Growing numbers of small investors are pocketing thousands of pounds by website flipping, the cyberspace equivalent of buying a run-down property, giving it a paint job and selling it on for a profit. But how easy is it to earn cash from trading website addresses?

Certain sites are easier to remember than others, making them more valuable. As the popularity of the internet has grown, the value of these addresses has risen, in turn creating a global market.

You can buy in two ways. Sites such as 123-reg.com or UKreg.com list addresses available to buyers. However, the most popular names have already been sold and are traded on marketplaces such as Sedo.co.uk and Marketplace.Sitesearch.com. These work in the same way as auction websites that put sellers in touch with buyers.

Some investors spend time looking for addresses that are undervalued or not being used by the current owners, so they can sell them on for much more. Two years ago Mark Richards, who runs websiteflipping.co.uk, noticed that no one had registered the .com and .co.uk addresses for “latelicence” and “latelicense”. He bought the domains for £20 and sold all four as a package one month later for £6,000. Other sites that Mr Richards bought for a small fee and hopes to make a profit on include ecoshop.co.uk and Journal.co.uk.

Once you buy a website, you can hold on to it for a period of time and pay another company to fill it with advertising. This is known as domain parking. A website such as London.co.uk is a parked domain. It holds nothing but links to other sites. The owner of London.co.uk receives a small fee whenever a visitor clicks on one of the links.

However, as search engines have become more sophisticated, these sites have featured lower on the lists of results presented to internet users.

David Kesmodel, author of The Domain Game, says: “Google and Yahoo! began detecting websites that were parked and ranking them far lower down the list of results. Advertisers also became weary of featuring on the websites, which users found annoying.”

Until recently, domain parking was the most popular way for professional internet investors to make money from a website with minimum effort. However, website flipping is now growing in popularity.

This involves buying a domain name and working on improving the content of the website to attract more traffic and increase the value, which can rise by tens of thousands of pounds. Mr Richards suggests researching the terms that internet users type in to search engines. “Look at the market you are buying in to and try to spot terms or phrases that are growing in popularity,” he says.

One area to be wary of is cybersquatting - buying addresses similar to or including brand names of large companies. In theory, the companies will then buy the addresses for a high price. In practice, however, the courts often decide that the addresses should be transferred at no cost.

Case Study: Fast buck from pizza domain

Peter Savage, of Devon, has been buying and selling domain names for two years. His best return was www.fastpizzapizza.com. He registered the address for $20 after watching the success of Pizza.com, which sold in April for a record $2.6 million. A month later he sold his address on Sedo.co.uk, the website marketplace, for $5,600, earning him £3,122.

The 49-year-old says: “I couldn't believe that someone was willing to pay that much for a website name I had thought up in two seconds.”

Mr Savage invested the money in a further 80 addresses, including conservatories.net, which went to auction this week with a reserve price of £9,950, twice what he paid for it. Mr Savage owns more than 600 websites in total. Some of these are parked with Sedo.co.uk, others carry Google advertising and generate a small profit.

“To be successful, you need a lot of patience,” he says. “But if your timing is right, the profit margins are far higher than in the real world.”