Edited: as Rick mentioned on twitter, he didn’t max out his cc, simply spent $1.8k on 18 names that he made back via domain revenue. My bad, sorry guys 🙂
The idea of borrowing money to buy domains has been around since pretty much the beginning of domaining.
Most of you have probably read stories about legendary domainers such as Rick Schwartz (edited: Rick wasn’t the best example, see above) who maxed out their credit cards to invest in then-unproven assets, people who ultimately became millionaires. So… should you do the same?
That, my friends, is one complicated question to answer!
Primarily because there aren’t just success stories about borrowing money to buy domains.
Which brings us to the China.
Most people talk about how the Chinese buy domains to protect themselves, to diversify, to move money outside the country because they’re worried about a collapse and so on. And that’s true in a lot of cases.
But another dimension is wild, rampant speculation with borrowed funds. What I’m trying to say is that a lot of other players are the opposite of rich guys who want to diversify. They’re people who aren’t rich and want to BECOME rich by speculating with borrowed money. Sometimes at loan shark interest rates.
What about that dimension? It’s just as important to understand the risks as it is to understand the potential rewards.
Which brings me to a memory I have of a discussion with a Chinese broker who was ultra bullish on short domains. He told me all about how people should buy now and went on and on about the pros. To which I interrupted him with a swift question: what if prices went down?
We had this chat over Skype and it was text-only, so it’s difficult for me to be certain what his physical reaction was but I can tell he was surprised by my question. That he wasn’t really acknowledging the possibility of things going wrong.
And a lot of short domain investors felt the same way.
Towards the end of 2015 when the short domain craze was close to its peak, people were desperate to invest unlike anything I had witnessed before in my career. When I released newsletters, they begged me to reserve the short domains for them whereas the other inventory was deemed unattractive. On Skype, again, people were literally desperate. I’ve been a domainer for a reasonable amount of time but have never seen domain-related manic behavior being taken so far.
… my question would be this: should you borrow money to buy domains in such an environment?
No, you should not.
At the end of the day, I don’t think I’ll be able to end this post with a clear conclusion.
I guess I just don’t have a “one size fits all” answer.
Instead, I hope this brief analysis along with the examples I’ve shared make it clear that borrowing money to invest in domains is very, very dangerous.
A piece of advice I can give you is this: if you end up doing this, be sure you make the final decision with a clear head.
A natural secondary suggestion is this: avoid buying domains with borrowed money when everyone including yourself is in full frenzy mode.
That’s the best I can do, good luck!
March 4th, 2017 at 8:27 am
Borrow to invest in a business. DO NOT borrow to invest in domains.
March 4th, 2017 at 10:27 am
I have seen many people go broke and destroy their domain investing business because they borrowed money to buy more and more domains and were then desperate for money and sold their best domains for cheap prices to get liquid funds when their debts were maxed out and were left with the not so good inventory which they were not able to move with sufficient prices in a rapid enough sales pace so they ended up unable to pay their debts or pay most of their renewals.
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90% of domain investors that start out FAIL.
8% of domain investors make enough to get some extra income from domain investing to afford some travel or gifts for the wife and kids and some shiny business cards and the yearly trip to the party that used to be at Playboy mansion when times were good with Domainfest and is now in Las Vegas with Namescon.
1% of domain investors earn most of their money from blogging to the 98%.
1% of domain investors earn full time income from .com, .net, .org domain investment with no need to write blogs to get money or peddle ridiculous investments in .WS or new TLDS like some of the bloggers do to earn money.
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If you want to succeed in domain investing the ONLY way currently is the Michael Mann way since the time to make lots of money like Berkens and Schwartz made from being early is not possible.
Hugedomains is using Michael Mann strategy on steroids while also selling services to other domain investors to fund their domain purchases for their own portfolio.
Frank is selling new TLDS while buying dotcoms for himself…
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New TLDS are a waste of time for INVESTORS although some will get lucky.
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NEVER borrow money unless it is to buy 1 category-defining domain that you are buying to build a business on it.
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Domain values are downstream from USAGE so the values are nothing but speculation on new TLDS UNTIL there is heavy USAGE of them by actual operating businesses.
If you have good dotcom domains you need to get enough from selling them to acquire new quality inventory or your domain investing career will be short.
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Do NOT burn yourself by buying the snake oil from snake oil peddlers…
March 4th, 2017 at 1:19 pm
How can you borrow to invest in domains, they have no liquid, or cash flow qualities.
Chinese ruined so many things about domaining, they lost tens of millions doing so, all those 4L.com chips they bought for $2500, are worth 50% of the value now.
They ruined escrow, as we all know what they were using the domains for, they don’t care anything about domaining, or domains, they are simply vehicles for them.
March 6th, 2017 at 1:04 pm
One can borrow money to invest, but should not expect to sell too high. Must be cakculative and buy very short domain names such as the liquid domains. Must buy very cheap and sell profitablly.