Advisory: Sell Your 3 Letter Domains

There is a mantra among domainers: “shorter is better.” And to a large extent, when speaking about domain names, this is true (although some say that it’s not how short your domain is, but what you do with it, that matters).

Following this mantra has paid off handsomely for many domainers. The value of three letter dot com domains has soared in recent years. According to the leading site for tracking prices for 3 letter domains, 3Character.com, the minimum wholesale price of an LLL.com has gone from $3,700 to $7,600 in the last year. That’s more than doubling your money in just one year – a rate of return that’s hard to beat.

What’s more, this year, while much of the rest of the domain market has been flat, declining or even collapsing, the 3 letter dot com market continues to do extremely well, likely outperforming every other segment of the domain market.

Generally, I like LLL.com domains. In addition to their historically high rate of returns, they are attractive particularly for novice domain investors. While understanding and valuing generic domains is complicated and can take a lot of time and experience to understand, the three-letter domain market is fairly straightforward to understand in comparison.

In addition, three letter domains offer liquidity that most other domains do not. If you need to raise some money, you can put a three letter domain up for sale, and get a decent price for it in days, rather than weeks or months.

As well, there’s always the potential of a big payoff from an end user sale. If your three letter dot com contains decent letters, chances are that there is a company out there for which those letters form an acronym. Usually end user sales of three letter domains are for a solid five figures.

In all fairness I should also point out that there are some risks associated with owning 3 letter dot com domains. Companies have been aggressively launching UDRPs on these domains. And three letter domains tend to be particularly targeted for theft because of their liquidity and popularity.

Three Letter Domain Advice

Despite all of these good things going for them, and despite the fact that I generally like three letter domains, I recommend that you start selling off your holdings of these names. This does not necessarily need to be done immediately, but should be done gradually over the next few months.

While there are a lot of good things to be said about three letter dot com domains, the current market looks significantly overheated. It simply does not make sense that this one segment of the domain market significantly outperforms the rest of the domain market, and even does so much better than quality generics. There are no fundamental market reasons for it. While LLL.com domains are great, one can’t say that they are significantly better than good generics.

I don’t think that the situation will change overnight. The LLL.com market seems to be going strong and I expect this strength to last for a few more months, at which point there will be a market correction.

In addition to this, over the course of the next year, given the recessionary environment, there are likely to be a lot of good bargains to pick up. It will pay to be in a strong cash position. Selling off domains that are overpriced in the current market is one way to raise that cash. LLL.com’s fit the bill nicely.

Think that three letter domain prices can’t collapse? After all, supply is fixed and demand seems to grow each year. However, believe it or not, there have been price crashes in three letter domains before. For instance, in April 2007, three letter .us domains were going for a minimum wholesale price of $110 each. By April 2008, their minimum wholesale value had fallen to $45, and even now their prices remain stuck at that level.

In short, I have nothing against three letter domains and in the past these have been a solid investment. However, the LLL.com market appears to be significantly overheated. It is significantly outperforming the rest of the domain market and there is no fundamental reason for this. While this will likely continue for a few more months, it can’t continue much longer than this before there will be a correction and LLL.com prices will drop. Make sure you aren’t holding any LLL.com’s at this time; use the funds you free up to bargain hunt for recession induced domain fire sales.

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