After A Big Sale - How Do You Reinvest?
Uncategorized September 7th, 2008
After learning about Rick’s pending big sale, I am wondering what other domain investors do with the proceeds from a very large sale. Personally, I almost always reinvest as much as I can in better domain names for development or for resale. I would think that once you’ve sold a 7 or 8 figure domain name, you are less inclined to reinvest in lower value domain names. So I’d like to pose a question to those of you who completed large domain sales or anticipate closing on one:
When you sell a high value domain name, how do you reinvest that money?
- Do you buy other domain names?
- Do you invest in real estate?
- Do you provide seed capital for incubating companies?
- Do you invest in the stock market?
- Do you live off of your revenue in the French Riviera?
- Do you make it rain at the Spearmint Rhino?
September 7th, 2008 at 11:41 am
I would do two things with the money. I would develop some of the domians that I have and use the rest to purchase more domains.
September 7th, 2008 at 12:15 pm
In great domain names, the value of a domain far exceeds its value based on the cashflow it represents. Let’s say for example you buy a domain for $100K a couple of years ago and today it is worth $1M+ to an end user. As an example, the annual cashflows on that domain are sub $6K/year. So on your original investment of $100K you are making say 6%/yr which is “okay”. But, on your net worth of this domain, you are making a measly 0.6% on your asset base. So the increase of your net worth is the cash flows plus the appreciation of the domain. When a 7 figure sale is done, most likely (in my experience at least), the domain investor has decided that it is close to the high end of maximizing that investment…so you sell.
So what to do with the funds? You need to invest in projects that give you a good return on your investment base. It doesn’t really matter if it is 100 smaller domains, 1 big domain, physical real estate, stocks, etc. All that matters is the return on investment. If you are not diversified, you should invest in many asset classes to protect from issues with a specific industry.
What did I do? I took the majority of the money and bought domain portfolios for about 4x to 6x of cash flows. They were mostly 2 word keyword domains. My initial return was about 20%+ and even now with lower parking revs, is still 17%+. I sell a few of these here and there for about 6x to 10x what I paid for them, so the avg annual return on my invested asset base is still well north of 20%. My goal is to try to compound my networth by more than 20%+ per year. I also bought a few one word generics. These were domains I thought were undervalued at the time of purchase. Since they don’t cash flow too well on invested capital, I shoot for a 50% annual compounded return on these more domains (more risk = better return right; this type of investment is more speculative so you expect a higher return). If you are waiting for that end user and get 6x what you paid (for example), you need to achieve the sale within about 5 years. Lastly, I bought one whopper domain with the funds. This is the one where you pay big $$$ on with the anticipation of selling it for breaking news one day. This type of domain also helps feed the ego since you just go rid of a void selling the other one.
I am an professional in the physical real estate industry and dumped all my investment properties in 2004/early 2005. I’m still spending more in domains than anything else right now. However, in about 2 or 3 years, there may be a “once in a lifetime” opportunity to buy physical real estate (in reality, this is a once every 15 years opportunity). I’m looking forward to that time, but domains are better now in my opinion.
September 7th, 2008 at 12:55 pm
Tip Powers,
Congrats on your investments but who are the idiots willing to sell at 4-6x cashflow? That is insane!
September 7th, 2008 at 1:39 pm
They’re not that uncommon for $300k deals. For single domains it’s harder to do.
September 7th, 2008 at 1:52 pm
Hi Tip,
I am interested in quality two word generics with light traffic. Drop me an email with any names your selling at reasonable prices. Thanks
September 7th, 2008 at 3:58 pm
Pretty much always reinvest in more names,(or pay hosting/renewals/design/development services)
Have done so since the start and it’s done me well,
I like my day job so theres no need to worry about having to sell names to get by.
September 7th, 2008 at 4:03 pm
Elliot just had a look at Lowell.com,
Must say that is the best looking header i have seen in avery long time.
Top class.
Good job.
September 7th, 2008 at 4:46 pm
In the past I reinvested 100% of any sales into buying more names. These days I’m taking a bit of a different tack. I’m investing a good portion into my development partnership and the rest into buying more names relating to my development projects. Soon I will move to taking a portion off the table to put into non-domain related investments.
September 7th, 2008 at 5:23 pm
i would first think about diversification - i might do 40/30/30 (domain names, real estate and stock market) - but first i would take a little off the top and buy an audi r8.
September 8th, 2008 at 1:59 am
I give plenty to charity - for the bible teaches
Give, and it will be given to you. A good measure, pressed down, shaken together and running over, will be poured into your lap. Luke 6:38
September 8th, 2008 at 6:45 am
Make it rain at the Spearmint Rhino and then go out and earn some more money so you can do it again
September 10th, 2008 at 12:07 am
The biggest mistake I see first time millionaires make is diversify into businesses they know nothing about with large sums right after they make a big hit.
The second biggest mistake I see is guys going out and hiring investment advisors.
Trust me when I tell you this cause when I was young I did both of these mistakes myself. So I’m speaking from experience.
Some of the secrets to staying wealthy . . .
RULE #1
DO NOT INVEST IN BUSINESSES YOU KNOW NOTHING ABOUT!
RULE #2
DO NOT HIRE PEOPLE TO MANAGE YOUR MONEY NOR MAKE YOUR INVESTMENT DECISIONS! THESE WALL STREET TYPES ONLY CARE ABOUT ONE THING - HOW MUCH MONEY THEY CAN MILK OUT OF YOU.
RULE #3
NEVER EVER EVER STOP BEING THE ONE SIGNING THE CHECKS!
RULE #4
INVEST IN YOURSELF AND YOUR BUSINESSES ONLY! PARTNERSHIPS ARE OK AS ARE JOINT VENTURES BUT ALWAYS STAY IN MAJORITY COMMAND OF THE DEAL!
RULE #5
THE MORE YOU USE YOUR MONEY TO HELP OTHERS LESS FORTUNATE AND THOSE IN NEED, THE MORE YOU WILL BE REWARDED WITH HAPPINESS IN LIFE AND PEACE OF MIND INSIDE.