Sell Domains. Raise cash. Prepare to feast.

By , September 5, 2010

I was away on St. Lucia for a couple weeks and on a really crummy internet connection which made blogging very cumbersome. I did read with interest three articles from Epik’s Rob Monster: The Quest for Recurring Income, Explaining Domains as an Asset Class to Finance types and Called it: Sell stocks and bonds. Buy domains and websites!.

While I’m largely in agreement with his assessment of the current economic climate and find his business-like approach to domaining refreshing, I wanted to weigh in a few points.

In the Quest For Recurring Income brings to light a very real issue. The investor’s dilemma for nearly a decade has been: where to find passive income and cashflow at a decent rate of return? When interest rates are held artificially low by governments for political reasons, it screws savers, and basically attempts to force capital back into the stock market and real estate. It’s not working, but it leaves those fortunate enough to have capital to invest scratching their heads as to where to put it.

Even if for the moment, cash may be king, especially in another leg down of a global meltdown in the offing, at some point all of this money printing worldwide will set off inflation and people with capital will be forced to “use it or lose it”.

Here in Canada, real estate prices are still very toppy and there is a good case to made that we’re actually in a bubble up here that just hasn’t popped yet. It doesn’t look like the US market has bottomed out yet. I have been looking at putting some money into commercial real estate for years up here but I just can’t bring myself to do it. Every time I calculate my ROI and look at 1) how much cash I have to part with and 2) how much debt I have to take on in a mortgage and 3) how low the CAP rates are, I kind of give up and end up buying another web site or micro web business.

Rob advises all to sell stocks and bonds and roll into domain names ahead of a much anticipated double-dip recession. I agree that if you are holding stocks, unless you are salivating at the prospect for lower prices for a given business you own, so that you can load up at cheaper prices, then you should be using this recent rally as your departure point. I had been nibbling on a few stocks this year and I basically unloaded most of them. The only ones I kept were the ones I’ve been trying to build up a nice long-term position in and would welcome cheaper prices.

However, when it comes to rolling into domains and websites there’s an important distinction I make for my own approach:

If a domain is “inert”, meaning it’s not producing cashflow now, but has premium value, unless you have definite development plans for it, I would sell it while domains are still commanding good values. Use it to raise cash for the imminent feast.

If you have a chance to buy an income producing website now, especially with funds you can raise from selling stocks, then I’d do it.

Basically what you’re trying to do now is deal yourself a hand you won’t mind being stuck with for a long time. Once the second shoe drops in this global meltdown, even domain names will not fetch lofty prices. Cash will be king, and cashflow will be sought by everybody.

One of the few stock traders I follow, Mike Swanson of WallStreetWindow, has basically come out and called this a bear market, and his strategy for bear markets is simply “you raise cash in anticipation of buying cheap when it’s over”.

If you have a chance now to sell some premium domains that aren’t producing cashflow in order to raise cash, I’d do it. On that front, I’m happy to report that after implementing Bill Sweetman’s 5 ways to Increase Sales of your Aftermarket Portfolio, my own deal flow has increased noticeably in the past month and I’ve been able to clear out some of my portfolio at what I think are still decent prices.

Even if you then want to put all that cash back into domains and websites, I think you’ll be able to get more bang for your buck after this coming downleg hits everybody.

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