years when financing catches up with our industry. $10 Million would be a steal for anyone that purchased Travel.com at this price. Not many people can purchase with all cash right now, but those that do get a good discount because there is a small supply of super rich guys with all cash offers. It all comes back to supply and demand. How many people purchase a house with all cash? If I was the owner of Travel.com I would never sell for $10 Million right now. I would hold out until the institutional money shows up and allows purchase prices to climb into the 10 digit range. Hotels.com was purchased for a song a few years ago, the new owners of this property now know the true power of generic signature domains.
For investors this year, I give the advise to buy cheap. Look for the hundred million dollar domains and go purchase them for 1 or 2 million. You will not find them at auction, you will find them buried under a rock or behind a dysfunctional company.
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January 6th, 2008 at 6:06 pm
Spot on, Jay.
The domain market never ceases to amaze me, but one of the things that I still find remarkable after so many years is how undervalued domains are at the top end of the market.
High end domains are way undervalued both in the absolute sense and relative to their low-end brethren.
Absence of easy access to domain funding is obviously not the only factor (buyer experience, differences in risk perception and difficulties in diversification at the top end are just some of the other reasons) but funding clearly is the one factor that can make a dramatic difference to valuations fairly quickly.
I don’t usually comment on blogs, but just had to agree wholeheartedly with this particular post.
January 6th, 2008 at 7:36 pm
If people were not allowed to have mortgages we would have lots of problems. Most landlords have loans on their properties: They simply charge more for rent than what their mortgage payment is. The cost of materials for homes is not going to change. If lumber went down to $0.01 a foot, the employees at the lumber company wouldn’t be making enough money to pay for even the new super inexpensive home you describe.
There is a difference between a generic domain name and a home. People need homes. Nearly all of the highest sale price domains sales I have observed have become nothing: The domain is simply parked, a business model I see going nowhere. Unless you have a solid business plan, nobody is going to give you a loan (especially in the tens of millions of dollars). These days if you’re starting an Internet company, the domain name doesn’t really matter. No matter how weird it is, once it’s established, it is no longer weird. Youtube? Wikipedia? Once strange, now verbs.
Most of these folks buying domains for insane amounts of money are just hoping to flip them in a few years. But who is going to buy but yet another flipper?
January 6th, 2008 at 8:51 pm
Well, actually… You said it yourself. Demand causes a market to adapt. This market is going on 20 years old now. I own thousands of domains, but have never gotten a call from a buyer that had trouble buying what they needed from me. They just take out a loan and get it if they don’t already have the cash.
Besides, the real downside to generic domains from my point of view is that every day, the “type-in traffic” generation becomes smarter, or dies off. More people use a medium such as Google or other search engines. With search engines, sites such as “Travelocity.com” and “travel.yahoo.com” become the apparent winners for the term “Travel”. Not Travel.com
As a professional search marketer, I must make one point… I truely do believe that a domain is the single most important SEO quality to possess, but until the day that someone shells out the 50 million for Travel.com, it becomes an ever-decreasing and over-rated asset.
Search is the future, before you know it… the URL bar on browsers will be gone and people will be forced into search. Now THAT is food for thought.
Glad I sold my generics YEARS ago!
January 6th, 2008 at 9:36 pm
What I believe may happen is domains will be considered more as part of a bigger asset that is considered valuable.
A domain itself has a value but a domain with a developed site is a bigger asset. You might buy a building with a business either for the business itself, the building itself or possibly the name of the business. As with a building with a business you might buy the domain and website to get the domain, or its customer base (repeat and new visitors) or just maybe to get the website itself.
I can’t see a lot of financing becoming available to buy domains without something there to “sweeten the deal” or make the financiers comfortable with idea.
January 6th, 2008 at 10:30 pm
>> these days if you’re starting an Internet company,
>> the domain name doesn’t really matter.
>> No matter how weird it is,
>> once it’s established, it is no longer weird.
>> Youtube? Wikipedia? Once strange, now verbs.
if …. Myspace or Facebook not being named as such human-memory-easy ,
then ….
they would not secure so many free words-of-mouths ,
in hk , here ,
+
somewhere in shanghai or guangzhou or shenzhen e.t.c. of China ,
[[[[[ where Chinese languages ‘r spoken by 99.99% of people ]]]] ,
but ,
u do still b able to hear or see
““`Myspace”"”" or
““`Facebook”"”" everywhere , expecially so true for
““`Facebook”"”"
come here to hk !
u may b un-able to understand the Chinese languages , but ,
u may b able to understand when they say : :
““`Myspace”"”" or
““`Facebook”"”"
cheers peace , 2w
January 6th, 2008 at 10:37 pm
# danroot Says:
January 6th, 2008 at 8:51 pm
>>>> Glad I sold my generics YEARS ago!
u sold creditcards.com YEARS ago !!??
u sold hotels.com YEARS ago !!??
o k ‘t is great , real great congratulations !!;–^),
Now THAT is food for thought.
January 6th, 2008 at 11:02 pm
i have just said
>> in hk , here ,
>> +
>> somewhere in shanghai or guangzhou or shenzhen e.t.c. of China ,
>> [[[[[ where Chinese languages ‘r spoken by 99.99% of people ]]]] ,
>> but ,
>> u do still b able to hear or see
>> ““`Myspace”””” or
>> ““`Facebook”””” everywhere , expecially so true for
>> ““`Facebook””””
by ‘the way ,
my old mother , real old 6x years-old ,
who does not know any language other than cantonnese
[[[[[ the #2 or #3 Chinese dialect ]]]] ,
she does know what is ““`Facebook”””” ,
she does even manage to utter out
““`Facebook”””” ,
of course naturally ,
her pronounciation may not b so acceptable
p.s.
i have n’one[none] stake in Myspace nor Facebook ,
indeed
indeep ,
i’m fed up + see red with their success
January 7th, 2008 at 1:54 am
i have said here : :
>> by ‘the way ,
>> my old mother , real old 6x years-old ,
>> who does not know any language other than cantonnese
>> [[[[[ the #2 or #3 Chinese dialect ]]]] ,
>> she does know what is ““`Facebook”””” ,
>> she does even manage to utter out
>> ““`Facebook”””” ,
>> of course naturally ,
>> her pronounciation may not b so acceptable
my mother e.t.c. ,
does not go internet , needless to mention doing any search
#3 danroot Says:
January 6th, 2008 at 8:51 pm
>Search is the future, before you know it…
>the URL bar on browsers will be gone and
>people will be forced into search.
>Now THAT is food for thought.
January 7th, 2008 at 5:24 am
if an art collector can’t get a 5% rate to finance a multi-million dollar painting, what makes you think a domain name investor can arrange mortgage-like financing - it will never happen.
January 7th, 2008 at 10:54 am
Sell your generics quickly…..before they change the url bar to a search bar.
Sell them as fast as you can - they are losing value every moment until that day - when they will be virtually worthless.
Sell your generics before the world financial markets crash and we go into a tailspin, and the internet is seen for what it is - useless.
Sell your generics because no really smart financier is ever going to finance useless generic domain names that have no “real” value.
Sell them even faster because when people can use there own language - instead of the rapidly declining English language they will lose even more value.
Oh, and Jay - shhhhhhhhhhhh (you’re way off anyway).
Peace,
Tarry G
Btw, I’m one of the stupid people buying generic .coms (Someone has to get caught holding the bag - it may as well be me). So if you have any to sell - find me - before its too late.
January 7th, 2008 at 11:43 am
info65365 says:
“if an art collector can’t get a 5% rate to finance a multi-million dollar painting, what makes you think a domain name investor can arrange mortgage-like financing - it will never happen.”
Well, art just sits there. Domains can be developed and used for business purposes and generate returns on the investment. The only return that art has is if you re-sell it again without and modification to the original piece.
January 7th, 2008 at 12:08 pm
danroot…. who says you can’t finance a multi-million dollar piece of art… it won’t be at 5%… it’ll be at prime +1 or more….
banks view high quality art and collectibles (cars, furniture etc) as great collateral…
“domaincapital.com” claims to offer a funding source for domains… is that not true? wondering?? anyone know or use them in the past?
January 8th, 2008 at 3:53 am
Domain names are not all created equal. The generic nails.com will never be worth as much as the equally generic cars.com - and not just because cars cost more than nails. There’s also the fact that millions of people drive cars every day, but only a relative few carpenters drive nails.
And what about the spin-off industries? Nail parts? Nail Stereos? Nail repair? (oops! broke another one!) It’s just not the same.
If a domain name can be shown to be central to an industry that is huge and relies on sales to the mainstream population, it can be financed. IMHO, those are the names that make some sense as developed parking portals.
Take, for instance, Brown Shoe Co., owner of shoes.com. Even though they have some pretty powerful brands of their own, they appear to understand the power of their domain name. Even though they want you to buy one of their brands, they would rather sell you a competitor’s brand than lose the sale.
Depending on the price and year over year sales figures, I imagine you could get that domain name and several dozen more in that class financed today. But others with less-obvious consumer connections? Well, as Borat says, “Not so much”.
January 8th, 2008 at 6:53 am
Comparing domain names to Real Estate is ludicrous. That’s not to say domain names don’t have value… but not like Real Estate.
Let’s call the Internet what it is… a communications medium and as such it (and everything associated with it) has a limited life span… Real Estate is forever (and there not making any more of it).
Sorry telegraph… here comes the telephone.
Sorry radio… here comes TV.
The Internet may someday make both TV and telephone mostly obsolete… sure the radio still exists but the TV made radio “properties” less valuable than they would have been at this point in time if it were not for the TV.
Sure the TV will still exist but the Internet will over time diminish the value of its “properties” (i.e. ABC, CBS, HBO etc.)
So let see domain names for what they are not “Virtual Real Estate” but “channels”. Who knows what the next great medium will be, but lets all agree there is something in the future that will overtake the Internet and thereby diminish its value (and the value of all its associated “properties”). If your going to take out a mortgage on a domain name you had better be sure you can achieve an acceptable ROI before that mortagaged property starts to lose value which in my opinion is inevitable.
Jim K
January 8th, 2008 at 10:36 am
These domain names are intellectual property… like the lyrics or score of a song… or a book… some earn revenue… in the form of royalty payments… they can be bought, sold or financed
Domains earn rev by PPC rev or lease payments or product sales or refferal commissions or ad revenue…
IP is valued using its actual or potential income stream.
Patents and Copyrights have statutory limitations and therefore thier income streams are valued considering this “time limitation. Oil wells are limited by their decline curves and sophisticated Geological models are used to value their “declining” income streams or assets.
As to the point about technologies changing and therefore putting a “Tech limitaiton” on the value of Domains I would like to point out that we live in human language based world and that will not change…
therefore it is reasonable that any new technology would have to be based on language… When radio (sound) appeared… coca cola’s brand was spoken rather than written… when tv (video) appeared coca cola’s brand was spoken and viewed… when the internet appeared it is written, spoken & viewed…
what’s the future? who knows… nothing’s certain… except that we use words to communicate & ORGANIZE…. that’s the way the ultimate computer the human brain works…
So one should assume any new technology would pay strict attention to being compatible with it.
January 8th, 2008 at 1:06 pm
I know a former Wall Street broker who has become a pretty agressive domainer. It’s only a matter of time before the bankers catch on.
January 8th, 2008 at 2:28 pm
the valuation of ANY domain will depend on the traffic it gets and the COST of advertising that keyword. Typically, would translate to earnings.
Unless travel.com have ever increasing traffic & unless the KW cost (CPC) goes higher, the valuation will stay.
50 million is a lot of money. I would rather put that money in bank and use the appreciated funds to buy the traffic & use SEO, which will give me FAR FAR more traffic, than buy travel.com, which could end up being a diminishing asset if there is better technology out there.
Once the users get frustrated with parked pages & MFA sites, search engines will have to start filtering them out and travel.com will be MORE desperate to sell then, since his revenue will disappear.
There is MUCH more money in being top of the search results then being a generic. In fact, HOW many generics show up top of the searches? example: winehq.org shows up before wine.com
apple.com sells electronics.. not apples.. so get real..
Not a single relevant generic(go.com comes close, but really, it is tooo generic.. “go” can be anything) in the top 100 most trafficked sites!
Infact, most of the top 100 are made up terms.. solid business plan and good name trumps generics ANY DAY!
PLEASE stop projecting astronomical valuations.. I still think generics are worth a lot, but 50 million? PLEASE!!!
January 8th, 2008 at 2:31 pm
most people who are domainers, do it just because it is like a lottery.. Not because they are smart (there are few).. but most domainers (99.9% out there) don’t have a clue. 99% ask for far far more than the domain is really worth.
January 8th, 2008 at 3:25 pm
Any generic domain can be “SEO’ed” just as easily as a non-generic domain and rank just as high. If you had the option of choosing from either BrookhollowEstates.com verses JunkyardEstates.com would you choose the former or the latter? I admit it is about “branding” and it is possible that JunkyardEstates.com could (hypothetically) have “branded” itself as a prime real estate community… but C’mon … let’s get real….sometimes it’s the exception and NOT the rule.
(BTW both domains are made up and available for registration)
And as for as:
Sorry telegraph… here comes the telephone.
Sorry radio… here comes TV.
Sorry Internet….here comes…Telepathy???
Yeah, your right .. who knows what the “next great medium” will be.
In the mean time, IMHO, the Internet is here to stay and “Virtual Real Estate” (generic or branded) is and will be just as valuable as real world Real Estate. (I don’t believe domains will ever reach the “multi million dollar” figures nor will most of them even reach 6 figures - but the good ones can, have and may bring prices into the millions as the Internet progresses and, just as in the “real” world not all properties have the same value).
And regarding future search engine technology and “search”:
Technology is developed with the Consumer in mind and the majors in the Search Engine business do keep this in mind as they continue to develop their Technology and we (as Domainers or Domain Investors) would do well to do the same.
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