Buying Expired Domains: What's the Best Strategy?

Lately I've noticed a lot of questions in Q&A centering on purchasing expired domains. A lot of our members have expressed interest in buying old domains for a variety of prices (some are cheap, some are going for upwards of $50k) and want some advice on what to do with the domains once they've been purchased. I'm no domainer, nor am I an expert in such a business tactic, but I generally recommend one of three different options for an expired domain (and would love to hear more if you've got any). Option #1: 301 Redirect the Old Domain to Your Existing DomainThe easiest and least time consuming option is to 301 redirect the old domain to your existing site. This tactic obviously works best if both sites are in the same sector and are targeting the same keywords; otherwise, if you have a pet supply site and you buy an old Texas Hold 'Em poker site, a redirect probably might raise some eyebrows among the search engines. If, however, your site is brandnamepets.com and you buy onlinepetsupply.com and 301 redirect the domain over, you're inheriting a lot of topical and appropriate links. PROS:
Is the least time consuming option
Benefit from the value (about 95% or so) of the old domain's links CONS:
Old branded anchor text pointing to your new site isn't going to help as much as a keyword-rich anchor text
If the old site had a penalty (for shady link building, cloaking, spamming, etc.), the penalty could carry over to your new site (I can't confirm this to be true, but a lot of SEOs I've talked to believe that this is a possibility, and some have sworn that they've experienced it firsthand, so I guess you just have to be cautious) Option #2: Create a Microsite That Links to Your Existing DomainThe second option requires a bit more time and effort than a 301 redirect. You could do a mini overhaul of the site and turn it into a microsite for your main domain. This option is good for exact-match domains for your targeted keyword, and there are other reasons for going the microsite route that Rand's highlighted in his post about root domains, subdomains, subfolders and microsites. This strategy also works better if the old domain has decent rankings for the keywords you're targeting. PROS:
Can cross-promote/cross-link to your existing site
More real estate in the SERPs means more branding and potential conversions for your site
You can do stuff on your microsite you may not want to do with your main site (e.g., launch silly viral content, experiment with a promotional tactic)
You don't have to have a completely robust site; a lot of microsites are smaller and have a single focus (e.g., center on a quiz or a centric idea) CONS:
Can be time-consuming to do an overhaul of the old site
Aggressive promotion and linking to the existing domain can seem spammy and you could get penalized for reciprocal linking or setting up a link farm
Your current site isn't inheriting any of the old site's link value that would have come via a 301 redirect
Microdomains can be used ineffectively (see Rand's Whiteboard Friday about the microsite mistake) Option #3: Overhaul the Old Domain and Operate It IndependentlyThe third option is the one that's the most time consuming but also has its benefits. It's like having a successful restaurant and buying another restaurant and operating them simultaneously. They're not the exact same restaurant, but both are popular in their own right and make you money. The same goes for Option #3. You could update the content on the old domain and sell the same products that you're selling on your current site. If you can get both sites to rank alongside each other in the SERPs, you're increasing your conversion chances and sales potential. PROS:
As with Option #2, you get more real estate in the SERPs if you can get both sites to rank for your targeted search terms
You don't have to work hard to brand the old site if it's a generic, keyword-rich domain--you can just focus on getting rankings and conversions
The old site already has links pointing to it and is more established than starting with a brand new domain CONS:
You have to ensure that the old site doesn't mimic the new site and runs into any duplicate content issues
It's time consuming to revamp and maintain the old site (you've essentially doubled your workload)
As with Option #2, aggressive cross linking between the sites can raise red flags Your course of action really depends on how much work and effort you can put into the expired domain. If you're barely able to maintain and optimize your current site, you probably want to just 301 redirect the old site. If, however, you're more creative and have some time on your hands, you can try your hand at crafting a microsite. If you really know your stuff and are experienced at making money off various websites, you'd probably do well with the third option. Here's where I open things up: do any of you have experience buying old domains? If so, what do you do with them and has your decision worked well for you? Are there any other strategies you recommend?
reprint from:http://www.seomoz.org/blog/buying-expired-domains-whats-the-best-strategy