DomainTools Blog

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.